Indices lose small, BP lags – UK Q2 GDP slows to 0.2% due to ‘special factors’

<p>The FTSE 100 saw small losses of 14 points in early trade on Tuesday despite the weaker US dollar, which is being pressurised by the deadlock on […]</p>

The FTSE 100 saw small losses of 14 points in early trade on Tuesday despite the weaker US dollar, which is being pressurised by the deadlock on Capitol Hill over raising the US debt ceiling. The weaker dollar is helping to rally metals and the share prices of key miners but this has not been enough to push Indices into positive territory. Shares in BP lagged the broader FTSE 100 after a disappointing set of results whilst banks and insurers also weighed on the UK index.

The mining sector is higher by 0.5% this morning as mining firms share prices tracked broader gains in metals, which have seen copper rally over 1% in early trade. The gain in metal prices is being dictated this morning not by a higher appetite for risk amongst investors, but by a much weaker US dollar. The US Dollar Index, which tracks the strength of the dollar against a basket of currencies, has lost 4% in the last two weeks alone as investor fears over an imminent default and subsequent ratings downgrade has escalated over the deadlock between the Republicans and Democrats on Capitol Hill over raising the $14.3 trillion US debt ceiling.

BP results disappoint
BP shares have dragged on the FTSE 100 after the oil giant failed to impress shareholders with its Q2 earnings. BP reported a net income of $5.31 billion, which fell marginally short of the near $5.5 billion consensus forecast. BP shares remain some 30% off their pre-Gulf of Mexico oil disaster prices, having lost 2% on the back of today’s earnings announcement. In comparison to BP’s woes, shares in BG Group rallied over 3% to trade straight to the top of the FTSE 100 after the oil firm reported positive earnings. BG announced that profits had risen 27% in the second quarter on stronger production and crude prices. The firm reported underlying earnings of $1.12 billion, beating consensus estimates of $1.07 billion.

UK GDP slows to 0.2% in Q2
Data from the Office of National Statistics showed that UK growth slowed in the second quarter as expected, to 0.2% from 0.5% in Q1, the lowest UK growth seen since Q1 2010. The ONS said that the reading would have been much stronger at 0.7% were it not for ‘special factors’ such as the additional bank holiday for the royal wedding, the warm weather and the Japanese tsunami fallout.

Whilst it may be reassuring to hear that special one off affects may have taken 0.5% off growth on the quarter, there remains a sincere question mark over the strength of the UK economic recovery and today’s data is unlikely to quash that concern. There was an initial bounce in the pound sterling on the back of this data as the market had feared that there could have been a contraction in growth. The pound strengthened against the dollar, rallying past the $1.64 level for the first time in five weeks.

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