The FOMC announcement was one of the more impactful moments of the month to date as markets reacted to a supposed new stimulus package.  It appears though that all they are doing is using redemption and interest monies on the purchased treasuries to buy more treasuries. i.e. a neutral stance.

Markets appear in no mood for half way measures though and the initial reading is that the attempt by the Fed to be all things to all men may fall flat on its face.  Once again hard decisions are being put further and further down the line and the consequence of this will undoubtedly be a bigger bill in the end.  The immediacy of the political requirement for instantly successful fiscal policy (rather than long term strategic planning) is doing no good either in the US or in Europe and the UK.  Trying to formulate policies in which there are no losers is just not realistic.

This morning sees the Far East in retreat with the Nikkei closing out down 2.7pc (the equivalent of some 150 points in the FTSE if we were to emulate it) this is leading to lower calls this morning across the board with the FTSE actually priced just 30 lower in pre-market action while the Dow has sunk below 10600 after managing a reasonable close in the end last night.  Dealers are not likely to be aggressive buyers this morning until some of the dust settles and we can get a handle on the underlying reasons for both the Fed actions and their rather worrying statements.  Implying that interest rates will remain very low for some considerable time indicates real fear that the US is slipping backwards. Maybe not into a recession but certainly into a state of weakness and at the mercy of any global chill wind that might blow.

The FTSE is back at the levels from which it has bounced several times in the last week (the low 5300’s) and so we will probably find a bit of bottom picking from the day traders (who incidentally made out like bandits yesterday as they were able to sell above 5400, twice, and buy back in the mid 5300’s both times).  5405/15 remains a barrier as mentioned several times in recent comments and recent activity has done nothing but build the wall even higher.  Returns are very attractive but news is getting worse and worse (there is no other way of describing it!) certainly grimmer than the situation that presaged the falls in May and June.

Bond markets have reacted positively to the FOMC news but it is unclear whether this state of affairs can continue.  Analysts look to the Japanese experience of 1995 to today to indicate how low long term yields might go but Japan was (and is) experiencing deflation and a large trade surplus neither of which apply to the US or the UK.  More QE (even if it is slightly weakened variety) means more debt, printing money.  I am afraid that the judges are still out on whether the central banks can continue the tightrope walk of stimulus, low base rates and low inflation.  Gilts are at all time highs as I write with the September future now at 122.92 indicating Yields of just 3.2pc (only a couple of months ago we were worrying about the UK sovereign rating).

In all this gold should be the winning hand but even here we are stuck at recent levels. Yesterday saw a strong attempt to break below major support at 1189/91 but this can to nothing and the rally after the Feds announcement took us back up to near the recent highs at 1208.  Unfortunately for the bulls this just about wrapped up the good news as markets are now slipping down once again below 1200.  Worryingly there is always the underlying sentiment that if a market will not move in its expected direction after news then the probabilities start to turn in the other direction.

Oil has also slipped under 80 dollars (after all the effort to get above it!) and this looks to be a market to avoid if you have a heart condition.  If other markets start to get very pessimistic we might see some fireworks on the downside.  Of course, if some stability gains a hold then the reaction bounce could be just as violent.