UK markets jumped strongly on Thursday morning following three straight days of losses as hopes build over a resolution to the political deadlock in Washington and the continuation of monetary stimulus by the Federal Reserve.
After hitting a three-month low yesterday, the FTSE 100 rebounded strong this morning, rising as much as 1.1% by midday as bargain hunters stepped. The index ended at 6,337.91 on Wednesday afternoon, its worst level since July 3rd.
As expected, the Bank of England's Monetary Policy Committee (MPC) decided to hold the Bank Rate at 0.5%. The central bank has vowed to maintain the rate at its record low until the unemployment rate falls from its current level of 7.7% to 7%. The MPC also kept its asset purchase programme unchanged at £375bn.
Signs of progress in Washington; taper could be delayed
The government shutdown, entering its 10th day on Thursday, is still weighing heavily on the minds of investors, but some small signs of progress were lifting sentiment this morning.
According to reports, House Republicans are now warming to the idea put forward by President Barack Obama to have a short-term increase in the debt ceiling while leaders continue to wrangle over the budget and a deficit-reduction plan. However, Obama continues to reiterate that the reopening of government would come without conditions to change policy.
"All this essentially means is that negotiations will be delayed by a couple of months, at best, and we'll be back in the same situation again come Christmas," said Market Analyst Craig Erlam from Alpari. "Unfortunately though, under the circumstances that is a positive thing, not just for the financial markets but the global economy, which would suffer hugely if the US was forced to default on its debt."
Markets were also reacting to last night's minutes of the latest Federal Open Market Committee meeting which showed that most members at the central bank still thought it would be appropriate to begin tapering quantitative easing before the end of the year. However, given that the meeting took place before the government shutdown, many now believe that a taper could be delayed until next year.
Analyst Michael Gapen from Barclays said: "the ongoing federal government shutdown and upcoming expiration of the debt ceiling suggests that the decision to taper could be pushed into 2014. A sooner resolution to the fiscal risks that cloud the outlook could keep December on the table, but a longer stalemate could dampen growth sufficiently and lead to a tapering in Q1 14 or later."
Also spurring hopes for a continuation of stimulus was yesterday's nomination of well-known dove Janet Yellen as the next chair of the US Federal Reserve. Yellen will be the first female at the head of the US central bank and has been an advocate of the aggressive monetary easing started by her predecessor, Ben Bernanke, who steps down on January 31st 2014.
Source: LiveCharts
After hitting a three-month low yesterday, the FTSE 100 rebounded strong this morning, rising as much as 1.1% by midday as bargain hunters stepped. The index ended at 6,337.91 on Wednesday afternoon, its worst level since July 3rd.
As expected, the Bank of England's Monetary Policy Committee (MPC) decided to hold the Bank Rate at 0.5%. The central bank has vowed to maintain the rate at its record low until the unemployment rate falls from its current level of 7.7% to 7%. The MPC also kept its asset purchase programme unchanged at £375bn.
Signs of progress in Washington; taper could be delayed
The government shutdown, entering its 10th day on Thursday, is still weighing heavily on the minds of investors, but some small signs of progress were lifting sentiment this morning.
According to reports, House Republicans are now warming to the idea put forward by President Barack Obama to have a short-term increase in the debt ceiling while leaders continue to wrangle over the budget and a deficit-reduction plan. However, Obama continues to reiterate that the reopening of government would come without conditions to change policy.
"All this essentially means is that negotiations will be delayed by a couple of months, at best, and we'll be back in the same situation again come Christmas," said Market Analyst Craig Erlam from Alpari. "Unfortunately though, under the circumstances that is a positive thing, not just for the financial markets but the global economy, which would suffer hugely if the US was forced to default on its debt."
Markets were also reacting to last night's minutes of the latest Federal Open Market Committee meeting which showed that most members at the central bank still thought it would be appropriate to begin tapering quantitative easing before the end of the year. However, given that the meeting took place before the government shutdown, many now believe that a taper could be delayed until next year.
Analyst Michael Gapen from Barclays said: "the ongoing federal government shutdown and upcoming expiration of the debt ceiling suggests that the decision to taper could be pushed into 2014. A sooner resolution to the fiscal risks that cloud the outlook could keep December on the table, but a longer stalemate could dampen growth sufficiently and lead to a tapering in Q1 14 or later."
Also spurring hopes for a continuation of stimulus was yesterday's nomination of well-known dove Janet Yellen as the next chair of the US Federal Reserve. Yellen will be the first female at the head of the US central bank and has been an advocate of the aggressive monetary easing started by her predecessor, Ben Bernanke, who steps down on January 31st 2014.
Source: LiveCharts
