European stocks on the rise despite China-led commodity selloff

A bumper rebound for US stocks has fed through to Europe this morning, with the FTSE 100 gaining over 1%. That comes despite Chinese efforts to undermine prices in key commodities, with the government laying out plans to auction reserves of zinc, aluminium, and copper. 

• Europe follows US gains.

• Delta domination underlines need to vaccinate.

• Commodity prices hit as China sets out plans to release reserves.

European markets are following their US counterparts higher in early trade today, with reopening stocks finally finding the kind of love many had expected in a week dominated by the UK’s removal of Covid restrictions. The Delta variant now accounts for 98% of all UK cases, and that highly transmissible variant will undoubtedly grow in importance around the world. Thus there are concerns that those countries without high vaccination levels will be unable to cope without heavy restrictions, while the UK provides the blueprint for reopening efforts in the face of huge numbers of Covid cases.  

Commodity prices are under pressure in the wake of a Chinese announcement that they will auction reserves of copper, aluminium, and zinc in a bid to quell price pressures. The rise in Chinese PPI highlights how input costs are driving up inflation, and bulls will hope that this alleviates some of the underlying reasons behind the recent rise in headline CPI. Recent months have been dominated by the Chinese efforts to calm the price of key commodities, and today’s announcement represents an intensification of those efforts. Nonetheless, with the market in risk-on mode, there is a clear willingness to overlook short-term volatility in commodity prices to instead focus on the prospect of economic outperformance in the second half of 2021.   

Ahead of the open, we expect the Dow Jones to open 206 points higher, at 34,717.