Commodity super selloff

In mid-morning trading the FTSE 100 is under heavy selling pressure as commodity companies bear the brunt of the decline. 

Stationary mining trucks
Source: Bloomberg

The London stock market is suffering the most across Europe, and the FTSE’s high exposure to mineral-related companies is behind the poor performance. The collapse in the mining companies seems to be getting worse, with even Glencore printing a fresh new low this morning. We have gone from the commodity super cycle to the commodity super sell-off, and this pattern isn’t about to change any time soon.

The severe drop in commodity prices has trickled down to the cost of living, and the UK inflation level has slipped back to zero. The threat of deflation will keep mortgage holders happy, but its spells difficult times ahead for members of the Bank of England . When you combine falling commodity prices with  weakness in the Far East, it is difficult to foresee any interest rate hike from the Federal Reserve this week, and traders will sit on their hands until then.

Kingfisher shares are trading lower this morning because the retail division is still underperforming in comparison to the wholesale operation. To take advantage of the construction boom, Kingfisher is planning on devoting more of its attention to the wholesale side of the business. The move makes sense seeing as the major householders are revealing record profits, and are able to acquire materials and equipment quickly.

We are expecting the Dow Jones to open 30 points lower at 16,340. The US index futures are jittery like the rest of the global markets, and the Fed announcement on Thursday is what everyone is waiting for. There is a growing feeling that the Federal Reserve won’t budge, but dealers will give the stock market a wide berth until no change in interest rates has been confirmed. The Asian equity markets have been steadily losing ground for the past month, and even though volatility is low there is a feeling that another major sell-off is just around the corner.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.