US GDP disappointment triggers week end sell off

Traders were left disappointed as the US economy failed to grow as strong as the 3% in the last quarter of 2011 as many had expected, and this convinced them to lock in their profits after a strong equity session yesterday, forcing the FTSE 100 down by 1% on the day in a late sell off.

In truth, should we be too surprised though by the weaker than expected reading in US GDP? Given the Fed’s pledge to keep US interest rates exceptionally low through to 2014 and insinuate at potential more quantitative easing, clearly they were hinting towards a slower economic recovery than perhaps the market was counting on and therefore the fact that today’s GDP reading missed expectations should not really be too much of a surprise. The writing was on the wall given the fact that the Fed only spoke about its more aggressive accommodative stance 48 hours before todays GDP reading.

Nevertheless, investors have reacted with a knee jerk move to lock in their gains and downsize risky asset classes. That means that the riskier stock sectors, such as the miners, which was one of the key gainers yesterday on the back of the Fed’s pledge on low interest rates and potential more QE, were hit the hardest in the late sell off, with FTSE 350 mining sector closing down by 1.6%. Oil firms also closed lower and aided with the mining sell off, these were the two sectors that contributed much of the drag on the FTSE 100.

Continued eyes towards a deal between Greece and its creditors also impacted trading somewhat. Negotiations are expected to continue into the weekend and with a Greek government official stating that they hope a deal could emerge on Sunday, traders will continue to watch developments over the weekend before European stock markets open on Monday.