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Dollar rallies against pound as US Federal Reserve sets date for balance sheet reduction

Tom Rees
The US Federal Reserve is expected to announce the winding down of its huge balance sheet - Xinhua / Barcroft Media

  • US Federal Reserve keeps interest rates unchanged and sets October date for balance sheet reduction 
  • Dollar lifts against pound on Fed announcement, with sterling down 0.7pc against the greenback and the euro down 0.9pc against the dollar
  • Dow and S&P close at record highs
  • European stock indices finish stuck in flat territory ahead of crucial Fed meeting; Spanish stocks sold off on Catalonia chaos 


Dow, S&P close at record highs after Fed announcement

Expectations that there will be another interest rate rise by the Fed this year caused indices to close at record highs in US, despite the central bank deciding against a rate hike in the September announcement. 

The S&P 500 closed up 1.59 points, or 0.06pc, while the Dow closed up 41.79 points, or 0.19pc.

The Nasdaq, meanwhile, was hit by a late confirmation from Apple that there was a wireless connection problem with its new smartwatch, and closed down 5.28 points, or 0.08pc.


Next few months of inflation data 'crucial'

James Bohnaker, associate director of US Economics at IHS Markit, said the coming months are likely to be crucial in whether the Fed will continue with its timetable for rate rises and balance sheet reduction.

Underlying the Fed's consensus decisions to leave rates unchanged and begin balance sheet reduction is a growing debate on whether inflation is in fact moving toward the 2pc target. There are plausible arguments on both sides, but the majority of FOMC members believe that inflation will gradually firm once temporary affects fade away.

That said, there is growing disagreement on the issue and the next few months of inflation data will be crucial in swaying the balance of thinking within the Fed.  


Yellen unable to say why inflation has missed target this year 

The Fed has a target for 2pc inflation, but last month inflation came in at 1.6pc and since 2012, it has averaged around 1.3pc. 

Yet core inflation in the US has been falling all year

When asked by reporters after the Fed releases, chair Janet Yellen said: "I can't say I can easily point to a sufficient set of factors that explain this year why inflation has been as low."

However, she said inflation should hit its 2pc target in 2019 and then remain at that level in 2020.


Fed's rate hike plans unlikely to be affected by hurricanes, Yellen says

 The Fed in its statement, released prior to the Yellen press conference, had said: "Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term."


One more rate hike set for this year

Wall Street largely had a subdued response to the Fed announcement, with both the interest rate and balance sheet updates mostly expected. However, Capital Economics' Andrew Hunter said there was one surprise:

The Fed’s decision today to keep interest rates unchanged at 1.0-1.25%, as well as its long-anticipated move to formally announce the start of its balance sheet normalisation process next month, came as little surprise. The bigger news was that, despite the weakness of core inflation in recent months, Fed officials continue to project one more 25bp rate hike by year-end.

Prior to the announcement, consensus had been split 50:50 over whether the Fed would be raising rates once again this year, but now it once again looks likely there will be a December hike, according to Hunter.

We had suspected that the recent softness of core inflation could persuade officials to hold off on the next rate hike until next year but, given these latest projections and the broadly unchanged language on inflation in today’s policy statement, we now expect the Fed to push on and raise rates again in December


Yellen fires starting gun on the end of QE 

Next month the Federal Reserve will start to run down the stock of bonds which it bought under the quantitative easing (QE) programme as Janet Yellen signals the end of the scheme to pump more money into the US economy, writes Tim Wallace

Interest rates are also set to rise further in the coming months as the US economy adapts to a higher pace of growth, allowing rate hikes to move the Fed further away from its emergency policy position.

“The labor market has continued to strengthen and that economic activity has been rising moderately so far this year,” said the Federal Open Markets Committee, justifying its decision to tighten monetary policy.

“Job gains have remained solid in recent months, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.”

Read the full article here.


Dollar pushed higher on signs of further Fed rate rises

Naeem Aslam, chief market analyst at ThinkMarkets UK, says the rise in the dollar is thanks to signs of further rate rises in the coming years:

The dollar index has moved higher as markets have reacted to the decision that the Fed still thinks that more interest rate hikes are possible despite the fact that the size of the balance sheet will also be reduced.

Sterling was down 0.7pc against the dollar, while the euro was down 0.9pc against the greenback.

