Reports » UK

UK stock market commentary (February 14, 2013): GDP in Europe's major countries suffers just like UK

So far this morning we’ve seen some very disappointing GDP data from the two powerhouses of Europe with both the French and Germans showing that their economies contracted, as expected, in the fourth quarter of 2012. So it’s not only the UK that’s on the verge of dipping back into an official recession but the other major economies just across the Channel. The figures have actually come in worse than expected too with France’s GDP falling 0.3% as opposed to the 0.2% consensus and Germany’s was a significant fall of 0.6% as opposed to consensus of 0.5%. This has knocked European indices at the start of trade this morning after we had been calling them to open flat earlier ahead of these GDP numbers.

In the longer term there isn’t a huge cause for concern as the recent data has indicated that there is high probability that not only will the UK avoid another official recession, but so will France and Germany. The real worry is that the contractions are deeper than expectations and so economists and politicians are still deluding themselves as to how the economy is currently performing and how the “recovery” is materialising. Germany is leading by example by imposing its own austerity measures upon itself so to see the real powerhouse of the European economy suffer so badly in Q4 is a worry for the eurozone.

As if that wasn’t enough Japan overnight also missed its growth forecasts and during its Bank of Japan meeting kept its monetary policy unchanged.

The move last night in the Dow from its highs came somewhat as a bit of a surprise. The US President Barack Obama sparked a morning rally in equities with his State of the Union address focusing on infrastructure spending, healthcare and green energy investments. He also called for a rise in the minimum wage to $9 an hour. This however didn’t stop the Dow from retracing towards the close dipping back below 14,000 to close 35 points lower at 13,982. As we approach the record high of 2007 it looks like the temptation of taking profits is increasing somewhat.

So European indices are slightly lower as mentioned with the FTSE trading at 6355. Clients were caught completely off guard by yesterday’s move higher as on the whole they were short and there have been a few more sellers creeping in in the past twelve hours or so.

We saw a risk-on mood initially as authorities in the US hinted on embarking on another spending spree to spur economic growth. That sent the shared currency above the 1.35 level only to head back down later on, ending rather flat at 1.3445. The reason for spoiling euro’s party was a reminder the peripheral Europe is still struggling to stabilize: Portugal’s unemployment rate increased to 16.9% from 15.8% previously. This morning’s GDP data has also knocked the stuffing out of the single currency as it trades at 1.3390 at the time of writing.

Gold prices posted another slump yesterday, losing $9.6 to $1642.2 despite a fairly unchanged US dollar versus the euro and limited profit taking in shares. As experienced twice in the last two months reaching $1640.00 has attracted some bargain hunters who already managed to post a slight recovery at the time of writing.

The US Department of Energy released its weekly inventories report showing an increase in oil output to a 20 years high. That sent the WTI crude prices plunging, closing 39 cents down at $97.15 a barrel. News that Iran is making progress in its negotiations with the United Nations nuclear inspector also reassured the energy complex the conflict premium might get downgraded.