FTSE 100 slips ahead of bumper week for central banks

The FTSE 100 slipped on Monday as worrying Chinese economic data hit mining companies ahead of a series of interest rate decisions.

London’s leading index was down 0.5% to 7,516 at the time of writing and was underperforming major European indices. The DAX was flat, and the CAC 40 gained 0.3%.

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“The FTSE 100 started the week on the back foot, dragged lower by the mining sector as figures from China over the weekend showed the economy swung deeper into deflation,” said AJ Bell investment director Russ Mould.

“An indicator of depressed domestic demand and a very different story to the inflationary pressures faced in the rest of the world, the data inevitably hit the miners given the world’s second-largest economy is such a rapacious consumer of commodities.

A deflationary environment in China will damage the FTSE 100 with a strong weighting to commodity companies. This was evident on Monday with losses in diversified miners Rio Tinto and Glencore. Rio Tinto slipped 1.5%, while Glencore fell 3.2%. Anglo American rose 1.3% after a plummeting last week.

Pure-play copper miner Antofagasta bucked the trend and rose 2% on Monday. Antofagasta is the second-best-performing FTSE 100 stock of December so far. InterContinental Hotels is the best performing, gaining 12%.

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Centrica was the top faller on Monday as utility companies dipped.

The interest rate-sensitive banking and housebuilding sectors were weaker as traders trimmed positions ahead of central bank action this week.

Central bank action

Markets are preparing for a bumper week of central bank action. According to Bloomberg, central banks representing 60% of the world’s economy will decide on interest rates this week.

This includes the Bank of England, the Federal Reserve, and the European Central Bank.

Although these major central are set to issue decisions on interest rates, all are expected to keep rates on hold. Investors will pour over the accompanying commentary for hints of where rates will go in early 2024.

These comments and projections have the power to move markets significantly before Christmas.

A narrative has been established around interest rate cuts in Q1; should we learn of anything to the contrary, one would expect negativity in stocks. If hopes of rate cuts are fuelled by central bank rhetoric, we could well be on for a Santa’s rally.

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