Meanwhile, although the Fed have chosen not to raise interest rates now, Kully Samra, UK managing dof Charles Schwab, said inflation could soon start to drive higher, and cause the Fed to act 'more aggressively' on interest rates than expected:

“The recent jump in consumer price inflation was not enough to prompt even hawkish Fed officials to raise rates. Inflation over the past few months has fallen short of expectations and may be being subdued by larger economic factors. The Federal Reserve has been playing its own internal cat and mouse game with some officials citing low inflation as a reason to delay further tightening; while others want to stay on the steady path toward normalisation, due to the tightening labour market. Given the tightness of both the labour and housing markets, inflation could begin to surprise on the upside, perhaps pushing the Fed to act more aggressively than the consensus anticipates.”


Fed to start shrinking balance sheet in October, leaves interest rates unchanged

The US Federal Reserve has said it will leave interest rates unchanged, as expected, and said it plans to start shrinking its multi-trillion dollar balance sheet balance sheet in October.


Five minutes to go until the Fed's announcement

Here's what to expect over the next hour and a half:

  •  7pm: The Federal Open Market Committee will release their economic forecasts and a policy statement, as well as a dot plot to show expectations on future rate rises

  • 7.30pm: Janet Yellen will give a press conference on the statement. This is likely to last around an hour


Opinion split on whether Fed will hike rates again this year

While the Fed is not expected to raise interest rates in today's announcement, it had previously been thought that there would be one further hike in 2017.

However doubts have been mounting over whether the Federal Reserve would be able to stick to its timetable for further interest rate rises amid sluggish jobs growth in the US and persistently weak inflation.

Ahead of the meeting today, consensus on a further rate rise looks split down the middle. 



Apple drags down Nasdaq ahead of Fed meeting

While investors across the board appeared to be holding off on big decisions ahead of the Fed's meeting, Apple dragged down the tech-heavy Nasdaq after reports emerged that there were connectivity issues with the Apple Watch 3.

Reviews of the new smartwatch also suggested its battery life was poor and questioned whether it was worth the upgrade. 

The Silicon Valley giant fell 1.9pc, putting the Nasdaq down 4.08 points, or 0.06pc. 

The Dow Jones was up 20.66 points, while the S&P 500 was up 1.33 points.

At a glance | Apple Watch Series 3



The US Federal Reserve meeting — what to look out for

All eyes are now on Janet Yellen and the Federal Reserve
  1. Balance sheet reduction — the central bank is expected to announce that it will begin to wind down its huge $4.5tn balance sheet, which has been bloated by its quantitative easing programme designed to stimulate the economy after the financial crisis. In order to avoid a 'taper tantrum', a sharp rise in bond yields as investors panic over tapering plans, the reductions are expected to be gradual and slow. The pace and timing of the tapering will a key focal point for the markets. 
  2. Interest rates — while the Fed is not expected to raise interest rates this evening, further guidance is expected over whether the central bank plans to hike once more before the end of the year. The central bank's policymakers will use dot plots to mark their expectations on future rate rises and Janet Yellen's post-match press conference will be keenly watched by the markets for any more clues on hiking plans.
  3. Inflation and growth forecasts — downgrades to GDP growth and inflation forecasts would damage the chances of a third hike in the current cycle. Today's meeting will be the first opportunity the Fed has to give its verdict on how Hurricane Harvey and Irma will affect the economy.

Here's a useful cheat sheet from ING on what to expect:


Rise of robots means cheap labour no longer enough to help poor countries to get rich 

Probability of automation chart

Robots are set to undermine poor countries’ ability to use their vast numbers of low paid workers to attract overseas factories, the traditional route out of poverty for emerging markets.

The World Bank said worries are emerging that investors will use automated factories which can be put in rich countries, as they require relatively few human workers.

This would enable companies to cut down the time taken for a manufactured good to travel to rich markets and hit the shop shelves, as well as avoiding ethical concerns over working conditions and dodging the political risks which can threaten operations in emerging markets.

3D printing also means the scale of production could become less important, with more specialised, batch work becoming possible at a relatively low cost in rich countries.

But it also means less money and fewer jobs flowing into those poor countries.

Read Tim Wallace's full report here


Low volatility ahead of Fed decision keeps US stocks flat

Low volatility is plaguing the US session as expected with all three major indices in the US bobbing around flat territory as we approach the Federal Reserve's decision.

The jittery dollar is suffering ahead of the action at the Fed, recording 0.5pc and 0.2pc falls against the pound and euro, respectively. The movements could be small fry compared to what we see later this evening, however.

Janet Yellen and the FOMC could give the dollar bulls something to cheer later on, according to Lukman Otunuga, research analyst at FXTM.

