There’s been a raft of data published this morning relating to the UK government’s borrowing and the UK economic performance. The good news for the UK economy is that the UK’s GDP has now grown to 1.9%, due in the main part to the upward revisions of previous quarters adding 0.2% to the GDP figure.
However, not all the UK data published this morning will be welcomed by the UK chancellor. The balance of payments has taken a huge hit over recent months; the negative trade balance has increased from a revised £6.2 bn deficit in Q2 2013 to £20.7 bn in Q3. Public sector net borrowing in the UK has also increased to £1.231 trillion, equivalent to 76.6% of GDP.
UK balance of payments
The United Kingdom’s (UK) current account deficit was £20.7 billion in Quarter 3 2013, up from a revised deficit of £6.2 billion in Quarter 2013. The deficit in Quarter 3 2013 equated to 5.1% of GDP at current market prices, up from 1.5% in Quarter 2 2013. The trade deficit widened to £10.0 billion in Quarter 3 2013, from £5.0 billion in Quarter 2 2013. The income balance switched to a deficit of £3.7 billion in Quarter 3 2013, from a surplus of £6.0 billion in Quarter 2 2013. The financial account recorded net inward investment of £30.0 billion during Quarter 3 2013. The international investment position recorded UK net assets of £97.6 billion at the end of Quarter 3 2013.
UK public sector borrowing
Public sector net debt excluding temporary effects of financial interventions (PSND ex) was £1,231.7 billion at the end of November 2013, equivalent to 76.6% of gross domestic product (GDP). The central government net cash requirement for the year to date 2013/14 was £41.4 billion; £25.7 billion lower than the same period in 2012/13. For the financial year to date 2013/14, public sector net borrowing excluding temporary effects of financial interventions (PSNB ex) was £71.8 billion. This was £13.9 billion higher than the same period in 2012/13, when it was £57.9 billion. In November 2013, public sector net borrowing excluding temporary effects of financial interventions (PSNB ex) was £16.5 billion. This was £0.9 billion higher than in November 2012 when it was £15.6 billion.
UK GDP rises
UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.8% between Q2 2013 and Q3 2013, unrevised from the Second Estimate of GDP published 27 November 2013. GDP in volume terms increased by 1.9% when comparing Q3 2013 with Q3 2012, revised up 0.4 percentage points from the previously estimated 1.5% increase.
Later data for expenditure, in particular household final consumption expenditure, has led to upward revisions for GDP since Q1 2012. As a result, between 2011 and 2012, GDP in volume terms rose by 0.3%, an upwards revision of 0.2 percentage points from the previously published 0.1% increase. GDP in current prices was estimated to have increased by 1.4% between Q2 2013 and Q3 2013, revised down 0.3 percentage points from the estimate published 27 November 2013. In Q3 2013 GDP in volume terms was estimated to be 2.0% below the peak in Q1 2008, as compared with 2.5% below this peak as previously estimated. From peak to trough in 2009, the economy shrank by 7.2%.
Fed Assets Reach Record $4 Trillion on Unprecedented Bond-Buying
Federal Reserve’s balance sheet reached a record $4 trillion, as the central bank pushed on with its unprecedented asset-purchase program. The Fed’s holdings rose $14.1 billion to $4.01 trillion in the past week, the Fed said today in a statement in Washington. Policy makers said yesterday they will slow monthly purchases of Treasuries and mortgage bonds to $75 billion in January.
German Producer prices in November 2013: -0.8% on November 2012
In November 2013 the index of producer prices for industrial products fell by 0.8% from the corresponding month of the preceding year. While prices of consumer non-durable goods increased by 1.5% prices of intermediate goods were 2.0% low and energy 2.1% low compared with November 2012. In October 2013 the annual rate of change all over was –0.7%, too. Compared with the preceding month the index fell by 0.1% in November 2013 (–0.2% in October and +0.3% in September 2013).
Standard & Poor’s cuts the European Union’s credit rating to AA+
S&P’s decision to cut the EU’s credit rating took the market by surprise this morning however the impact has been neutral. The agency stated that it cut the top credit rating down to AA+ because EU budget negotiations have become more contentious.
From the S&P statement:
[quote]In our opinion, the overall creditworthiness of the now 28 European Union (EU) member states has declined. We believe the financial profile of the EU has deteriorated and that cohesion among EU members has lessened. EU budgetary negotiations have become more contentious, signalling what we consider to be rising risks to the support of the EU from some member states.[/quote]
Market snapshot at 10:00 am UK time
The ASX 200 closed up at 1.21%, the CSI closed down 2.33%, the Hang Seng closed down 0.33%. The Nikkei closed up 0.07%. The Euro STOXX is up 0.17%, the CAC is up 0.04%, DAX up 0.29%, the FTSE up 0.17%. Looking towards the New York open the DJIA equity index future is up 0.11%, SPX up 0.12%, NASDAQ future up 0.15%. NYMEX WTI oil is down 0.30% at $98.74 per barrel, NYMEX nat gas is up 0.52% at $4.48 per therm, COMEX gold is down 0.08% at $1192.70 per ounce, silver on COMEX up 0.13% at $19.21 per ounce.
Forex focus
The euro extended its drop to a third day as S&P cut the EU’s long-term rating to AA+ with a stable outlook. The union’s financial profile has deteriorated and “cohesion” among the member states has lessened, the rating company said as it cut the credit rating today.
The dollar rose 0.2 percent to 104.41 yen early in London after touching 104.59, the strongest since October 2008. It gained 0.2 percent to $1.3634 per euro after advancing to as high as $1.3626, a level unseen since Dec. 6th. The yen was little changed from yesterday at 142.37 per euro, down 0.3 percent since Dec. 13th. The dollar was poised for an eighth straight week of gains versus the yen and its first five-day advance in more than a month against the euro as signs of strength in the U.S. economy boosted demand for assets there.
For the week, the U.S. currency has climbed 1.2 percent versus the yen and 0.8 percent against the euro. The U.S. Dollar Index touched its highest level in two weeks amid prospects the Federal Reserve will continue to dial back monthly bond buying after announcing a $10 billion cut. The Dollar Index, which tracks the greenback against 10 major peers, reached 1,024.08 today, the strongest since Dec. 4th. It’s poised for a 0.7 percent advance this week, the most since the period ended Nov. 1st.
The pound dropped 0.2 percent to $1.6334 early London time, cutting this week’s increase to 0.2 percent. The U.K. currency was little changed at 83.43 pence per euro. The pound has gained 4.2 percent in the past three months, the best performer of 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices.
Bonds
Germany’s 10-year yield was at 1.87 percent early London time. The price of 2 percent bund due in August 2023 was 101.10. The rate has increased four basis points, or 0.04 percentage point, basis points this week. Two-year notes yielded 0.23 percent, from 0.25 percent on Dec. 13th. Germany’s 10-year government bonds were set for a weekly decline even as a report showed prices of goods leaving factories fell last month.
The USA 30-year yield fell two basis points, or 0.02 percentage point, to 3.89 percent early in London. The 3.75 bond due in November 2043 rose 11/32, or $3.44 per $1,000 face amount, to 97 17/32. Ten-year yields were little changed at 2.93 percent. Treasury 30-year bonds rose for the first time in three days as some investors said slow inflation and the Federal Reserve’s promise to keep interest rates low makes the debt attractive.
