Wall Street opened cautiously today, with a dip in commodities neutralising positive expectations ahead of the Fed’s announcement due out around 6.15pm (London time).
Expectations are that the Fed is likely to keep interest rates unchanged, with most speculation focussing on possible comments about the wider economic outlook or changes to the government’s stimulus package.
The general consensus is that the Fed is unlikely to rock the boat too much, but that there may be further signals – albeit tentative ones – that the economy is treading the road to recovery.
Nevertheless, markets are not expected to be impacted heavily; Jim Award, Managing Director at US securities firm Zephyr Management, suggested the Fed would ‘walk right down the middle’, adding, ‘I think they might be a touch more optimistic about the economy but not enough to rattle the markets either way.’ [1]
General Mills boosted US equities, as its shares rose 5% to $64 in early trading. The maker of the cereal Cheerios posted a better-than-expected profit for the quarter, helped by buoyant sales figures and generally low commodity prices.
Ford was also up in early trading; gaining 5.7% after announcing plans to begin production of small cars in India next year. CEO Alan Mullaly helped lift sentiment by suggesting that the US market was showing signs of recovery. He expects sales to rise across the industry over the course of next year.
Nevertheless, after yesterday’s rally for the sector, today saw energy-based companies lead the Dow Jones slightly lower in early trading. Caterpillar, the construction and mining manufacturer, fell 0.81%, while energy company Chevron shed 0.65% in early trading. Exxon Mobil joined its sector mates by falling 0.1% by 3.30pm (London time).
The net effect was a largely unchanged level for the Dow by late-afternoon in London. The index was down 0.2% (19.9 points) to 9809 at 4.25pm (London time).
The slightly directionless trading on Wall Street impacted UK markets, with the FTSE giving up all the gains it had made on the back of the CBI’s suggestion that the UK was emerging from recession.
Crude oil prices fell ahead of the weekly US inventories data, with low demand and reduced refinery activity continuing to impact prices outweighing the expected fall in stockpiles. Prices were put under even further pressure once the weekly report compounded these issues by showing an increase of 2.8 million barrels to 335.6 million barrels in the week ending September 18.
Elsewhere, gold prices continue to sit above $1000 per ounce as investors continue to see it as a safe haven as the Dollar fluctuates.
[1] Source: Reuters News (23 September 2009)
By Anthony Grech, Research Analyst, IG Index.
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