FTSE posts gains for first time in 7 sessions as US stocks sees bounce; Fed eyed

<p>The FTSE 100 saw gains for the first time in seven days in a particularly choppy trading session as investors moved to make tentative buys […]</p>

The FTSE 100 saw gains for the first time in seven days in a particularly choppy trading session as investors moved to make tentative buys into mining stocks mostly on bargain hunting.

All eyes however were firmly transfixed on the Federal Reserve tonight for the FOMC’s decision and for what words or action the US Central Bank may issue to calm stock markets. The positive opening for US stock markets and anticipation that Ben Bernanke, who has shown in the past an ability to react to market conditions, could help the FOMC decision calm market tensions tonight, has helped to trigger some tentative bouts of bargain hunting, lifting the FTSE 100 by 1% on Tuesday.

It is important not to get too excited by today’s gains on the FTSE however. In the last two weeks the UK index has lost a massive 20% to today’s lows. There has been no swift change in market sentiment from negative to positive. There has been no strong individual trigger behind today’s reversal from losses to gains. Today’s gains of 0.6% need to therefore be taken into context but certainly it helps to provide some relief to investors, albeit today at least.

However, the ability of the FTSE 100 to trade higher by 1% on the day, having been down by a massive 5% in the morning is a welcome sign for investors, though the huge volatility shown indicates that violent swings are likely to stay around in the near term.

All eyes on the Fed
The fact that the FTSE 100 was able to bounce higher from the 4790 level, which was where the market previously found bullish support last July, reinforces that technical levels are still playing a factor in the markets. We now need to see investors react well to what the Federal Reserve does tonight and there is every chance that this could give the markets a fillip to see a bit of a bounce back and retrace from last week’s heavy losses.

However, there would remain a big question mark over the longevity of any gains seen, particularly if the FTSE fails to consolidate back above the 5400 level. Should the Fed fail to deliver this evening, it could spark a fresh wave of selling in global equities and so it’s going to be important that with investor eyes firmly watching them the Fed does not waste this opportunity.

It may be unlikely to expect some definitive action in tonight’s decision but certainly now is the time for the market to know how the Fed is planning to maintain US growth and the stubbornly high unemployment, particularly at a time when economic data indicates slowing growth in the US.

Miners lead FTSE higher
The mining sector was the engine behind much of the FTSE’s recovery, with the FTSE 350 mining sector rallying 3% on the day, led chiefly by gains in Cairn Energy and Xstrata. Higher metal prices and the fact that the FTSE 350 mining sector has lost 25% in the last week alone, has been enough for traders to start bargain hunting, believing that this sector in particular has been oversold.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.