Stocks Drop As Risk Aversion Returns, UK GDP Disappoints
Fiona Cincotta July 14, 2020 7:39 AM
Risk aversion returns with stocks opening on the back foot after UK GDP dramatically misses forecasts, amid elevated US China tensions over offshore resources in the South China Sea and intensifying coronavirus fears
Risk aversion returns with stocks opening on the back foot after UK GDP dramatically misses forecasts, amid elevated US China tensions over offshore resources in the South China Sea and intensifying coronavirus fears. Upbeat China data showing a strong rebound in both imports and exports has been shrugged off.
UK GDP +1.8% vs 5% expected
UK economic growth massively under shot expectations increasing just +1.8% month on month as lockdown measures were gradually eased. This is a very shallow rebound given the -20.4% contraction in April. Analysts had been expecting a 5% jump in GDP in May. The data reveals that the UK economy is recovering at a much slower pace than initially expected pouring cold water over any V-shaped recovery talk.
However, it was only at the end of May that non-essential shops reopened and the leisure and hospitality sectors remained behind closed doors. With these sectors reopening in June, the data should steadily keep improving. Patience will be the name of the game here. Andrew Bailey pointed out yesterday there are signs of economic recovery, but there is still a very long way to go.
US banks earnings & US inflation
Looking ahead big swings are expected in the US banking sector as JP Morgan, Citigroup and Wells Fargo kick off the banks’ earnings season. Financials have been badly hit in the coronavirus crisis and have underperformed the broader market in the recovery. The second quarter earnings are expected to be the nadir. We could see investors looking to buy the bottom once the scale of the coronavirus impact is out in the open.
US inflation data is expected to show +0.5% increase mom in June, up from -0.1% decline in May. Whilst the data would show the US economic recovery is on the right track optimism could be offset by fears that the rolling back of reopening measures could undermine the economic recovery.
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