Calmer waters

A day when equity markets overall performed pretty well, the Vix managed to fall back below 15, an indication calm is once again reappearing amongst equity investors. The recent weakness in the oil price seems to have fed through into the consumer, as the conference board reported on Tuesday US consumer confidence at a seven-year high, beating expectations. It rather seems that although the US consumer may not have seen an increase in his pay packet over the past few years, a fall in the oil price and the continuing low costs of borrowing appears to have improved the average disposable income. As the Federal Reserve started its 2-day meeting, CNBC report that the recent economic uncertainties have pushed out rate expectations to at least the middle of next year.

As we reported yesterday, Wednesday sees the expected announcement that the Federal Reserve will wind up their bond purchase program. It is only idle speculation but one has to wonder what the market reaction would be should they defer the decision for a month. Would the continuation of QE3 beyond expectations signal to investors that the Federal Reserve remains very cautious of the economic outlook, one could only conclude this. In that case would the equity market take the news poorly or would investors be happy that the extra liquidity was remaining in the system. There may well be an initial positive reaction followed by a more considered one later.

Earnings generally appeared to bolster the mood during the day as heavy weights DuPont and Pfizer in the US beat expectations. In Europe a couple of heavy weights in Standard and Chartered bank and Sanofi did not fare so well. BP helped the FTSE 100 rise as it announced a dividend increase despite the recent oil price weakness. 

Posted on October 28, 2014 .