FTSE 100 miners under pressure as China continues to target commodity prices

Mining stocks are proving a drag on the FTSE 100, with China continuing their push to drive commodity prices lower. Meanwhile, a rise in UK CPI has highlighted the task ahead as the FOMC meet to decide their latest monetary policy stance.

• Miners under pressure as China releases commodity reserves.

• UK CPI pushes through 2% target.

• Fed meeting sees a focus on projections and tapering talk.

European markets are struggling to gain traction in early trade, with the losses seen in US markets bringing a similar degree of uncertainty this side of the Atlantic. The trio of weak retail sales and homebuilder confidence, coupled with another surge in PPI did highlight the jumbled recovery in the US. Nonetheless, the influence of surging commodity prices does appear to be under question if the actions of the Chinese are to be taken into account. With China having driven much of the upside seen in global commodity prices over the past year, their recent efforts aimed at easing the price pressures have clearly caused major rippled throughout the sector. The declines in Chinese industrial production seen today highlights the pressure put on economic growth by rising input prices. With the Chinese announcing that they will start to periodically release reserves of aluminium, copper, and zinc, we are seeing that the country clearly has intentions to do all it can to quell the rise in commodity prices. Perhaps predictably, mining names make up the bulk of the top FTSE 100 losers, with Glencore, Anglo American, and BHP Group all losing ground.

A jump in UK CPI has provided yet another timely reminder of the kind of pressures faced by central bankers at the moment. Crucially, this above-expectations 2.1% rate of inflation takes the headline CPI rate beyond the 2.0% target set by the chancellor. Unlike the Fed, the BoE does not have a policy of average inflation targeting which allows above-target prices for a period of time. Nonetheless, the BoE is likely to take a similar approach to the Fed for now, with base effects and reopening adjustments bringing a potential short-term spike that could prove fleeting. That topic of transitory inflation will be key as we look towards the FOMC meeting today, with the Fed looking unlikely to move the dials this time around. Instead, there is likely to be a focus on the latest dot plot and inflation projections, alongside questions around to what degree the Fed have discussed tapering in forthcoming meetings.

Ahead of the open we expect the Dow Jones to open 45 points lower, at 34,254.