He said:

"While the central bank is also expected to announce the unwinding of its mammoth balance sheet today, the real action will be in the Fed’s economic projections and Yellen’s Press Conference. With concerns over low inflation in the U.S raising questions over when the next rate hike will come, it will be interesting to hear Yellen's thoughts on this topic.

"This could be a very lively session for the Dollar, especially when considering how the FOMC will be updating its economic projections and providing its forecast for growth, inflation and interest rates.   Dollar bulls could be offered a rare opportunity to bounce back, if Yellen adopts a hawkish tone during her press conference. 

Apart from the very top tier econ event we have later on, there is just existing home sales data for traders to digest this afternoon. The figures showed a slightly cooling housing market with a 1.7pc fall in sales to its lowest level in 2017.


Shire edges closer to launch of ADHD drug for adults in Japan

Japan is the world's third-largest market for ADHD drugs

British drugmaker Shire has stepped closer to launching an ADHD drug for adults in Japan, in a boost to its $2.5bn (£1.9bn) turnover neuroscience division ahead of a likely spin-out and stock market listing.

The FTSE 100 firm said a clinical trial for its hyperactivity drug Intuniv in patients aged over 18 in Japan resulted in improved functioning compared to those on a placebo.

The positive study paves the way for regulatory approval for the drug in adults in Japan, the world’s third-largest market for ADHD therapies. Intuniv is already approved for children with the condition.

A further launch would lift sales at Shire’s neuroscience arm, which was placed under review by chief executive Flemming Ørnskov last month.

Read Iain Withers' full report here


US stocks expected to open flat; chance of a US rate rise in 2017 on a coin flip

Inflation forecasts and the Fed policymakers' dot plots on interest rates will sway market sentiment

A rather flat start to trading is expected over in New York this afternoon with the markets' sights firmly set on the Fed decision which drops around 7pm, a couple of hours before the closing bell.

Deciphering the language of Fed chair Janet Yellen in the press conference at 7.30pm will be the focus for traders, according to CMC Markets analyst David Madden.

He said:

"A rate hike in December seems unlikely given we don’t know what the future membership of the Federal Reserve will be in a few months, the debt ceiling debate will be conducted in that month, and we don’t know the impact of Hurricane Harvey and Irma."

Just a reminder that the markets are currently putting the probability of an interest rate hike in December on a coin flip with almost a zero chance of a rate rise today.

Here's a rather useful cheat sheet for tonight's action from ING:


Co-op Bank finance boss leaves just weeks after rescue deal

In its statement the bank said Mr Worth was leaving following the "successful completion" of the rescue deal

The Co-op Bank's finance chief is leaving just weeks after it was rescued in a £700m takeover by five US hedge funds.

The bank confirmed John Worth, who joined as chief financial officer just over a year ago, would exit the troubled lender in an update to investors this afternoon.

Mr Worth's departure is likely to fuel speculation that the new owners will push through a wider management shake-up at the bank. 

However a company spokesman insisted it was "not unusual" after a recapitalisation deal for a finance director to leave a company.

Read Iain Withers' full report here


BHP Billiton boss’s pay doubles as bonus pot returns

Andrew Mackenzie, chief executive of BHP Billiton

Andrew Mackenzie, boss of mining giant BHP Billiton, doubled his take-home pay this year, after the reinstatement of his short-term bonus.

Mr Mackenzie earned $4.55m (£3.35m) in the year to June 30, compared with $2.24m the year before, the company’s annual report revealed.

The rise was largely because BHP reinstated payments from Mr Mackenzie’s short-term incentive plan (STIP), which totalled $2.3m after he passed a number of milestones set by the board.

In 2016, Mr Mackenzie did not receive a STIP payout following the collapse of a dam at an iron ore mine in Brazil co-owned by BHP, which resulted in the death of 19 people. His 2016 payment was also marked down as the company slumped to a loss on the back of falling commodity prices.

Read Jon Yeomans' full report here


Lunchtime update: High street smashes sales expectations to boost the pound

Stronger-than-expected retail sales have lifted the pound

The high street smashing expectations in its latest sales figures has lifted the pound off its post-Mark Carney speech lows on the currency markets this morning.

While economists expected a slight softening in August's reading, surprise sales growth of 1pc boosted the pound briefly back over the $1.36 mark against the dollar. Sterling has since pared some of its gains but remains 0.4pc higher against a nervy dollar ahead of the US Federal Reserve's key monetary policy meeting this afternoon.

