FTSE succumbs to European pessimism

Heading into the close the FTSE 100 is down 37 points, forced lower by a combination of European weakness and falling commodities.

Disappointing Spanish manufacturing PMI figures have dragged European markets lower, overshadowing any positive sentiment mustered by reports of an improving Chinese economy. Spanish figures are now contracting rather than showing improving growth as expected, raising fears of a domino-like contagion.

Miners weigh on FTSE

With commodities struggling, it is no surprise that the mining sector has taken a whack and subsequently helped drag the FTSE 100 lower. Going into the close, four of the top five fallers are mining stocks. Without the crux of an over-optimistic US market to raise aspirations, the FTSE has succumbed to the pessimism more prevalent in Europe, regardless of clear signs of recovery in the UK.

Ahead of Wednesday’s figures, Tesco’s shares have suffered after a downgrade by HSBC’s analysts, which has knocked around 2% off the share price. A similar fate has befallen Debenhams which has also been labelled as underweight, chopping off 3% from the company’s share price over the day.

US markets reawakening

US traders appear to be struggling to shake the lethargy out of their system after the long weekend, but a full economic diary should ensure the malaise does not last much longer. This afternoon's improved ISM manufacturing PMI figures and monthly construction spending will set an interesting backdrop to the unemployment figures due for release later in the week. A combination of the US trade balance, Federal Reserve Beige Book, non-farm payroll figures and unemployment rates will conclusively confirm whether tapering stands any chance of happening this side of year's end.

Metals under pressure

Gold still has the dejected look of a metal that has lost its lustre, and looks more likely to test the summer lows than mount a serious assault on the well-embedded negative trend.

Once again the looming increase in copper supply that is set to hit the 2014 markets has outweighed the improving Chinese economic data and seen the metal drift. With supply looking to be plentiful for the foreseeable future, the price has been forced lower with an imbalance that could last for some time.

Dollar strengthens against yen

Could the much-maligned Abenomics finally be showing signs of working, as USD/JPY continues its climb higher, now looking set to tackle its mid-May highs? A breach of these levels would give the currency cross the ability to set far loftier targets.

GBP/USD has had a corrective day of trading, but given the conviction that we have seen developing over the last three weeks this could just be a momentary pause in its push higher.

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