Stocks are expected to pull back from a six-week high on Tuesday morning as markets await the outcome of this month's Federal Reserve monetary policy meeting.
Equities started the week strongly after the announcement by well-known hawk Larry Summers that he has dropped out of the race to take over Ben Bernanke's position as Fed Chairman when he steps down in January.
However, investors are likely to turn nervous ahead of the conclusion of the Federal Open Market Committee (FOMC) meeting tomorrow afternoon as markets ready themselves for one of the most closely-watched US policy decisions in recent years, given rising expectations that the central bank will begin to scale back its quantitative easing programme.
According to analysts at Barclays Research, the Fed is likely to taper monthly asset purchases from $85bn to $70bn this week. However, they note that the announcement of tapering by $10-15bn in itself is unlikely to move the market.
"We think the key to gauge the market reaction would be: 1) the Fed's updated economic forecasts, especially its forecast for end-2016 to be included for the first time; and 2) the tone in the Chairman Bernanke's press conference regarding the pace/conclusion of tapering," Barclays Research explained.
City sources predict the FTSE 100 will open down 16 points from yesterday's close of 6,622.86 - this was the best close for London's benchmark index since August 2nd, when it finished the day at 6,647.87.
Stocks to watch
Crest Nicholson, the housebuilder which debuted on the stock market back in February, continues to feel the effects of the government's stimulus measures as it gave a confident outlook for the future. Open-market reservation rates since May 1st (start of the third quarter) have been 0.95 per outlet week, up 46% on the 0.65 rate the year before and 23% higher than the 0.77 rate in the first half. It said that the benefits of increased reservation rates mainly won't be felt until next year onwards, though forward sales for 2014 and beyond currently total £145m, up 92% year-on-year.
Debenhams said it expects annual pre-tax profit in line with market forecasts on the back of growth in market share and like-for-like sales. In a trading update ahead of results for the year to end of August, the retailer reported a 2% rise in group like-for-like sales supported by online revenue and market share gains in clothing and non-clothing such as womenswear and beauty.
Domino Printing has warned that market conditions have continued to remain "difficult" in many regions, and in some areas has seen signs of possible deterioration. Despite this, for the 10 months to the end of August, sales rose 7% on a like-for-like basis, with growth in the core business up 5%, equipment revenues up 6%, fluids and other consumables up 7%, and spares and services revenues climbed 8%.