Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Stocks Drop As Risk Aversion Returns, UK GDP Disappoints

Published 14/07/2020, 08:24
Updated 14/12/2017, 10:25

Risk aversion returns with stocks opening on the back foot after UK GDP dramatically misses forecasts, amid elevated US China tensions over offshore resources in the South China Sea and intensifying coronavirus fears. Upbeat China data showing a strong rebound in both imports and exports has been shrugged off.

A late sell off on Wall Street spilled over into Asia and is dragging on European stocks on the Open.

Sentiment soured on Wall Street after the state of California imposed new restrictions on business as coronavirus cases spiral out of control and hospitalisations soar. The shutdown fuels fears that the growing number of coronavirus cases will hamper the fragile economic recovery.

The fresh US restrictions come after the WHO gave a stark warning that the pandemic could get worse and worse with too many countries headed in the wrong direction. The comments from the WHO Chief came after 230,000 new daily cases were record, in the worst day of the crisis so far.

UK GDP +1.8% vs 5% expected

UK economic growth massively under shot expectations increasing just +1.8% month on month as lockdown measures were gradually eased. This is a very shallow rebound given the -20.4% contraction in April. Analysts had been expecting a 5% jump in GDP in May. The data reveals that the UK economy is recovering at a much slower pace than initially expected pouring cold water over any V-shaped recovery talk.

However, it was only at the end of May that non-essential shops reopened and the leisure and hospitality sectors remained behind closed doors. With these sectors reopening in June, the data should steadily keep improving. Patience will be the name of the game here. Andrew Bailey pointed out yesterday there are signs of economic recovery, but there is still a very long way to go.

A bright spot in the raft of UK data released was UK manufacturing production which rebounded at a much stronger rate than expected, jumping +8.4% mom in May, rebounding from -20.9% in April. Whilst the manufacturing sector only accounts for around 10% of activity in the UK economy, the data was offering some support to the Pound which dropped just 0.1% following the disappointing GDP reading.

US banks earnings & US inflation

Looking ahead big swings are expected in the US banking sector as JP Morgan (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) kick off the banks’ earnings season. Financials have been badly hit in the coronavirus crisis and have underperformed the broader market in the recovery. The second quarter earnings are expected to be the nadir. We could see investors looking to buy the bottom once the scale of the coronavirus impact is out in the open.

US inflation data is expected to show +0.5% increase mom in June, up from -0.1% decline in May. Whilst the data would show the US economic recovery is on the right track optimism could be offset by fears that the rolling back of reopening measures could undermine the economic recovery.

FTSE ChartFTSE Chart

"Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions."

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.