Miners pull FTSE 100 lower. Eyes on US Q4 GDP reading
City Index January 28, 2011 5:15 PM
<p>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 […]</p>
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.
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.