Equities gain ahead of Fed policy announcement

The FTSE rebounded by 0.9% on Wednesday after tanking 1.1% in the previous session. GSK led the charge higher on M&A news, whilst strength on Wall Street was also helping the cause.

GSK rallies on Pfizer deal
GSK surged to a session high of 1567p following an announcement that it will merge healthcare business with Pfizer to make a £10 billion consumer drugs giant. GSK shareholders cheered the news after pressing the firm for years to take action. It has long been the assumption that the two businesses in GSK, over the counter medicine and the other focusing on researching pharmaceuticals and vaccines would perform better as two separate companies rather than one diversified group. 

Pound strengthens despite no deal Brexit planning
The pound experienced another choppy session. Sterling picked itself up from session lows and moved back into the black versus the dollar. However, that was more of a dollar weakness story than a flip in sentiment towards the pound.

As no deal Brexit planning is being ramped up in both the UK and the EU, pound traders are increasingly nervous that this could actually all go horribly wrong. Trading at $1.2650 the pound is by no means pricing in a no deal Brexit, nerves are building. Adding to the strains of the pound was UK consumer inflation data. Whilst in line with expectations, UK CPI fell to its lowest level in 20 months. This is good news for the UK consumer, it pushes back the chances of the BoE hiking rates.

The euro was outperforming its peers on Wednesday. In sharp contrast to the UK’s weak data and Brexit woes; German PPI surprised to the upside, eurozone trade data impressed and Italian political fears are fading. As a result, the euro, rallied. 

Dollar Lower, Wall Street Higher ahead of Fed
The dollar was trading lower and Wall Street higher as investors looked cautiously ahead to the Fed’s policy announcement later this evening. The Fed is widely expected to hike rates by 25 basis points for a fourth time this year, despite criticism from Trump. 

With the hike well priced in the investors will be looking closely at what the Fed has instore for next year. We are expecting a dovish hike from the Fed, with the well-used phrase “gradual further hikes” to be dropped from the statement. Furthermore, we expect the Fed to trim is forecast of further hikes. The Fed will have to strike a balance between addressing the current strength in the economy (GDP 3.5% yoy Q3) and taking onboard signs of a slowing global economy. Additionally, they will need to do this in such a way that it doesn’t alarm financial markets. The fact that US equity indices are moving higher again today shows that the traders are expecting the Fed’s message to soothe volatile markets.