Financial Market Research and Analysis

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FTSE trades south lead by miners, commodities cheapen on China
Even Shanghai’s stocks didn’t buy the imminently looser-PBoC story as the consumer price inflation decelerated to 1.3% year-over-year in October from 1.6% a month ago. The producer prices contracted at the stable pace of 5.9%. The factory-gate deflation has been deepening for more than two and a half years now. The economic picture has, for the time, being worsened despite growth supportive monetary and fiscal measures put in place.

October has not been a brilliant month for China: both the rising deflationary pressures on producer prices and the 6.9% fall in exports hint that People’s Bank of China could further ease monetary conditions and proceed with additional rate cut before the end of the year, especially if the Fed normalisation kicks out by December.

Unfortunately, even the dovish PBoC expectations were insufficient to boost investors’ appetite in Chinese stocks; commodities are under pressure, the entire copper futures curve has shifted lower, December contract trades near record low of $2.20/lb. A slide below this level is expected to add further pressure on miner stocks. Devaluation in yuan could add more pressure on miners by curbing recovery in Chinese foreign commodity demand. Iron ore delivered to Qingdao in China has slipped to record low.

The FTSE also trades south in London with energy and miners leading losses again.

Anglo American (-4.60%)
BHP (-2.30%)
Glencore (-2.15%)

Analysts revised down the earnings per share estimate down by another 4% over the past four weeks, down to £ -2.339. Anglo American’s sales are expected to have dropped to £21.534 billion in 2015, with a sizeable 75% drop in Anglo’s operating profit in 2015 £1.167 billion in 2015 from 4.829 billion generated a year ago.

BHP Billiton extended losses to £926.50p, its lowest level since end 2008. In addition to cheapening commodity prices, the large-scale mudslide in Samarco’s Brazil mine will certainly lead to additional legal expenses as the insurance coverage has already exceed $1 billion before dam suits.

The pound is consolidating losses against the US dollar and the euro. Rising concerns over the Chinese slowdown and escalating risks to global growth keep the Bank of England away from a premature policy normalisation.

It is just a matter of time before Cable slips below the 1.50 mark on rising divergence between the BoE and the Fed especially with so many financial institutions adopting a bearish stance While against the euro, the pound should consolidate at about the 0.70c mark, until the European Central Bank gives away more detail on the size of the additional monetary stimulus it is preparing for Christmas.

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