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FTSE 100 set to rise on Federal Reserve’s doveish stance on interest rates

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The FTSE 100 was set to rise today, clawing back some of yesterday’s losses despite concerns about another big raft of new rules restricting companies’ freedoms to pay dividends and bonuses.

After a lacklustre session yesterday, UK markets were expected to gain on the back of doveish noises coming out of the Federal Reserve last night.

US stocks gained sharply after the US central bank reiterated its intention of keeping monetary policy loose despite signs of a rapid bounceback in the economy.

Chairman Jay Powell made clear there will be no pullback from the easy money policy at the Fed until there was “substantial” progress on the economy.

That put paid, for now, to fears that interest rates were going to rise any time soon and soothed some of the surging bond yields that have resulted from speculation of such a move.

However, Powell was only reiterating what he has been saying repeatedly since the launch of vaccines has been fuelling speculation of interest rate normalisation to curb a likely rise of inflation as the economy heals.

Market watchers said it was unlikely his words last night would keep a lid on the “reflation” talk for long.

That said, the FTSE 100 was set to rise 24 at 6790.3 after falling nearly 41 points yesterday, according to trading patterns on the IG broking platform.

Asian shares put in a strong performance this morning on the back of the Fed news.

The Bank of England is expected to act similarly to the US central bank today as it keeps interest rates on hold and, probably, keep the asset purchase scheme at £895 billion.

CMC Markets said: “The US’s economic recovery is far stronger than that of the UK and, with the Fed not anywhere near tightening monetary policy, it is safe to say the BoE will not be looking to adjust their stance for the forseeable future.”

Bank governor Andrew Bailey’s post-announcement Press conference will be closely watched for the latest thinking on the economy. He has recently said the UK’s bounceback could be quicker than initially thought. With the vaccine programme going well in the UK, that looks ever more likely to investors.

Longer term, many fund managers may be alarmed at yet another set of government plans to interfere with corporate boards’ freedoms.

Under the leaked plans due to be released later today, large companies will be barred from paying dividends if they don’t have the cash reserves to do so and executive bonuses will have to be clawed back if businesses make big mistakes with their accounts or allow fraud.

The reforms come in a white paper that was ordered after the scandalous collapses at Carillion, BHS and Patisserie Valerie in an overhaul reminiscent of the US Sarbanes-Oxley rules brought in after the Enron scandal.

The paper is also aiming to reduce the power of the Big Four accounting and audit firms with a new regulator taking over from the Financial Reporting Council, which oversees them.

Large listed companies will have to have its accounts checked by a Big Four firm and have a small accounting firm carry out a “meaningful portion” of auditing the accounts.

Investors are likely to argue that the rules would have singly failed to prevent the current high profile collapse, Greensill, which was audited by a little-known firm.

More will point out that another raft of new corporate governance rules to understand and comply with is the last thing companies need right now as they struggle to manage their recovery from the Covid economic crisis.

Shares in BT will be closely watched after surging nearly 7% yesterday following the lowball auction prices for UK 5G spectrum.

Today is likely to see the Ofcom review published of how much the company is allowed to charge customers to access its planned fibre networks across the UK.

The result will be critical for BT’s profitability in years to come and also dictate whether its rollout plans are affordable.

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