Financial market research and analysis

While the FOMC decision is the main event today, we have a number of important sideshows taking place. The Eurozone economy has certainly started to look perkier with a solid end to the year and PMI readings remaining above the key 50 level. France continues to trail Germany with businesses there reporting a weak increase in activity and employment levels.

The pound has staged a decline against the euro and the dollar this week – touching on a seven week low against the single currency yesterday.
Sterling weakness comes in part on the back of a rather dovish Mark Carney who has stated that conditions to hike interest rates are still not evident. The fact that average earnings increased by 2.4% in the year to October, 0.6% down on the previous month and lower than consensus is now putting additional pressure on the pound which is oscillating around the $1.50 level again.
Unemployment did fall by 110,000 between August and October to 1.71m and the unemployment rate is now at 5.2% but it would seem that the BOE wishes to lag the FOMC as has been the historic case in terms of monetary tightening

Oil prices continue to chop around and now that the 40 year ban on US exports has been lifted the supply glue issue seems to be here to stay – this may create additional downside in oil and gas stocks in the medium term.

In UK equities, Vodafone is adding the most points to the FTSE this morning as the talks between it and cable TV operator Liberty regarding an asset swap may not actually be complete. The valuation gap was the reason that talks ended back in late September and now that Vodafone has risen strongly off its lows of close to 200p any sustained move higher could re-ignite discussions. Shares are up 1.8% presently.

Risk appetite today seems to be excluding the mining sector as we head towards the Fed rate decision later this evening. Nevertheless the fact that price action is above the 6030 level does tend to set us up for additional gains and the prospect of the Santa Rally, excluding the outside chance of a hawkish Fed seems like a distinct possibility.