Sideways trading forecast ahead of expected QE2

THE call this morning is for stock markets to open unchanged, with markets likely to trade in a narrow band as caution prevails ahead of a potentially monumental week for economic events. GFT is quoting the FTSE 100 index to open unchanged from Friday’s close, at a level of 5,675. The German DAX 40 is expected to open up 5 points at 6,606, and the French CAC 40 index is forecast to open unchanged at 3,833.

The over-riding consensus view regarding the FOMC meeting this week is that the Federal Reserve will announce the next round of quantitative easing. Hopes for such a move propelled shares higher throughout October, despite recent rather stagnant US growth figures. Indeed the Dow had its best October since 2006, and the S&P 500 had its best for seven years. With so-called QE2 now largely priced in, traders are waiting to see just how aggressive the Fed’s new round of monetary stimulus will be.

Mid-term elections tomorrow will keep America in focus. Historical trends suggest US shares enjoy a rally after mid-term elections, as the increased spread of the balance of power resulting from the encumbent party typically losing votes encourages investors.

The Bank of England’s policy meeting is on Thursday and both interest rates and quantitative easing are expected to be kept on hold. The ever dominant non-farm payroll numbers shift attention to the States on Friday.

Martin Slaney is director of Global Dealing Operations for GFT.