FTSE falls despite UK GDP rebounding – Daily Market Brief, December 12, 2022

The UK economy grew at a faster pace than expected in October, with GDP rising 0.5% MoM, its first increase in 4 months. The FTSE is heading lower, extending losses from last week.

·         Robust US data raises questions over how the Fed can ease back from aggressive rate hikes.

·         Covid cases in China jump, offsetting optimism regarding the re-opening. The Hang Seng falls

·         USD/CAD holds steady ahead of BoC’s Tiff Macklem speech later today

Last week, European markets posted a weekly loss after several months of solid gains from their October lows. Stocks on Wall Street also posted weekly losses, with the Dow Jones seeing its worst weekly performance since September.

Concerns over the extent to which the Federal Reserve will be able to slow the pace of rate hikes, in addition to rising worries of a recession in the world’s largest economy, overshadowed news that China would move away from its zero-Covid strategy.

The sell-off on Wall Street on Friday came after US PPI was higher than expected at 7.4% YoY in November, above the 7.2% forecast but still down from 8.1% in October. The data and stronger-than-expected Michigan market confidence prompted a risk-off market reaction, with stocks falling and the USD rallying amid doubts over the Fed’s ability to slow the rate hikes.

The sell-off in US stocks at the end of last week is hurting risk sentiment at the start of the new week, and Europe is pointing to a weaker open. The DAX is set to open 0.5% lower, the CAC -0.4%, and the FTSE -0.24%.

The UK index is brushing off data that showed that the UK economy grew at a faster pace than expected in October. UK GDP rose 0.5% MoM, up from -0.6% MoM in September after the economy was hit by the Royal funeral. This was the first GDP rise in 4 months and was ahead of forecasts of 0.4%, as a rebound in car sales and strength in the health sector boosted economic growth. However, the economy shrank on a three-month basis by 0.3%. Industrial production was slightly better than expected, contracting –by 2.4% YoY in October, and manufacturing output fell -4.6% YoY, highlighting the poor state of health of the UK economy.

The outlook for the UK economy remains bleak. There will be plenty of data this week for investors to digest, likely highlighting the struggles the UK economy is facing. UK inflation is expected to remain in double digits with few signs of easing, which could pave the way for another 50 basis point rate hike from the Bank of England on Thursday.

Central banks will be a major theme this week, with not only the Bank of England set to announce its interest rate decision, but the ECB and the Federal Reserve will also announce the final interest rate decision for 2022.

Adding to the downbeat market mood, Covid cases in China have surged, which is weighing on optimism surrounding the removal of strict Covid curbs. The Hang Seng slumped 2%, reflecting those worries.

Looking ahead, the economic calendar is quiet. Attention will be on a speech from BoC Governor Tiff Macklem. However, with the BoC ruling out further aggressive rate hikes, his comments could hold the CAD back. USD/CAD rose 1.3% last week on USD strength and as the loonie tracked oil prices lower. 

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. 

Sources: Bloomberg, CNBC, Reuters 

Original article provided by Trading Writers

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