Thursday, September 13 09:44:41
Britain's top shares eased back early today as investors positioned themselves for a key policy decision from the U.S. Federal Reserve that may include more stimulus measures. The odds among economists polled by Reuters on a third round of bond buying from the Fed rose to 65 percent in August from 60 percent previously. Of the 51 who put the chances of QE3 at more than 50 percent, 39 predicted the Fed would act on Thursday following its two-day policy meeting, with a decision due at 1630 GMT.
"US officials will likely balance the benefits of a short-term stimulus in the form of bond buying, or quantitative easing, to help boost a flagging US labour market with the potential pitfalls for higher inflation in the long-term caused by such a program," said Shavaz Dhalla, Financial Trader at Spreadex Ltd. "It is clear that the majority of investors are backing the quantitative easing program. However, if US officials refuse to yield to the market's demands and fail to announce such a program today, investors could quickly find themselves swimming in a sea of volatility," Dhalla added.
Weakness in risk-sensitive miners was the main drag on blue chip sentiment, with the sector extending the previous session's falls on profit-taking after a recent rally in tandem with lower copper prices. Demand for metals is highly dependent on a recovery in global growth which U.S. stimulus measures could help provide. At 0817 GMT, the FTSE 100 was down 5.54 points, or 0.1 percent, at 5,776.54, having shed 0.2 percent on Wednesday.
"The market is pricing in a significant amount of outright asset purchases by the Fed... but there is always the chance of some disappointment, and if they don't come out with it we could see 100 points, or around 3 percent off of the FTSE 100," said David Morrison, market strategist at GFT Global. BAE Systems was a top individual blue chip faller, down 5.3 percent, reversing some of the previous session's strong late gains as investors weighed up confirmation that the British defence contractor and Airbus-owner EADS are in advanced merger talks.
Early volume in BAE shares was very strong at 255 percent of the 90-day daily average in the first-hour of trading, with overall FTSE volume at 17 percent of the daily average. EADS shares in Paris fell 7.7 percent. "We believe that in practise the deal would be more about strategic visions than tangible profit and loss synergies," Espirito Santo Investment Bank said in a note. ( C) Reuters