FTSE 100 preview: Fed tapers, US stocks hit record highs

on Dec 19, 2013
Updated: Oct 21, 2019
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iNVEZZ.com, Thursday, December 19: Britain’s benchmark equity index, the FTSE 100, is set to open considerably higher today, tracking upbeat sentiment in the US and Asia after the Federal Reserve announced a mild reduction in its massive monetary stimulus programme, ending months of market speculation. The Fed said it will reduce its monthly bond buying scheme by $10 billion to $75 billion in January, indicating that the world’s biggest economy has strengthened enough to be able to continue recovering with less stimulus by the state. Moreover, the central bank reiterated that tapering does not mean tightening and strengthened its commitment to loose monetary policy and record low interest rates for a prolonged period. The Fed said it “likely will be appropriate” to keep overnight rates near zero “well past the time” that the US unemployment rate falls below 6.5 percent, especially if inflation expectations remain below its 2.0 percent target. The Fed has previously vowed to leave its benchmark interest rate on hold at least until the jobless rate, which dropped to a five-year low of 7.0 percent in November, hits 6.5 percent.

The Fed’s comments pushed US stocks higher with the S&P 500 and the Dow hitting fresh all-time highs. The benchmark S&P 500 Index gained 1.66 percent to close at 1,810.65, the Dow Jones Industrial Average rose 1.84 percent to close at 16,167.97, and the NASDAQ Composite Index climbed 1.15 percent to finish at 4,070.06.
Asian markets also rallied on the news. Japan’s benchmark index, the NIKKEI 225, rose 1.74 percent to close at a six-year high of 15,859.22 as the yen weakened against the dollar, a move that is beneficial for the country’s export-driven economy. Japan’s equity markets were also supported by market rumours that the Bank of Japan may decide to expand its $70 billion-a-month bond-buying programme to spark inflation and spur a more sustainable economic growth. The central bank started a two-day policy meeting today. But Chinese shares underperformed as tight liquidity at the end of the year and the central bank’s refusal to inject fresh funds during open market operations boosted money rates and increased worries that higher funding costs will slow economic growth. The Shanghai CSI 300 Index dropped 1.05 percent to close at 2,332.41, the Shenzhen Stock Exchange Composite Index closed 0.66 percent down at 1,039.90 and Hong Kong’s Hang Seng Index is off 0.2 percent about an hour ahead of the market close.

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**UK market**

The FTSE 100 index is expected to open around 60 points, or as much as one percent higher today, according to data from financial bookmakers. Yesterday, the Footsie edged up 0.09 percent in thin trade to close at 6,492.08, as caution prevailed ahead of the Fed’s statement. The blue chip index was buoyed by Centrica (LON:CNA), which said it will sell three gas-fired Texas power plants and use the proceeds to extend its share repurchase programme (Centrica share price: Company sells three Texas power plants for $685 million). Centrica’s share price rose 1.7 percent to close at 328.70p.

**Agenda**
In a quiet day for earnings reports today, cruise operator Carnival (LON:CCL) is the only FTSE 100 company that will update the market. The company is expected to post sales of $15.22 billion and earnings per share of $1.51 for the fiscal year to the end of November according to a consensus forecast by 13 analysts published by Reuters.
Among FTSE 250 companies, Serco Group (LON:SRP) and Keller Group (LON:KLR) will report today.
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