UK economic growth picks-up but GBP still set for weekly loss

Summary:

  • UK Q1 GDP rises as exepcted
  • Gains in production measures overstated due to Brexit effect
  • GBPUSD continues to hover around $1.30; FTSE set for 3rd consecutive weekly loss

For the first quarter the pace of growth in the UK economy increased with the preliminary GDP coming in at 0.5% Q/Q, up from a reading of +0.2% previously. Industrial and manufacturing production also rose in the past month which is a positive sign and the overall message from the batch of data is one of a steady improvement in the UK economy. The data was as follows:

 
  • UK Q1 prelim GDP Q/Q: +0.5% vs +0.5% exp. +0.2% prior

  • Exports Q/Q: 0.0% vs +1.7% exp. +1.6% prior

  • Imports Q/Q: +6.8% vs +4.5% exp. +2.1% prior  

  • Manufacturing production M/M: +0.9% vs 0.0% exp. +1.0% prior

  • Industrial production M/M: +0.7% vs +0.1% exp. Prior 0.6%


Both the manufacturing and industrial production figures were the recipient of a Brexit-related boost with stockpiling raising the prints. This is obviously not sustainable and does give the readings an artificially strong look.

The rise seen in both industrial and manufacturing production of late is not as positive as it may seem, with the bulk of the improvement coming from record levels of UK stockpiling due to supply-chain concerns on Brexit. Source: XTB Macrobond

 

In terms of market reaction the pound is little changed since the release with the improvement in growth widely expected and it’s not been the best week for sterling with the currency drifting lower after an attempt to push higher last Friday. Price failed to take out the prior peak around 1.3195 and has steadily drifted lower since before finding some support around prior swing levels of 1.2965. Near-term 1.3040 could be seen as a more immediate potential resistance.  

The GBPUSD pair has been falling this week but found some support around prior swing levels of 1.2965. Source: xStation

 

US slap new tariffs on China

The week’s trade in the markets has been dominated by the resumption of escalating US-China trade tensions with stocks around the globe experiencing sizable losses. It is now over a year since the US first imposed tariffs on China, but after twice postponing additional levies Washington has now more than doubled the tariffs on $200B of Chinese imports as talks have collapsed.

 

After Trump first announced this decision via Twitter last Sunday there was a general feeling that it was potentially more a case of posturing for a better deal rather than a real statement of intent, but as the week has worn on hopes of a breakthrough faded. While equity markets have declined throughout the week there’s not been too much of an adverse reaction this morning with US stock futures trading only marginally lower while the Shanghai market actually posted a gain in excess of 3% on Friday in what seem to be a case of a sell-the-rumour-buy-the-fact type of move.   

 UK stocks have had a bad week due to concerns on US-Sino trade with the FTSE falling for a 3rd week in a row and trading down to levels not seen since March. Price has also dropped below the 23.6% fib at 7300 while the 8/21 EMAs have printed a bearish cross. The 38.2-41.4% level from 7122-7154 could be seen as a possible area of interest below. Source: xStation  

 

 

Daily summary: Global stocks finish week in upbeat mood
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Morning wrap (27.11.2020)
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