All eyes on Fed and ECB

Traders eyes remained focused on tonight’s FOMC decision by the Federal Reserve and tomorrow’s ECB rate decision, which could see more stimulus announced, whilst better than expected earnings from firms such as Next and Standard Chartered helped to give a lift to stock indices across Europe.

The FTSE 100 rallied from yesterdays 1% weakness to trade higher by 0.5%, outperforming the DAX and CAC which both saw smaller gains of around 0.1% and 0.3% by mid morning trade.

Financial stocks were responsible yet again for much of the early rally on the UK Index, with the FTSE 350 banking sector rallying 1.1% with insurance firms also seeing strong gains.

A raft of company earnings has also played a role in the FTSE’s move higher this morning.

Next delighted shareholders today after lifting profit estimates thanks to a strong first half of sales, which rose 0.2% against expectations of zero growth. Next said it now expects profits to be between £575m to £620m for the year, compared to a previous guidance range of £560m to £610m. Next shares rallied 6% straight to the top of the FTSE 100 as a result, with the retailer continuing to surpass expectations despite the tough consumer environment on the UK high streets.

Standard Chartered also saw a solid 3% share price rise this morning after reporting a 9% rise in half year profits. Pre-tax profits rose to $3.95bn for the first six months from $3.64bn and trouncing market expectations of $3.7bn.

Adam and the Ants: ‘Stand and Deliver’

The eyes of traders remain fixed on Central Bank developments over the next 48 hours, which see’s the FOMC decision tonight after the European close, and decisions from the ECB and BoE.

Bernanke is therefore first up to the plate tonight and whilst there are minimal expectations of more stimulus, traders will be keeping an eye out for surprises. A wait and see policy with more ‘we are ready to act’ rhetoric may well be just what is seen but of course Ben Bernanke and the Fed have thrown a surprise or two beforehand.

The real event likely takes place tomorrow. Some traders are reciting the Adam and the Ants song ‘stand and deliver’ as the theme tune behind tomorrow’s ECB decision. Draghi has put himself in somewhat of a corner after last week ramping up of rhetoric that the ECB will do everything to preserve the euro. This rhetoric has increased optimism that there will be some form of stimulus announcement tomorrow. Failure to do so will badly disappoint a market exerting heightened expectations.

UK PMI’s badly disappoint

UK Manufacturing PMI data badly disappointed on Wednesday, with the measure falling to 45.4 from a downwardly revised figure of 48.4 previously and hitting its lowest levels in three years. The fall keeps huge pressure on the ability of the UK economy to bounceback from a 0.7% contraction in growth last quarter. The pound sterling fell against the US dollar in reaction to the PMI data.