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Having tracked steadily higher over the past four days the FTSE 100 has finally hit a bump in the road, moving back below 6700 as mining stocks retreat following a tough session for iron ore futures. Supply gluts are currently affecting iron ore and other commodities, leaving miners under pressure as prices fall. Having lagged behind other indices in the recent rally, the FTSE faces further underperformance due to the abundance of major raw material names in its ranks.
Royal Mail shed 3% after it warned that growth in parcels would slow thanks to Amazon and its competitive delivery network. We can expect more of the same from Royal Mail, while the expectation of hitting targets for the full-year hinges on a good Christmas and thus the risk of disappointment is high.
The real carnage was in the pub sector, after MPs voted to end the ‘beer tie’ that limits the supply sources pub tenants can choose. Real ale aficionados will cheer, but the potential damage to small businesses could see further damage to an already ailing industry.
GBP/USD was lifted by 50 points following minutes from the Bank of England that showed no change on the voting patterns among policymakers. The hawks were persuaded to stay the course thanks to evidence that the labour market is tightening, suggesting that the recent boost in wage growth may not just be a one-off. Even so, a sustained rise in the pound is going to need a few more conversions among the doves to a hawkish viewpoint.
The US session will be dominated this afternoon by anticipation ahead of the latest set of Fed minutes. If the minutes echo the BoE and remain more optimistic on economic growth then we could see a bringing forward of rate expectations. If that happens then US indices look overextended and ripe for a sell-off, which would set them up nicely for a rally into the end of the year.