Chinese data dampens miners' spirits

Heading into the close the FTSE 100 is barely changed on the day, as a rally in the mining sector turns sour.

Oil steam injection
Source: Bloomberg

DAX hits fresh all-time highs

The FTSE has struggled to hold on to its gains all day, and as the session winds down it risks dropping into the red for a second day. Once again the mining sector is displaying its vulnerability to bad data from China. Coming after a slump in factory gate prices yesterday, falls in retail sales and industrial production underlined the theme of a slowing Chinese economy. Often the sector rallies on a ‘bad news is good news theme’, in expectations of more easing, but the rising dollar has added another element of downward pressure on this part of the market and on stocks generally.

The poor performance of the UK’s index comes in contrast to Europe, where a generally upbeat report from European Central Bank head Mario Draghi ignited a rally that took the German DAX to fresh all-time highs. Mr Draghi was keen to emphasise how the newly-enacted quantitative easing programme was already riding to the rescue of an embattled eurozone and that sunnier times lie ahead. The data is certainly going his way and investors seem happy to believe him, but the real test will only come when the Greeks decide to kick off another phase in the crisis. Then we will see if his QE scheme is up to the task. 

Specualtion over Yellen's move continues

Having given up their gains for 2015 on Tuesday, US markets have attempted to pick themselves up off the floor this afternoon, but with only marginal success. Sentiment has been badly damaged by the prospect of rate hikes, a veritable ‘tightening tantrum’ to rival the ‘taper tantrum’ of 2013.

Matters have not been helped by the unbearable lightness of the economic and corporate calendars, which have provided little to distract attention from the endless speculation about the next move by Janet Yellen and her team. Risk appetite looks weak at best, and stocks remain vulnerable to a further downward move in the coming week before the Federal Reserve actually meets.

Gold touches four-month lows

Precious metals have woken up to the rout taking place in many asset classes, with gold touching four-month lows this afternoon. It seems almost unnecessary to point out how, even in the face of ECB QE, gold will suffer as the dollar rallies, but gold longs are learning this painful lesson once again. The $1140 level, the low of early November and bottom end of gold’s descending channel could provide some support, but the drop back below the monthly downtrend signals the sellers still have the upper hand.

US crude prices were in full retreat again today after yet another larger-than-expected rise in oil inventories. It is looking more and more like the bounce seen in February was just a flash in the pan.

Fed comments boost dollar

As Tacitus might have said, ‘they make it a wilderness and call it a forex market’. Nothing can stand in the way of the dollar, which continues to be the favourite for yet another day. Comments from Fed member James Bullard gave a further boost to the currency, but while dollar fans can rejoice US firms will be increasingly worried that their competitiveness will be eroded in export markets, especially against their German and Japanese counterparts, whose currencies continue to slide.

Mario Draghi might be talking up his QE success already, but there are hints he might look to flex his monetary policy powers in new areas, and this has been sufficient to drag the euro closer to parity against the dollar.

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