Stocks Point Lower As UK Q1 COVID Damage Worse Than Forecast

The FTSE is lagging its peers following worse than forecast GDP data.

UK

Europe is looking towards a mildly negative start as investors continue to weigh up rising coronavirus figures against signs of economic recovery and rising US – China tensions. The FTSE is lagging its peers following worse than forecast GDP data

Whilst risking coronavirus numbers and flares ups across the globe are keeping investors on edge, improving economic data is going some way to distracting investors. US pending home sales obliterated expectations, jumping 44.3% in May, well ahead of the 18.9% increase forecast and a solid recovery from April’s pandemic inspired plunge. The US housing market showing signs of a speedy recovery is boosting optimism surrounding the US economy, even after Fed Chair Jerome Powell said that the path to economic recovery is extraordinarily uncertain amid efforts to control the virus.
 
Overnight Chinese PMI data added to the upbeat mood. The official manufacturing PMI showed hat activity expanded faster than forecast, printing at 50.9, above estimates of 50.4. The level 50 separates expansion from contraction.

Optimism surrounding the global economic recovery is diverting some attention away from Beijing passing controversial Hong Kong security legislation, gaining major criticism from US and Japan. The move has set the scene for the most radical change to the way of life in Hong Kong since the British colony was returned 23 years ago. The move to limit freedom and civil rights in the financial hub puts Beijing further down the road on collision course with US. 

QI GDP -1.7% vs -1.6% exp.
The FTSE is set to lag its European peers, opening in the red after Q1 GDP showed that the UK economy contracted by more than expected in the first quarter. Q1 GDP -1.7% yoy in Q1 worse than the -1.6% forecast. Quarter on quarter the economy contracted a worse than expected -2.2% vs -2% previously reported.

Given that the first quarter only included a week of lockdown, the worst is yet to come in, with economic growth in Q2 expected to be significantly worse given that the economy was paralysed for 2 of the three months. Today’s reading doesn’t bode well for Q2.

Following the release, the Pound has dropped back through $1.22 as it heads towards monthly lows. 

Brexit talks are doing little to support sterling, with little progress on key issues and the UK insisting that an outline deal is ready by the end of July.
Attention will now turn to Boris Johnson and his plans to spend his way out of the pandemic crisis with huge infrastructure projects.





 


More from FTSE 100

Join our live webinars for the latest analysis and trading ideas. Register now

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.

For further details see our full non-independent research disclaimer and quarterly summary.