FTSE lags behind European peers as commodity stocks weigh

The FTSE fell heavily on Monday, dipping below 7600, as commodity stocks and a stronger pound weighed on the index. With the Chinese economy expanding at a slightly slower pace in Q2, metal prices tumbled, causing mining stocks to trace the price lower, which oil majors slipped as oil tumble 3%. Given the heavy weighting of resource stocks on the FTSE, the blue-chip index lagged significantly behind its European peers.

Chinese Growth Slows
The Chinese economy grew by 6.7% in Q2 its slowest pace of growth since 2016 as a heavy deleveraging campaign continues to take effect. Whilst the growth is still above the official government target of 6.5%, it comes at a time when the Chinese government it attempting to tackle excessive credit and debt risk after a decade of credit stimulus and as China faces headwinds over the US trade tariffs. The reaction today isn’t so much about the 0.1% tick lower in Q2 GDP, but more a reflection of concerns over the slowing of growth that can be expected going forwards. 

Oil Sinks As US Softens Stance on Iran
Oil plummeted over 3.5%, pulling the likes of BP and Shell 2% lower, after the US appeared to be softening its stance on oil supply from Iran. The price of oil had previously rallied hard over concern of aggressive US policy to remove Iranian oil from the market; furthermore, Saudi Arabia had also upped its production to cover shortages from Iran, which could now be less than initially planned. Let’s keep in mind here that with the midterm elections slower creeping up on us, Trump won’t want to get to November with extraordinarily high prices at the petrol pumps. Consumers will have enough to complain about with the rising cost of imports in light of the rising trade tariffs, without having to fork out extra for petrol.

Pound Slips As Theresa May to Face Showdown in Parliament
The pound was trying in to build on Friday’s momentum as the new week kicked off. Slight weakness in US retail sales helped push sterling higher, as traders looked ahead to the Brexit vote in Parliament this afternoon. As PM Theresa May struggles to cling on to power, her Conservative party is expected to show the extent of their dissatisfaction with the Chequers deal in a showdown at the start of what is set to be a critical week for Theresa May’s leadership. 

The pound climbed higher hitting a peak of $1.3293, until news from Downing Street that a second referendum is completely off the table was enough to send sterling sharply lower. As the Brexit mess deepened there was always a glimmer of hope for pound traders that a second referendum could clear the way. But with that option put to bed, Theresa May needs to pull her party into line if a hard Brexit is to be avoided. Heading into the vote the pound was finding support at $1.3230.  Theresa May is not expected to be defeated, but a heavy opposition could see the pound slip lower as her chances of hanging onto power decline.