Weak commodities stocks are dragging down European and Canadian markets to multi-week lows

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  • Stock markets in Canada and Europe are at multi-week lows on Thursday as peaking commodity prices drag down commodity-linked stocks.
  • After a relentless run-up since the end of April 2020, the Dow Jones Commodity Index has remained roughly flat since May of this year.
  • Beneath the headline index, some commodities are plummeting: oil has slid around 13% this month and iron ore has likewise fallen 25%.
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Stock markets in Canada and Europe are at multi-week lows on Thursday as peaking commodity prices drag down commodity-linked stocks.

Canada's TSX composite index and the index-tracking Vanguard FTSE Europe ETF are at three-week lows following several days of declines. The UK's FTSE 100 is at its lowest level in August after a 2% drop on Thursday.

A big culprit is commodities prices, which have fallen from recent peaks and are weighing on stocks. After a relentless run-up since the end of April 2020, the Dow Jones Commodity Index has remained roughly flat since May of this year.

Beneath the headline index, some commodities are plummeting. Oil has slid around 13% this month. Iron ore has likewise fallen 25% in August, a development that occurred a quarter earlier than expected, Bank of America analysts wrote in a note this week. BofA explained the steep move as iron supply recovering to meet hot demand, but projected significant price volatility ahead.

As such, stocks in oil and mining companies have led the recent Euro-Canada dip. Among recent losers have been BP, Royal Dutch Shell, and Canada's Lundin Mining Corp. Luxury stocks like LVMH also posted declines after Chinese president Xi Jinping signaled his country, a heavy buyer of luxury goods, would focus on wealth redistribution.

Many analysts have pointed to possible Fed tapering and the resurging Delta variant as also driving down stocks.

"The spread of the Delta variant is a larger economic issue [than] what investors were pricing in, which is weighing on economy-sensitive sectors like commodities," James Smith, an economist at ING, told Reuters.

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