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Wall St set for flat open on caution ahead of Fed decision

By Angela Moon
NEW YORK | Wednesday, 18 Sep 2013
(Reuters) – Wall Street was set for a flat open on Wednesday ahead of an announcement by the Federal Reserve on the future of its economic stimulus program.

Investors were hesitant to make big bets ahead of what is expected to be the first tentative step by the U.S. Federal Reserve to wean the economy off its massive stimulus program that has helped prop up the U.S. economy and equity markets for much of the year.

Expectations are that the Federal Open Market Committee (FOMC) will be cautious with cuts to its $85 billion in monthly asset buying when it announces its plans at 2:00 p.m. EDT (1800 GMT), while also seeking to reassure investors that an actual rise in interest rates is still distant. Fed Chairman Ben Bernanke holds a press conference at 2:30 p.m. (1830 GMT).

“I don’t expect the Fed to make a move that is going to derail capital markets. Whatever is said will be done in a delicate and considerate manner to keep investors confident,” said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

Many equity options traders appear less worried by the U.S. Federal Reserve’s expected announcement than by Washington’s looming debt and budget battles. Hedges on volatility have been on the rise, but those bets do not look to be specifically tied to the Fed which has warned it will wind down its stimulus efforts if the economy is improving.

S&P 500 futures were flat and in line with fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures lost 5 points, while Nasdaq 100 futures added 8.5 points.

European shares traded at five-year highs by midday Wednesday with the FTSEurofirst 300 .FTEU3 up 6.32 points, or 0.5 percent, at 1,258.95, just above a five-year closing high hit on Monday.

Activity in other asset classes also suggested that investors were not too worried about the Fed announcement. The U.S. dollar held near a four-week trough against a basket of major currencies while gold fell for the third consecutive session to a six-week low, as markets paused, expecting the U.S. Federal Reserve to announce a reduction, albeit small, in its bullion-friendly stimulus measures.

Economic data released showed U.S. housing starts rose less than expected in August amid a sharp slowdown in the multifamily sector, but a surge in permits for single-family homes pointed to sustained strengthening in the housing market recovery. Market reaction was muted.

Adobe Systems Inc (ADBE.O), known for its Photoshop and Acrobat software, expects subscriber growth to top the 331,000 it added in the third quarter due to strong demand from corporate customers. The stock was up 6.3 percent to $51.20 in premarket trading.

FedEx Corp (FDX.N) posted a bigger quarterly profit as the courier company cut costs and its lower-priced ground shipping business did well, sending its shares up 2.8 percent to $113.75 in premarket trading.

(Editing by Theodore d’Afflisio)