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.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (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.