Wednesday, 30th January 2019 13:54 - by Rajan Dhall
Today we have the latest FOMC rate decision and press conference from the US Federal Reserve. This could potentially have big implications on the FTSE 100 as there have been recent reports that the Fed may slow down the pace of its quantitative tightening program. This is how quickly the Fed reduce the liquidity it added during the quantitative easing phase which pushed up the markets for an extended period from 2010 through to 2018.
After the last financial crisis, the world's central banks pumped money into the world economy to help stem the losses. This all meant lending was cheap and yields were suppressed increased money supply. Now the time has come where the US Federal Reserve is trying to reduce the balance sheet and it was said it was happening quicker than expected.
In this period US president Trump has been very critical of the Fed’s policy saying that raising rates and tightening is not warranted at this time. After the stock market fall over Christmas, the Fed backed off and have stopped (paused) raising rates. Just last week the Wall Street Journal reported that the Fed may now even slow down the pace of its balance sheet runoff.
So, what does this all mean? If the Fed signal they are willing to slow down the pace of tightening, then global equities could rise on what will effectively be easier financial conditions. It will also signal that the markets are not ready to live without the stimulus through 'cheap money' as of yet. That is not the only main risk to global markets at the moment. The US-China trade deal is still causing a lot of uncertainty, and talks have resumed this week and we are now awaiting news on progress about the likelihood of a deal being reached.
There is also another (obvious) cloud hanging over UK equities - Brexit. Yesterday, parliament took instruction from the Brady amendment which suggested the current withdrawal deal could find favour if alternative arrangements were made to the Irish backstop. Along with another amendment for voting against a no deal outcome, the motion was passed in what was a relatively better day for the PM. The PM now goes back to try and renegotiate, but at the moment the EU, is not budging on its deal and we are back in a deadlock - with the EU again!
Looking at the chart it is clear that we are in a downtrend. Right now we are at a pivotal moment where price is set to meet 6970 resistance which confluences with the downtrend line marked on the chart. If there is a successful break and retest of the level, we could reach the early 7000’s.
The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.