The equity markets have been sapped of their volatility by the looming Fed decision with European stock indices stuck in first gear, trading largely flat. B&Q owner Kingfisher has enjoyed a rare day among the top risers of the stagnant FTSE 100 after beating expectations in its latest figures as it attempts to turn its fortunes around.

Accendo Markets head of research Mike Van Dulken commented on the hesitant markets this morning:

"Equities are flat ahead of this evening's Fed policy update, investors adopting their usual wait-and-see approach. However, with a rate hike seemingly off the table until year-end, and most expecting Yellen to fire the starting pistol on its balance sheet unwind (composition pre-announced), this may prove overly cautious.

"Unless of course you see risk of a very hawkish message on rate rises. With data continuing to blow hot and cold, and Trump still struggling on policy/stimulus, the Fed would probably prefer to hold off until year end for more evidence that would allow it adopt such a tone. Another market tantrum is the last thing the Fed will want to be responsible for."


Mitie to cut 480 jobs as it considers sale of property management business

Peter Dickinson, who is the firm’s acting chief executive while boss Phil Bentley is on sick leave, said that Mitie was making “steady progress”

Outsourcing firm Mitie plans to cut 480 jobs by the end of the financial year and is considering a sale of its property management business as its transformation programme moves forward.

The firm has appointed investment bank Evercore Partners to explore a potential sale of the property management division having received interest from potential buyers.

The changes are part of a wider programme of change for Mitie, called Project Helix, which aims to reduce costs by around £40m by 2020.

But Mitie said that the cost of implementing the programme this year would be around £24m - far higher than the £15m expected, mostly due to it speeding up changes in its IT systems.

Mitie has been hit by a string of profit warnings and bigger-than-expected writedowns linked to an external review of its accounting policies.

Read Rhiannon Bury's full report here


Kingfisher and Babcock lead the FTSE 100 

Now all the macro news for the morning is out of the way, let's have a look at the big stock movements in London.

B&Q owner Kingfisher's 5.8pc jump after it beat the City's expectations on pre-tax profit still leads the FTSE 100 index but engineering group Babcock International is snapping at its heels, rising 5.3pc, after its reassuring update to the market this morning.

Kingfisher's climb this morning has arrested its shares' steady drift downwards this year, its valuation retreating almost 20pc since May.

Accendo Markets analyst Mike Van Dulken said that investors have looked past the cautious outlook this morning.

He commented:

"Outlook usually trumps everything else (after all, you can’t buy past growth), in which case caution is not likely what investors will want to hear.   However, there is ample reason for cheer with underlying pre-tax profits up nearly 1%, which is 3% ahead of consensus.

"Another £60m share buyback, the latest tranche of a 3yr £600m return of capital plan is also considered supportive following similar announcements in May, June and July (£40-60m each) taking the 2017 total to a solid £260m. Continued strong growth for the UK Screwfix brand and in Poland, offsetting a more difficult French market, is also serving to revive confidence in the shares."  

The overall FTSE 100 has now returned to flat territory after plunging as the pound advanced on those impressive figures from the high street. Sterling coming off its morning highs has now eased the pressure on the UK's blue-chip stocks.


Bank of England report contradicts strong retail figures

The Bank of England report said that consumers were holding back on non-essential data

While the pound motors along on that strong retail data, the Bank of England's Agents' Summary of Business Conditions report has dropped and oddly the findings largely contradict those high street sales figures.

Here are the key findings from the report on the third quarter:

  1. Households are focusing on essential purchases in response to the squeeze on incomes (the ONS' retail figures showed that non-food stores and non-store retailing were the main contributors to retail sales growth in August, however)
  2. Investment intentions point to weaker growth within the services sector but a stronger showing from goods exporters
  3. Impact of past falls in sterling on consumer goods price inflation appears to have reached its peak; consumer services price inflation was steady


Ban on roadside alcohol sales in India spoils the party for spirits maker Diageo

Spirits giant Diageo thinks its sales will be hit by a ban on the sale of alcohol near highways in India

A ban on the sale of alcohol near highways in India is likely to hit sales at the spirits giant behind Johnnie Walker whisky and Smirnoff vodka, its chief executive has warned.

India issued a blanket ban on the sale of alcohol within 500 metres of any highway in April and Ivan Menezes said that this, alongside the later timing of Chinese New Year, could knock its sales in the first half of its trading year.

The Asia Pacific region made up roughly 16pc of sales in Diageo’s last financial year so a drop in sales in India could have a visible effect on the company’s top line. Investors expressed their concerns in early trading with the shares falling 2.4pc to £24.41 in spite of the wider FTSE 100 being flat.

