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UK stock market commentary (January 25, 2013): UK GDP to show start of triple dip?

Markets are taking a breather this morning following the recent strength as all eyes will be on the UK GDP data that is due for release this morning and at a time when there’s a considerable chance that the UK economy may suffer the dreaded triple dip recession. If, and only if, we see a contraction today for Q4 and then a contraction in Q1 of this year can we officially say that the UK has suffered a triple digit recession. But ultimately following the the good bounce from the Olympics over the summer which led to a 0.9% expansion in Q3 last year, it would mean that the UK economy is not really in a recession, nor is it booming, but rather it is flat lining. That unfortunately has been the story for the UK over the past few years. All it means more than anything else is that the Chancellor’s fiscal targets will not be met as we borrow more and in order to meet those targets, austerity is required for longer.

But whilst we might very well see a contraction in today’s Q4 figure earlier in the week we saw once again that employment reached a record high and jobs are being created. Interestingly however these jobs don’t seem to be particularly productive as output simply isn’t growing and wage inflation remains well below real inflation. This bizarre position that the UK economy finds itself in is why expectations are for a stronger recovery in growth later in the year to bring the whole of 2013 in at around the 1.0% mark, but if today’s data disappoints to the downside then we may struggle to hit that.

Also today there’s the German Ifo sentiment survey which could just compliment the stronger manufacturing data and ZEW survey earlier in the week which might be enough to give European indices a boost after having commenced today’s session in the red. Yesterday US markets managed to shrug off the early bearish influence from a 12% nosedive in Apple, with the Dow Jones heading upwards to close 50 points up at 13,821. The rebound was supported by a surprise decline in the jobless claims figures and an ongoing better than estimated earnings session. The US manufacturing PMI also surpassed expectations to the upside helping Dow reach an intraday high of 13,879 last seen on late 2007.

But the pull back from the highs late in the session means that the FTSE 100 is some 10 points in the red at the time of writing at 6250, but the bigger retracement and sell off that clients are still waiting for as they sell the index is yet to come.

The euro area saw stronger than anticipated manufacturing numbers yesterday due to some good surprises coming out of Germany which pushed the shared currency 54 pips up to 1.3372. However, the short term outlook for the EUR/USD pair is one of consolidation with the market price swinging around the current levels for nearly two weeks. German business confidence indicator due later today is seen as rising for a third month. At the time of writing the single currency is a little higher in expectation of this figure at 1.3415.

The attempt to reach the psychologically important $1700.00 mark did not materialise as gold was hurt by good news on the global economy which sent investors into riskier assets. The precious metal lost $17.3 to end at $1666.7 and is now by and large at the same levels seen on mid December last year.

Despite a bigger than expected build in crude weekly inventories as shown by the US Department of Energy the WTI prices posted 44 cents climb to $95.90. It was a welcomed rebound after the previous day’s sell off (although only part of the losses were recouped) and was based on signs the US and China both displayed strong economic results lately.