The UK economy grew faster than expected in the final quarter of 2016 in another sign of post-Brexit strength. The FTSE 100 is grinding higher towards its all-time peak today and is up by a little more than 20 points at the time of writing. The pound is slightly lower despite the upbeat GDP print and remains in a fairly narrow range against the US dollar.
Drop in investment tempers GDP figure
The markets have not shown a major reaction to this morning’s economic release with a fall in business investment taking the shine off the 0.7% rise in Q4 2016 GDP. However with both these data points lagging by almost two months it is unsurprising we’ve not seen too large a reaction with several developments on the Brexit front occurring since the period which the releases relate to. The drop in investment in Q4 comes after a surprising increase in Q3 - although today this has subsequently been revised lower from 0.9% to 0.4%. One of the main concerns post-Brexit was that a lack of clarity on the future business environment would see firms opt to postpone future investments and today’s release, couple with the downward revision to the prior reading suggest this may in fact be the case.
Lloyds rises after profits double
The best performing stock on the FTSE 100 this morning is Lloyds Banking Group (LON:LLOY) with the lender seeing its share price rise by more than 3.5% after releasing an upbeat earnings report. Last year saw pre-tax profits at the lender rise by 158% to £4.2bn which is a marked improvement on the £1.6bn seen in 2015. A highly anticipated week of earnings for the major UK banks got off on the wrong foot yesterday with HSBC missing consensus forecasts with its earnings, but today’s report will go some way to reassuring investors that the sector is returning to full health. A large part of the reason for the jump in profits was due to conduct charges falling by more than half to £2.1bn - although having said that this remains a substantial amount.
FOMC minutes to keep March hike on the table
Since Fed chair Yellen adopted a more hawkish than expected stance whilst testifying before the Senate last week, there have been several other Fed members alluding towards a possible rate hike at their next meeting on the 15th March. Yesterday saw Fed members Harker and Kashkari making hawkish comments and the overriding feeling is that the US central bank is attempting to prepare the market for the possibility of a further interest rate rise. With bond yields falling back in recent sessions and the US dollar refraining from going on a runaway rally, the markets are clearly not getting ahead of themselves which leaves more scope for the Fed to act. In addition all three major stock indices in the US posted record highs yesterday and the intense scrutiny on President Trump has subsided slightly in recent days. All together this provides a suitable backdrop for tightening monetary policy and this evening's publication of the minutes from the last meeting could reveal whether the recent hawkish comments are the result of a shift in stance or whether the Fed have been seriously considering a rate hike in March for some time now.