FTSE digests Brexit brinkmanship and GDP data

UK economic recovery slows and the prospect of messy divorce from the EU grows.

Charts (4)

European stocks are struggling to shake of the bearish mood following another deep sell off in US tech and an elevation in US – Sino tensions. 
The FTSE has additional concerns with the economic recovery slowing and as the prospect of messy divorce from the EU grows.

Brexit chaos
Brexit talks are on the verge of collapse, a messy end to four years of Brexit talks is now looking extremely likely. With the UK defiantly refusing to scrap plans to undermine the Brexit divorce treaty its difficult to see how the Brexit mess can have a happy ending. As the two sides play brinkmanship the chances of a no trade deal Brexit have shot through the roof. This has been reflected in the value of the Pound which plunged over 1.5% in the previous session, although is showing some resilience in early trade today.  FTSE, which usually benefits from a weaker Pound is seeing investors pull out, preferring to place their funds elsewhere.

UK recovery momentum stalls
UK GDP data has done little to brighten the mood. Whilst the economy grew 6.6% in the month of July, GDP is still a whopping 11.7% below its coronavirus peak as it attempts to recover from its deepest recession of -20.4% Q2. Expectations had been for 6.7% rise. 
The UK economy recorded growth in May, June and July, however this growth still only makes up around half of what the economy lost in the fateful second quarter. With the prospect of a no trade deal Brexit to contend with, the economic recovery could be even more drawn out that initially feared.
Manufacturing and industrial production are proving to be bright spots in the UK economic recovery. Manufacturing increased 6.3% mom on in July, vs 5% expected, whilst industrial production increased +5.2% versus 4% forecast.

US Inflation up next
Looking ahead, UK NIESR GDP estimate for August and US inflation will be in focus. Expectations are for a +0.3% mom increase in Aug, slightly down from +0.6% increase in July. On an annual basis, CPI is forecast to rise +1.2%, vs 1% in July. The data comes after US senate rejected the democrat led bill to bring $300 billion covid stimulus.

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