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Mind The Gap; London Trading Session Update Before New York Session Opens

Jul 28 • Featured Articles, Mind The Gap • 1475 Views • No Comments

UK GDP rises to 0.6% with service industries making the greatest contribution

fThe rise in UK GDP to 0.6% was in line with the majority of economists’ predictions when polled on the subject. However, the most dynamic number in the data came in the ‘swing’ – UK GDP is currently 1.4% higher versus this time last year, a stunning turnaround, particularly when you bear in mind that the UK escaped the ‘triple dip’ marginally in the last quarter, to then have the recorded ‘double dip’ erased as the previous figures were revised upwards…

Gross domestic product (GDP) increased by 0.6% in Q2 2013 compared with Q1 2013. All four main industrial groupings within the economy (agriculture, production, construction and services) increased in Q2 2013 compared with Q1 2013.

The largest contribution to Q2 2013 GDP growth came from services; these industries increased by 0.6% contributing 0.48 percentage points to the 0.6% increase in GDP. There was also an upward contribution (0.08 percentage points) from production; these industries rose by 0.6%, with manufacturing increasing by 0.4% following negative growth of 0.2% in Q1 2013.

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In Q2 2013, output in the construction industry was estimated to have increased by 0.9% compared with Q1 2013. In Q1 2013 construction output was at its lowest level since Q1 2001. Before the sharp fall in output in 2008 and 2009 the economy peaked in Q1 2008. From peak to trough the economy shrank by 7.2%. In Q2 2013, GDP was estimated to be 3.3% below the peak in Q1 2008.

GDP was 1.4% higher in Q2 2013 compared with the same quarter a year ago. Q2 2012 contained an extra bank holiday for the Queen’s Diamond Jubilee. Users should therefore show caution when interpreting the quarter on same quarter a year ago growth in Q2 2013.

German IFO data reveals positive expectations

The Ifo Business Climate Index for industry and trade in Germany rose for the third time in succession. Assessments of the current business situation are more positive than last month. Although the six-month business outlook weakened slightly, firms remain cautiously optimistic with regard to their future business outlook. Conditions in the German economy remain fair. The business climate indicator in manufacturing rose slightly. Satisfaction with the current business situation increased for the third month in succession. Business expectations declined minimally, but remain positive.

Monetary developments in the euro area

Annual growth rate of the broad monetary aggregate M3 decreased to 2.3% in June 2013, from 2.9% in May 2013. The three-month average of the annual growth rates of M3 in the period from April 2013 to June 2013 stood at 2.8%, compared with 2.9% in the period from March 2013 to May 2013. Regarding the main components of M3, the annual growth rate of M1 decreased to 7.5% in June 2013, from 8.4% in May.

Lending to companies and households in the seventeen member euro area contracted for the 14th month in succession in June, a sign the region is still struggling to shake off its longest ever recession. Loans to the private sector fell 1.6 percent from a year earlier after dropping 1.1 percent in May, the Frankfurt-based European Central Bank has reported today.

Market overview

Despite the good UK GDP print the UK FTSE failed to react positively and in tandem with the majority of European bourses failed to rise. Monetary developments in the euro area may have affected sentiment marginally, whilst news that Spanish unemployment had reduced from its peak was not enough to alter the trajectory of many European higher yielding assets. Earnings from large companies, who act as sentinels for economic performance, has also disappointed the markets this morning, with the German giant chemicals company BASF disappointing, as has Orange, the mobile network supplier whose earnings dropped by 8.5%

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The STOXX index is down 0.87%, UK FTSE down 0.91%, CAC down 0.72%, DAX down 1.18%, MIB down 0.82%, whilst the Portuguese index, the PSI has broken the mould being up 0.16%.

The Nikkei closed down 1.14%, the Hang Seng closed down 0.31%, the CSI closed down 0.5-%. The ASX 200 closed level whilst the NZX closed down 0.49%.

The DJIA equity index future is currently down 0.56%,whilst  the NASDAQ down 0.57%.

WTI oil suffers its fourth day of falls as market tensions regarding the situation in Egypt relent and USA energy storage data has improved. ICE WTI crude is down 0.72% at $104.63 per barrel. NYMEX natural is up 0.11% at $3.70.

Spot gold is down 0.74% at $1312.78 per ounce, whilst spot silver is down by over one percent, down 1.27% at $19.92 per ounce.

Focus on FX

Yen has risen versus all but one of its 16 major peers; a drop in Asian equities boosted demand for the safest assets. The yen appreciated 0.3 percent to 100.02 per dollar early on in the London session. It strengthened 0.4 percent to 131.89 versus the euro after yesterday reaching 132.74, the weakest level witnessed since May 23rd. The euro added 0.1 percent to $1.3186. It touched $1.3256 yesterday, the highest level monitored since June 20th. New Zealand’s dollar rose after the nation’s central bank declared that the pace of any future base interest-rate rises will depend on the growing housing market’s impact on prices, reiterating that borrowing costs are likely to remain at their record-low of 2.5 percent for the remainder of this year. The kiwi gained 1.2 percent to 80.23 U.S. cents.

Sterling was little changed at $1.5307 in the London session post the UK GDP number release, after rising by as much as 0.5 percent. The U.K. currency appreciated less than 0.1 percent to 86.14 pence per euro after climbing 0.4 percent to 85.88.

Sterling has however strengthened 0.8 percent during the past three months, according to the Bloomberg Correlation-Weighted Index tracking the ten most developed-nation currencies. The euro has gained 3.2 percent and the dollar has risen 1.7 percent.

The benchmark 10-year (GUKG10) yield was at to 2.38 percent after rising to 2.43 percent, the highest since July 10th. Gilts have served investors a loss of 3.2 percent this year through, according to the Bloomberg World Bond Indexes. German securities losing 1.3 percent to date whilst U.S. Treasuries have dropped by  2.6 percent.

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