Read Bradley Gerrard's full report here


Retail sales growth reaction: Concerning gap between retail sales and wage growth data indicates credit rise 

The email inbox needs a clearing so let's have a round-up of what economists are saying about those strong UK retail figures that dropped about an hour ago.

The figures should send alarm bells ringing on credit growth, according to ETX Capital analyst Neil Wilson.

He said:

"Indeed retail sales grew at 2.4% y/y, while wages are up just 2.1% in that period. There is a worrying gap opening up here and regulators are beginning to fret over the rise in unsecured credit. Of particular concern is the idea that consumers are taking on debt for nothing other than maintaining living standards – it must be noted that unsecured loan defaults are rising.

"A report due on Monday will recommend if anything needs to be done to tame credit growth. The risk is that any action would hit consumer spending and dent confidence in the economy."  

Ranko Berich, head of market analysis at Monex Europe, said that the figures go "a long way to explaining the hawkish turn we've seen at the Bank of England recently".

He said:

"Last week’s MPC minutes noted that members believe the outlook for consumption to be better than previously expected, and today’s data certainly supports that conclusion. Sterling is up slightly following the news, and fixed income markets are reflecting very high expectations for a rate hike as early as November.

"The question now for the pound is rapidly becoming 'what could possibly go wrong?'."

As I was reading that final line, the pound has dropped off a little from its morning peak and is now trading 0.4pc higher against the dollar at $1.3540. 


Markets 'suspiciously calm' ahead of Fed meeting

Much of today's focus regarding the US Federal Reserve's plan to begin winding down its $4.5tn balance sheet will be on the when not the if.

Some have suggested that the central bank could begin tapering as soon as October while others believe it will tread more cautiously and opt for a November or December start.

The markets are suspiciously calm ahead of today's meeting, according to Swissquote Bank analyst Peter Rosenstreich.

He said:

"Markets are calm – too calm, really, like those western films where the sheriff rides into an empty town. Despite the tensions in North Korea and the Middle East, despite a see-sawing US president, despite implied volatility, willingness to take risks is historically unprecedented, which we know could end in tears.

"Markets continue to rationalize this, by seeing low inflation, solid growth and gradual central bank normalization. We’re not so sure. A balance-sheet unloading could end the ‘feel good’ environment, sending both bond and stock markets southward."


Pound soars back to Friday's hike hope highs as resilient UK consumer hits the high street

The pound's 0.7pc jump against the dollar following those impressive figures from the high street has propelled it close to the levels it hit last Friday when Bank of England policymaker and arch dove Gertjan Vlieghe backed the Monetary Policy Committee's plan to raise interest rates in the coming months.

Capital Economics UK economist Ruth Gregory commented that the figures indicate that the British consumer is showing an "impressive resilience in the face of the ongoing real pay squeeze".

She added:

"Not only did retail sales volumes rise by a hefty 1.0% on the month in August – exceeding consensus expectations of a 0.2% rise – but growth in the previous month was revised up from 0.3% to 0.6% too. Admittedly, we shouldn’t get too carried away by these figures.

"After all, the retail sales figures are very volatile on a month-by-month basis. And high-street spending growth has been on a clear downward trend, with the annual rate of sales volumes at 2.2% in the three months to August – considerably lower than the 5-6% rates seen towards the end of 2016."


Retail sales growth smashes expectations, propelling the pound higher

The pound has jumped against the dollar following the figures

The pound has soared on the currency markets in the last few moments after retail sales in August reversed expectations of a fall and jumped by 1pc, its biggest monthly increase since April.

After a patchy summer of readings, retail sales growth smashed expectations of a 0.2pc rise with the ONS saying that non-food stores and non-store retailing were the main contributors to growth.

It said that "the underlying pattern in the retail industry is one of growth, three-months on three-months the quantity bought has increased by 1.2%".

Kate Davies, ONS senior statistician. commented:

"Within this month’s retail sales we are seeing strong price increases across all store types compared with a year ago, reflecting wider inflationary pressures. However, we are still seeing underlying growth in sales volumes, and with strong growth in non-essential purchases as consumers continued to buy more from non-food stores."


Tata Steel and unions agree £1bn rescue deal to save 4,000 jobs at Port Talbot 

Steelworkers waiting outside Tata Steel's plant in Port Talbot, South Wales

Staff at Tata’s sprawling Port Talbot steel plant have had their jobs guaranteed for five years with the company pledging to invest £1bn in its UK business in a landmark deal for Britain's steel industry.

