Tomorrow's FOMC decision adds further uncertainty into the markets

Good morning,

• Scottish referendum polls remain neck and neck, uncertainty hits risk appetite;

• Tomorrow’s FOMC decision adds further uncertainty into the markets;

• UK inflation falls again in August, but it doesn’t appear to be worrying the BoE.

With so many risk events to come this week, investors are understandably risk averse again today, with European stocks tumbling and US futures pointing to a similar open.

As was the case yesterday, uncertainty surrounding the Scottish referendum and the Fed decision is really weighing on investor sentiment. While most people you ask will say that they believe the Scots will ultimately vote against independence, even if by a fine margin, people do not want to put their money where their mouth is.

The fact of the matter is that while there is still a lot of undecided voters - many of whom in my opinion are more likely to vote for the status quo - the polls are neck and neck and this cannot be ignored. As long as this is the case, there is still a realistic chance that the Scots could vote in favour of independence which as far as the markets are concerned would be a total disaster.

The other big risk event this week is the Fed meeting. It’s very difficult for people to argue that the Fed’s ultra-loose monetary policy stance has not been largely responsible for stocks rallying to their highest ever levels. Now that this is coming to an end, with asset purchases falling to zero next month and the first interest rate hike around the corner, people are getting nervous.

As long as rates remain at record lows, there is reason for US indices to be at these highs. That’s why people are concerned about the Fed’s stance on Wednesday, after rumours surfaced that the Fed is preparing to drop its commitment to keep rates low for a considerable amount of time after the end of asset purchases. If that happens, it may mark the end of record highs being made in indices for a while.

As for today, it’s going to be another light data session, with no major economic releases coming from the US. This morning we’ve had some inflation data from the UK which may change things as far as the first rate hike is concerned, given that the headline figure fell to 1.5% in August. We’ll get the minutes from the latest meeting on Wednesday which will show how the latest voting went. Should we see additional voting in favour of a hike, it may suggest that the MPC is prioritising other things over inflation, such as risks in the financial system that many people have raised concerns about in recent years. The fact that core inflation rose to 1.9% may ease fears of a falling headline number.

The S&P is currently seen opening 1 point lower, the Dow 24 points lower and the Nasdaq 3 points lower.