Metals weigh on the FTSE

The decline in both base and precious metals is putting pressure on the mining sector this morning, keeping the FTSE 100 resolutely below the 6600 level as investors take shelter in more defensive stocks.

European indices and gold prices have seen additional losses, as market expectations of a Federal Reserve asset-purchase reduction announcement next week were ramped up, fuelled by rumours that the hawkish Larry Summers will take the Fed chair in January.

Russia’s largest silver miner, Polymetal International, has shed 3.57% in early trade owing to a broker downgrade. The fact that silver has sunk 14% over the last two weeks does not bode well for the company outlook.

Warm summer weather contributed heavily to the record profits announced by pub chain JD Wetherspoon. The company, which has seen its share price gain over 50% in the last six months, saw underlying sales grow 5.8% in the 52 weeks to the end of July, with a 10.9% surge in like-for-like food sales. The shares have given back some gains, owing to a more downbeat outlook from the firm.

The UK macro calendar continues to produce positive news, with second-quarter output rising 2% on the year versus the 1.3% improvement expected. Much of this output can be attributed to a rise of 19.4% in new housing orders, indicating that the government ‘help to buy’ scheme is not constrained to the existing home sector. However, it may be a little early to celebrate, given that construction in the country remains almost 15% below its pre-crisis peak.

Traders have been waiting all week for the release of the US producer price inflation and retail sales figures. Both data-points are expected to see a marginal increase on prior numbers. One can expect that, should the actual figures beat expectations, the market will see this as a definitive confirmation that the FOMC will reduce the current level of quantitative easing.

We currently see the Dow Jones futures trading flat at 15,300.

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