The agreement also covers Tata's other UK steel plants and is a U-turn for the Indian conglomerate which tried to sell its British operations in March, having suffered losses of up to £1m a day.

Tata has also committed to keeping both of Port Talbot's blast furnaces open for five years, and a further agreement to invest in a steel-making furnace at the site.

The deal came after crunch talks between employees, unions and Tata bosses on Wednesday at the South Wales plant, which employs about 4,000 staff, almost half of the UK steel operations' total.

However, the agreement could come at a cost for steelworkers. As part of the agreement Tata is beginning a consultation on changes to the £15bn pension scheme attached to the business, with far less generous terms.

Read Alan Tovey's full report here


Retail sales preview: slight softening expected

Retail sales growth is expected to nudge down to 0.2pc

A little closer to home, we have retail data this morning from the ONS with a slight softening in sales growth expected. 

After recording modest growth of 0.3pc in June and July, August's sales are expected to nudge down to 0.2pc with the figures indicating how tight the squeeze of rising inflation and sluggish wage growth is becoming on consumer spending.

With the reading tending to be quite volatile and economists' forecasts frequently missing the target on this one, a surprise figure shouldn't be discounted.

London Capital Group analyst Ipek Ozkardeskaya commented:

"Analysts expect a slower expansion in August retailactivity compared to a month earlier. A relatively soft data should not deteriorate the pound appetite, unless there is a bigger disappointment."


Dollar nervy on the currency markets; interest rate guidance will move the greenback

The dollar is looking a little nervy on the currency markets this morning ahead of this afternoon's meeting at the US Federal Reserve, the greenback stuck close to the two-and-a-half-year low it hit earlier this month.

The dollar has drifted southwards this year as expectations that Donald Trump's chaotic administration can pass reforms to boost the economy recede and hopes dwindle of another interest rate hike before the end of the year.

The greenback's performance this evening will be largely dictated by the Fed's guidance on interest rates and inflation.

The disparity between when the Fed says the next rate increase will occur and when the markets believe it will happen could narrow if Ms Yellen adopts a more hawkish tone at the post-match press conference and the dot plots intended to give investors guidance over rates shift.

A whole raft of issues could delay the Fed on interest rates, however, according to CMC Markets analyst Michael Hewson

He said:

"It is unlikely that Fed officials will want to take the prospect of a December move off the table, so it would be a surprise to see any changes to the short term predictions, but there is a whole raft of factors that could delay the prospect of a move in December, and see fewer projected increases into 2018.

"Today’s meeting and press conference is also set to be the first time that Fed officials will give their guidance on the impact of hurricanes Harvey and Irma which could well prompt some caution over the direction of the economic data as we head towards the end of the year. "


Agenda: US Federal Reserve meeting dominates markets' focus

US Federal Reserve chair Janet Yellen

All eyes are locked on the US Federal Reserve this morning with Janet Yellen and the Federal Open Market Committee expected to announce a further tightening of monetary stimulus, another hawkish step in the shift towards normalising policy among the global central banking elite.

The central bank unveiling its plan to begin winding down its huge $4.5tn balance sheet is a sealed deal and thus the pace and timing of the reductions will be the focal point for the markets with the FOMC expected to tread carefully after the 'taper tantrum' that hit bond markets in 2013.

Interest rates will remain unchanged, according to the overwhelming consensus of economists, but investors will be looking for a little more guidance on when the the Fed will pull the trigger on a third hike in the cycle.

Back in the UK, retail sales is the economics highlight with a slight softening in the reading expected from July's rebound. Ahead of the high street data and the key decision across the Atlantic, the pound is taking advantage of a jittery dollar, advancing 0.3pc against the greenback to $1.3524.

Equities have made a tentative start to trading in London, the FTSE 100 nudging up 0.1pc early on. B&Q owner Kingfisher has jumped 6.7pc to the top of the blue-chip leaderboard as pre-tax profit beat expectations and it reassured investors that its transformation remains on track.

Interim results: Kingfisher, Attraqt Group, Shield Therapeutics, Accesso Technology Group, Science In Sport

Trading statement: Babcock International Group

AGM: Adamas Finance Asia, Diageo, Mercantile Ports & Logistics Limited, Alcentra European Floating Rate Income Fund, Eckoh, United Carpets Group, Scholium Group

Economics: CBI Industrial Order Expectations (UK), Retail Sales (UK), Existing Home Sales (US) FOMC Statement (US), Federal Funds Rate (US), FOMC Economic Projections (US), PPI m/m (GER)