Miners pull FTSE 100 lower Eyes on US Q4 GDP reading

The FTSE 100 fell over 0.5% on Friday with the miners the key drag on the UK Index as investors remove elements of risk off the table ahead of the first reading for fourth quarter US GDP.

We have seen trader’s moves to remove some of their risk in mining stocks, which have fallen around 1% early this morning on falling metal prices.

Apart from the weak reading in UK consumer confidence, which when aligned with the surprising slump in H&M fashion chain’s fourth quarter sales is dragging down retailers, it has been a bit of a slow morning.

Most eyes are on the US fourth quarter GDP reading, with US growth expected to quicken almost 1% from a third quarter growth of 2.6%. Whilst painting a starkly contrasting picture to that of the UKGDP, investors are relying on strong US growth to push global equity markets higher and so a sharply underperforming figure could add a degree of volatility to the weeks close.

UK consumer confidence drops

We saw investors move to sell the UK pound sterling after data showed that UK consumer confidence fell to -29, the sharpest fall since 1994 and the lowest reading for almost 2 years. The sharp drop in consumer confidence has a high correlation to the recent rise in VAT to 20%, from 17.5%, whilst it is also likely that the severe weather conditions and impending UK austerity measures, which have yet to take any real effect in the UK economy, have impacted this consumer confidence.

The economic situation in the UK has some severe headwinds which could indeed turn into the perfect economic storm; spiralling inflation, potential hikes in interest rates, contracting GDP and impending austerity measures. There has been a long running debate amongst investors ever since the coalition government came to power over whether austerity, whilst absolutely needed, is being badly timed and will derail the recovery. The data received over the last few weeks appears to point towards this risk but more evidence is needed.