UK & Europe Market Commentary: Choppy session sees FTSE close flat as GDP contracts a shocking 0.7% in Q2

<p>The FTSE 100 endured a choppy trading session on low volumes as the Office of National statistics reported that UK GDP contracted a shocking 0.7% […]</p>

The FTSE 100 endured a choppy trading session on low volumes as the Office of National statistics reported that UK GDP contracted a shocking 0.7% in Q2, a much deeper contraction that expected.

The GDP reading was a real shock and whilst there is every chance the 0.7% contraction could be upwardly revised in subsequent readings over the next two months, the data is somewhat alarming with construction contracting 5.2%.

Stocks did not react much to the reading, as traders took the reading as playing into the hands of dovish members of the Bank of England’s Monetary Policy Committee, who will now have further cause to increase asset purchases in the near to medium term. The read across from the data did therefore weigh on the pound sterling in the immediate aftermath of the data release.

The morning session did however see stocks start to gain ground as the ECB’s Nowotny suggested that europe’s bailout fund, the ESM, could be given a banking license which would make it easier to tap into cheap lending from the ECB, a move previously looked upon with scorn by the European Central Bank. The rally however quickly ran out of steam as the afternoon session began and data from across the pond also weighed on equity market sentiment. US new home sales dropped 8.2%, which was worse than expected and marked the sharpest decline in new home sales in over a year.

Earnings from Apple, which has a reputation to outperform each quarter, also sapped sentiment across Europe somewhat, mostly as a result of overly optimistic expectations from a stock that has had a habit of delighting shareholders with each quarterly report.

Volumes were light today and this almost certainly exacerbated today’s trading session and its choppy theme. This is why despite the gains seen in broader European stock indices such as the DAX and CAC, alongside a 0.5% rally in the euro against the US dollar needs to be taken with a pinch of salt. Not much has changed in sentiment today from Monday.

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