17.50: The Federal Reserve has unanimously agreed to embark on a third round of quantitative easing.
The Federal Open Market Committee voted by 11-1 to buy $40 billion of agency mortgage-backed securities each month. It also committed to maintaining Operation Twist, a programme which sees it swap short-dated securities for longer-term ones.
The Fed also extended its pledge to keep interest rates exceptionally low to at least mid-2015.
The news sent US stocks soaring with the Dow up 76 at 13,409 shortly after the decision. The S&P 500 was up 9 points at 1,445.
It said it was taking this action to support a strong economic recovery.
These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, the Fed said in an accompanying statement.
16.35 The FTSE 100 closed above 5,800 on hopes the US will pump more money into the system.
The blue chip index ended the day on 5,819, a gain of 38 points, on hope the Federal Reserve will decide at tonight's monthly rate meeting to embark on a third leg of quantitative easing.
In Europe the German Dax and French CAC 40 indices were less upbeat, suffering losses of 33 and 42 points respectively.
Across the Atlantic the Dow was treading water, up 20 points at 13,354.
11.25: Shares in UK defence company BAE Systems (BAES.L) have dropped 23p, or 6.3%, to 340.6p, giving away most of yesterday's gains, as investors rush to take profits in what could be a lengthy merger process with French rival EADS.
The 40:60 merger between BAE and EADS would create a defence and aerospace giant to rival Boeing and US defence group Lockheed Martin at a time when companies are faced with stiff competition winning government contracts.
However, BAE's decision to begin merger talks represent a big change in strategy that has puzzled some investors. The deal will require the approval of several governments, including the UK, US, France and Germany, and this could take time. And at least one big shareholder has yet to be convinced. French company Lagardère, which holds a large stake in EADS, said many aspects of the deal had to be ironed out before they would agree.
Analysts at Investec Bank said:
'Under the proposed dual-listed structure, we do not envisage major competition issues although a drawn-out approval process is inevitable. The share prices already broadly reflect the proposed ownership split and, given the time frames to complete and execution risk (political hurdles), we advise BAE shareholders to cash in.'
EADS shares slipped 2.6p, or 9.2%, to €25.90 on the French stock exchange in morning trade.
As we said last night, Invesco Perpetual is BAE's largest shareholder with a 13% stake. As well as Neil Woodford's income funds, the company is a top holding in Mark Barnett’s Invesco Perpetual Select UK Equity trust, making up 3.8% of the portfolio. It also features in the MFM Slater Income fund, managed by Citywire A-rated Mark Slater, representing 3.3% of the fund.
Economists warm up for more QE from the Fed
10.10: Economists are expecting further quantitative easing (QE) to be announced at a meeting of the US Federal Reserve this afternoon, according to a poll from Reuters.
The growing expectation of more QE comes as respondents lowered their growth forecasts for the third quarter to 1.7%.
The percentage of economists who expect the Fed to announce growth-boosting measures has risen from 60% to 65% since August, and 39 of the 51 respondents who forecast further QE believe the move could be announced this afternoon.
In UK markets home retailer Dunelm Group (DNLM.L) rose 6p, or 0.96%, to 631p as it posted full-year results with profits before tax up 15.2% to £96.2 million, compared with £83.6 million in 2011. The group also announced a final dividend of 10p per share, up from 8p last year.
Argos owner Home Retail (HOME.L) tipped down 2.65p, or 2.7%, to 96.8p after it posted a 1.4% rise in second-quarter sales at its Argos stores. However, Homebase, its DIY chain, was hit by poor summer weather as consumers held back on spending.
Electricals retailer Darty (DRTY.L) gave up 0.75p, or 1.35%, to 54.8p as the chief executive, Thierry Falque-Pierrotin, announced he will leave the company after a review of the business is completed in December. The company, formerly known as Kesa, sold its UK Comet stores for £2 in February and has been revamping the business since.
Imagination Technologies tumbles after lacklustre iPhone launch
08.40: Imagination Technologies (IMG.L), the chip designer and Apple supplier, is another faller as investors find fault with its trading statement in light of the lukewarm reception to the launch of the iPhone 5 yesterday.
Shares in the Citywire Top Stock slid 4.6% or 28p to 582p as the company, whose chips power smartphones, tablets, games consoles and smart TVs, said it had seen strong growth in shipment volumes from its chip making partners. Its licensing pipeline was also strong, it said, despite the economic uncertainty.
Chief executive Hossein Yassaie once again claimed the company was on track to meet its goal of shipping 1 billion units a year by 2016.
However, Lorne Daniel, analyst at FinnCap, maintained her ‘sell’ recommendation noting that the statement mentioned ‘continued progress’ rather than explicitly saying it would meet forecasts. ‘We remain cautious on grounds of competition and macro environment,’ she said in a note to clients.
Chip giant Intel has a 14.5% stake in Imagination with Apple holding 8.7%. The stock is a top 10 holding in Nigel Thomas’ AXA Framlington UK Select Opportunities fund, which places it in our Citywire Top Stocks.
Next shares crash on quiet start to second half
08.15: Next (NXT.L) tumbles 6% or £2.15 to £33.60 in early trading as investors take profits in the high street darling reported disappointing trading since its half-year end.
‘We remain cautious about the economic outlook whilst maintaining full-year guidance that our sales, profits and earnings per share will all move forward on last year,’ the firm said on noting that August and early September had been unusually quiet.
It all sounds a bit ominous after Burberry’s mauling earlier this week. However, half-year profits have come in at the top of analysts’ expectations with pre-tax profits up 10.2% to £251 million for the six months to 28 July.
Earnings per share are up 18.7% to 118.5p, helped by share buybacks of £112 million and lower tax rates, with the interim dividend hiked 12.7p to 31p.
Last month Next raised its guidance for full-year pre-tax profit to £575-620 million, which at the top end would be around 8% up on last year. The shares have risen nearly 26% this year valuing the company at £5.7 billion.
The FTSE 100 got off to a quiet start dipping 2 points to 5,778 as investors wait for the US Federal Reserve’s monthly statement this afternoon.