LONDON (Alliance News) - UK stocks are set to open firmly higher Thursday, taking a lead from US markets, which made fresh all-time highs on Wednesday after a well-received update from the Federal Reserve.
The US central bank completed its two day policy meeting with another taper of its asset purchase programme and an indication that rates are staying low for longer.
As widely expected, the Federal Open Market Committee reduced its monthly asset purchase programme by another USD10 billion, including a USD5 billion cut to mortgage backed securities, and a USD5 billion cut to Treasuries. This will bring the total monthly amount of purchases down to USD35 billion from USD45 billion. If the Fed stays on this course, its quantitative-easing programme will have finished by October this year.
Afterwards, Yellen held a balanced and calming press conference, suggesting that the relatively new Fed chair has quickly learned not to shock the markets with unexpected comments. At one of her first post-FOMC press conferences, Yellen indicated interest rates could start to rise as soon as six months after bond bond buying ends, a time-line that she was was careful to remain flexible about on Wednesday.
US stocks had a positive reaction to Yellen's comments, and the S&P 500 made a fresh all-time high, closing up 0.8% at 1,956.98. The DJIA closed up 0.6% at 16,906.62, about 60 points off its recent all-time high, and the Nasdaq Composite closed up 0.6%.
Spread betters are indicating that UK stocks will follow higher Thursday, with the FTSE 100 set to make its strongest start for a long time. Following a very modest gain on Wednesday, CMC Markets is calling the leading index to open 34 points higher at 6,812.
"Today's open is set to see some strong moves higher for European markets following a positive reaction in Wall Street to an accommodative FOMC statement and press conference," said CMC Markets market analyst Jasper Lawler.
Yellen's statement seems to have struck the right balance between dovish and hawkish. The FOMC downgraded its 2014 GDP forecast to between 2.1% to 2.3% because of the unexpected contraction in the first-quarter, but Yellen also said that the committee believes that US economic activity is expanding in the second quarter. The market was not surprised about the downgraded forecast, given the 1% contraction of the US economy in the first quarter.
Yellen was as clear as possible that the timing of an interest rate rise is not on a pre-set course, and hinted at low rates for longer, saying that even after unemployment has dropped and inflation has returned to its target 2.0% level, "economic conditions may for some time warrant keeping the target Federal Funds rate below levels the committee views as normal in the longer-run."
In the domestic data calendar Thursday, UK retail sales will provide the main focus at 0930 BST. Sales are expected to have moderated somewhat in May, with a fall of 0.5% month-on-month following the strong 1.3% monthly growth in April.
"While falling high street prices and the ongoing strength of the labour market should continue to support volumes, recent BRC and CBI releases suggest that monthly sales cooled in May," said Lloyds Bank Senior Economist Jonathan Thomas.
From the US Thursday, initial jobless claims data is due at 1330 BST, followed by the Philadelphia Fed manufacturing survey at 1300 BST.
Rolls-Royce has announced an unexpected GBP1 billion share buy-back Thursday in an attempt to appease investors following recent reduced earnings guidance.
Full-year results have been published Thursday by Charles Stanley, Infinis Energy, Norcros, Darty, and Micro Focus International, along with a trading statement from Go-Ahead Group.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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