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FTSE Points Higher As GDP Shows Strong June Recovery

Fiona Cincotta August 12, 2020 7:46 AM

UK enters recession as QoQ GBP -20.4%, although June GDP beats forecasts with +8.7% jump

European bourses are looking towards a lower start to trading on Wednesday, following on from a choppy session in Asia amid rising uncertainty over whether US lawmakers will agree to an additional round of stimulus. The FTSE looks to outperform its peers, aiming higher after better than forecast GDP data and on rising oil prices.

Britain is officially in recession. The UK economy contracted by a record -20.4% QoQ in Q2 versus -20.5% expected. This was down significantly from -2.2% contraction in Q1, reflecting the full effects of the coronavirus lockdown and the devastating impact that it had on the economy.

Month on month, UK GDP showed that the UK economy expanded sharply in June +8.7%, versus 8% forecast. This is steep uplift from May’s 1.8% expansion. It could be argued that the June reading is of more interest that QoQ reading because this tells us how the UK economic recovery is going, rather than how deep the contraction was.

Whilst the data shows that the UK economic recovery is on the right track, caution remains particularly given the cracks that are appearing in the British labour market and rising fears over a second wave. A labour market crisis or another strong rise in infections could quickly knock this fragile recovery off course.

GBP/USD has picked up from overnight lows and is attempting to push back into positive territory at the familiar level of US$1.3050, despite US Dollar strength

Gold sinks
After its phenomenal run higher, gold is dropping hard this week. The precious metal is already down over 7% this week and could slip further in light of the excessively quick upswing overt the past month. Vaccine hopes and global economic recovery optimism have taken the shine off gold. US treasury yields and the greenback rising have also added downward pressure to the price of the yellow metal.

A stronger dollar makes gold more expensive for holders of other currencies whilst rising treasury yields increase the opportunity cost of holding non yielding gold. Gold has soared 25% from its March lows and 10% across July alone. Profit taking after such a quick run higher is hardly surprising.

Just Eat
There aren’t many stocks which have benefited from the coronavirus lockdown, but Just Eat Takeaway has been one of them. The online food ordering company saw a surge in revenue and underlying profit in the first six months of the year, a customers and restaurants alike rushed to use its services. The stock is up an impressive 18% year to date.

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