Proactive Investors -
- FTSE 100 opens higher
- UK GDP falls 0.2% in quarter three
- US markets storm ahead after weak CPI numbers
FTSE 100 opened higher on Friday supported by strong gains in US and Asian markets, and despite the latest UK GDP data which suggested the UK economy was on course to head into recession by the end of the year.
At 8.15am the FSE 100 was up 17 points at 7,392 and the FTSE 250 advanced 119 points to 19,496.
US markets leapt following weaker than expected inflation figures which gave hope that the Fed was winning its battle in taming inflation.
The tech laden Nasdaq surged 7.35% with a number of index heavyweights posting double digit gains.
Back in London quarter three GDP fell 0.2%, with a 0.6% decline in September, hit by a fall in manufacturing but this number was better than City forecasts of a fall of 0.5%.
Samuel Tombs, chief UK economist, at Pantheon Macroeconomics said: “The UK economy has slipped to the back of the G7 pack again, beset by more intense headwinds from fiscal and monetary policy, and substantial long-term supply-side damage from Covid and Brexit.”
He noted “The UK also is the only G7 country to have not seen GDP recover fully to its pre-Covid, quarter four 2019 level.”
Looking ahead he forecast a further decline in quarter four.
“GDP in October likely will reverse some of September’s 0.6% month-to-month drop, which was partly the consequence of the lost working day for the Queen’s funeral.”
“But the very low level of demand indicators—the orders index of the composite PMI survey fell to just 46.8 in October, from 48.6 in September—and the extremely low level of consumers’ confidence suggests that GDP likely will fall again in quarter four” he said.
7.52am: GDP numbers point to UK heading into recession
Some reaction to the GDP numbers:
Tom Stevenson, investment director for Personal Investing at Fidelity International commented: “The small decline in economic activity in the July to September quarter means we are almost certainly already in recession and creates a gloomy backdrop to next week’s Autumn statement.”
“The Chancellor will be cutting spending and raising taxes at the start of a prolonged downturn and the measures he will announce will only deepen the slump.”
"The first cut of data for the third quarter show how rising energy and labour market costs, falling consumer confidence and the national mourning period have all weighed on output.”
“A further fall in the last three months of the year will meet the definition of a technical recession - two consecutive quarters of falling output - and kick off what the Bank of England has forecast will be a two-year downturn.”
“On the face of it, this is bad news for investors in the UK stock market. But the news comes as a surprise to no-one and it has already been priced into shares.”
“The UK trades on just nine times expected earnings, compared with 17 times for the US market and investors are rewarded with a dividend yield of more than 4%, twice as high as on the other side of the Atlantic.”
“The economic outlook is poor, but for investors, the turning point will come sooner. Markets don’t wait for the dawn to break; they start to rise at the first hint that better times are on their way. And this could come as early as next year.”
7.15am: Manufacturing leads GDP decline
A bit more on the GDP numbers.
The ONS said in output terms, there was a slowing on the quarter for the services, production and construction industries; the services sector slowed to flat output on the quarter driven by a fall in consumer-facing services, while the production sector fell by 1.5% in quarter three, including falls in all 13 sub-sectors of the manufacturing sector.
In expenditure terms, real household expenditure fell by 0.5% in quarter three 2022, while there were also large positive movements in international trade flows in the third quarter.
Compared with the same quarter a year ago, the implied GDP deflator rose by 5.8%, primarily reflecting higher cost pressures faced by households.
7.05am: UK GDP falls 0.2% in quarter three
UK GDP fell 0.2% between July and September according to the first quarterly estimate from the Office for National Statistics (ONS), better than City forecasts for a decline of 0.5%.
The ONS said GDP fell by 0.6% in September 2022 which was affected by the bank holiday for the state funeral of Her Majesty Queen Elizabeth II, where some businesses closed or operated differently on this day.
GDP fell 0.2% in Quarter 3 (July to September) 2022 with:▪️ services flat (0.0% growth)
▪️ manufacturing falling 2.3%
▪️ construction growing 0.6%
➡️ https://t.co/IsdBc7KmAM pic.twitter.com/lwcKVBUOOC
— Office for National Statistics (ONS) (@ONS) November 11, 2022
ONS director of economic statistics Darren Morgan said: “With September showing a notable fall partly due to the effects of the additional bank holiday for the Queen’s funeral, overall the economy shrank slightly in the third quarter.
“The quarterly fall was driven by manufacturing, which saw widespread declines across most industries. Services were flat overall, but consumer-facing industries fared badly, with a notable fall in retail.”
The ONS said the level of quarterly GDP in quarter three is now 0.4% below its pre-coronavirus (COVID-19) level.
GDP data for August was revised to show a marginal 0.1% contraction compared with an original reading of a 0.3% fall, and GDP in July was now seen as having grown by 0.3%, up from a previous estimate of 0.1%.
7.00am: FTSE 100 seen higher
FTSE 100 is expected to open higher on Friday, extending Thursday's rally after a US inflation reading undershot market expectations sending US markets sharply higher. Asian markets also made strong gains.
Spread betting companies are calling London’s blue-chip index up by around 25 points.
The Dow Jones gained over 1,100 points and the S&P 500 over 5.5% as US markets advanced in spectacular fashion as weaker than expected inflation data sent stocks soaring higher.
The data boosted hope that the Federal Reserve may finally tone down the pace of its rate hikes.
At the close the Dow Jones Industrial Average was up 1,198 points, or 3.69%, to 33,712.21, the S&P 500 surged 207.38 points, or 5.53%, to 3,955.95 and the Nasdaq Composite roared 761 points higher, or 7.35%, to 11,114.15.
Tech stocks that have been hardest hit by the rise in inflation and surging interest rates led the gains. Shares of Amazon (NASDAQ:AMZN) surged 12%, Meta leapt 10% and Tesla jumped 7%.
Back in London, al eyes are on the GDP numbers for quarter three which are expected to show the UK economy shrank during July to September.