Europe Under Pressure with Rising Covid Cases, UK GDP Growth Slowing in September

Covid cases across Europe continue to rise putting the covid trade back into play. UK GDP rebounded at a record rate, but less than forecast.

Downtrend 2

European bourses are heading lower on the open as vaccine optimism which has driven the rally across the first part of the week fizzles and the covid trade is back in play. Weaker than forecast UK GDP adds to the downbeat mood.

Here in Europe covid figures continue to deteriorate pointing to a very challenging winter before any vaccine will be widely available. The UK reached a grim milestone of 50,000 covid deaths, whilst Italy hit 1 million cases, the third country in Europe to pass the milestone after France and Spain. Calls for a national lockdown in Italy are growing whilst Germany’s Angela Merkel warns that the second wave could be more deadly than the first. Furthermore, Sweden, which avoided a lockdown in the first wave is imposing a partial lockdown in a bid to stem the spread of covid. And that’s just Europe. New daily covid cases in the US are topping 130,000 a day, the question is when will a new lockdown be brought in, if at all?

Rising covid cases and tighter and more widespread lockdown restrictions are prompting a risk off trade sending riskier assets such as stocks lower, whilst safe haven such as the US Dollar & Gold are back in favour.

UK Record GDP Rebound 
UK GDP data revealed that the UK economy staged a record recovery in the third quarter surging 15.5% in the July to September period. This came after a record -19.8% GDP collapse in Q2 during the lockdown period. As the economy reopened, businesses flung open their doors and the economy rebounded, although it did so a slightly weaker rate than the 15.8% expected.
Whilst the economy has grown for an impressive 5 straight months, it is still -8.2% smaller than in February.

Slowing growth in September
The MoM September GDP sheds more light on the picture, increasing 1.1%, down from 2.2% in August and also short of the 1.5% expected. This shows us that the UK economy was starting to slow even before lockdown 2.0 as pent up demand eased and the Chancellor’s Eat Out to Help Out scheme came to an end. 

Between record redundancies and signs of growth slowing in September, the outlook for the UK economy was showing signs of weakness even before lockdown 2.0 came into play. This most doesn’t bode well for the coming months as conditions deteriorate further.

GBP/USD is trading -0.3% lower only extending losses slighty following the data. FTSE futures are pointing to losses 0.7% on the open.

FTSE Chart


More from FTSE 100

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.