The Equities rally was short-lived as investors locked in profits ahead of the FOMC decision

Tuesday, December 17, 2013

European equity markets gave back yesterday’s gains and slid lower on Tuesday, as investors were prompted to some profit taking ahead of the US Federal Reserve Bank decision. CAC, DAX, IBEX and London retreated between 0.45% and 1.01%.

All eyes are on the FOMC policy meeting that starts today with official decisions coming out on Wednesday evening. Investors remain cautious due to the likelihood of the US Federal Reserve Bank announcing a possible reduction of its $85 billion-a-month bond buying programme this week, which has been a major driver of the global economy in recent years.

It seems that the robust economic data from the US and Eurozone failed to provide any support to the equity markets. In the US, consumer prices (CPI) remained unchanged in November; showing inflation is making small progress in the US, toward the US Federal Reserve goal. Furthermore, US NAHB housing market index increased to 58 in December, beating analysts’ expectations.

In Eurozone, we received fairly optimistic news from the German ZEW economic survey as economic sentiment jumped to 62.0 in December, compared to 55.9 in November, while current conditions were reported at 32.4 in December, beating analysts’ expectations. In the UK, inflation fell to 2.1% in November, hitting a 4-year low.

Energy stocks dragged the London equity market lower today following weaker crude oil prices as Brent plunged more than $1 to retest $108.50 per barrel area. Petrofac, BP and Tullow Oil fell sharply between 0.95% and 3.3%. 

Retail stocks came also under pressure in today’s trading session, amid signs of a quieter than expected Christmas shopping period. Sainsbury, Morrison Supermarket, Tesco and Marks and Spencer retreated between 1.20% and 4.10%.

The US dollar strengthened against the euro today, weighed further on market sentiment, while the USD index has managed to hold above the 80.0 area. 

Tomorrow, the main focus will switch to the US Federal Reserve Bank as investors await the crucial decisions from the FOMC policy meeting regarding any indication about QE tapering.

 

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