Market update: Strong US data could increase chance of Fed taper – 17.12.2013

Source: Henderson Global Investors

US equities moved tentatively higher on Monday following a poor run last week (S&P 500 +0.6%; Dow Jones +0.8%; Nasdaq +0.7%). Gains were capped, however, ahead of the US Federal Reserve (Fed)’s two-day policy meeting which ends on Wednesday, when there is a possibility the central bank may announce it will scale back (taper) its asset purchases. Strong US manufacturing output data released yesterday may have increased the chances of a taper; overall production rose by 1.1% in November (seasonally adjusted), the largest increase in a year, comfortably beating analysts’ forecasts. Manufacturing output rose 0.6% from the previous month.

News from the eurozone was broadly encouraging. Markit's Flash eurozone composite purchasing managers' index (PMI) inched up to 52.1 this month from 51.7 – the sixth successive reading above 50, the level which separates expansion from contraction. But on a cautionary note, the divergence between German strength and French weakness continued. The FTSE Eurofirst and FTSE 100 have opened lower this morning (down 0.4% and 0.5%, respectively), with investors anxious ahead of the Fed’s meeting. Looking ahead, US consumer price index inflation numbers will also be released later today.