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Reports UK

UK stock market commentary (June 18, 2014): All Is Calm Before FOMC

June 18, 2014, Wednesday, 05:40 GMT | 00:40 EST | 09:10 IST | 11:40 SGT
Contributed by Capital Spreads

European equities look set to open flat for the second day running. Indices have been quiet across the board with little movement in the benchmarks’ throughout the Asian session. We expect this trend to continue throughout the day leading up to the 7pm (UK Time) FOMC statement and interest rate decision.

Janet Yellen will also be speaking at 7.30pm, in which the fed chair will release new quarterly forecasts for inflation, economic growth, unemployment and the benchmark federal funds rate. This should cause a bit of movement towards the end of the US Session with most predicting a reduction in monthly asset purchases by $10 bln to $35 bln.

Ahead of the FOMC monetary policy decision later today, the Dow Jones gained 28 points to 16,804 as investors remained in a confident mood regarding the US economic growth. While the housing data was weaker than expected on both building permits and housing starts, inflation was higher than estimates fuelling speculation that an interest rate increase could happen sooner than previously thought.

The EUR/USD pair dropped 25 pips yesterday to 1.3547 effectively giving back the previous day’s gains. It happened largely as signs of inflation pressure in the US pushed the greenback up on anticipation of higher yields attracting heightened demand for the US currency.

Amid violence engulfing northern Iraq, the southern terminals are about to increase oil production indicating that part of the country supplying crude is under government control. As such energy investors felt a bit reassured that while the situation remains tense it pays to reassess whether the recent rally is still game on. The WTI lost 18 cents to $105.93.

The Federal Reserve is seen as further curbing monetary stimulus thus hurting demand for gold as a wealth preserving asset. That sent the precious metal lower initially but a rally in the afternoon pushed it back up to $1271.7, rather unchanged for the day.