Börse & Märkte

UK Squares Up To Germany With GDP Figures

So, the UK steps up to Germany today with GDP figures for the second quarter. The second estimate of UK GDP showed an increase to 0.7% in the period versus the first estimate of 0.6%, a welcome upward revision which is consistent with the solid upswing with all other UK macro indicators. All facets of the UK economy have gathered steam; manufacturing, industrial, construction, housing, consumer confidence and the labour market.

 

UK GDP for 2013 could come in comfortably at 1.3%, a revision up from 0.8% previously. The UK has finally found the path to recovery and although it may be too brash to call it sustainable [external shocks of global growth slowdown and potential of ineffective BOE policies]  there’s little at the moment to suggest the UK will be knocked off the recovery train.

 

Sharp focus will be on the BOE – although the MPC are likely to welcome this upward revision to growth, the board may have to backtrack a little on the thresholds given via the forward guidance policy. The MPC do not expect to tighten monetary policy until late 2016 when inflation hits the 2% target and unemployment rate drops below 7%, but if we continue to see rapid acceleration of growth in the UK, the BOE will have little choice but to tweak policies by hiking rates.

 

The UK bond market realises this which is one of the reasons why gilt yields have spiked – the strong growth in the UK has the market unconvinced that Carney and Co can keep a lid on interest rates until late 2016. Naturally, the reaction to UK growth figures was typical; FTSE somewhat muted but then again, this index generates around 70% of revenues from outside of the UK. Sterling rejoiced and UK bonds fell – yields still elevated as global growth optimism grows.

 

Onto the German GDP figure – no surprise, confirmed at 0.7% for the second quarter, consistent with stream of good news out of Germany and the rest of the euro zone - ECB member Nowotny reckons there is no reason to dig into the central bank’s tool box or cut interest rates further now that we are seeing signs of growth, led by Germany of course. The unchanged number didn’t surprise the market, rather reminded us that the region’s power house is back in shape.

 

Music to the ears of Angela Merkel and her Christian Democrat Union party who are slated to comfortably win the September national elections. That said, it’s unwise to believe Germany can pull the whole euro zone out of turmoil – peripheral nations must continue on the path of structural reforms/austerity and stay on top of their budget targets with the troika in order to recover but political instability remains a significant threat.

 

Euro zone unemployment remains staggeringly high with little suggest there’s going to be a let up in the near-term – anti-austerity sentiment continues to grow in the periphery so the likelihood of anti-euro/anti-austerity parties gaining influence in the polls leaves the euro zone vulnerable to another potential bust-up.

 

Germany is not immune from the peripheral debt crisis, as we experienced with the slowdown of growth seen in Germany only recently – Germany’s fate is tied to its the health of its peripheral neighbours. US stock futures easing a tad this morning – Moody’s warning on US banks likely to hit the financial sector when trading starts but the big news still on everyone’s lips is the three hour outage on the NASDAQ index on Thursday. Little on the corporate agenda today so eyes now are on US new home sales and euro zone confidence data due later in the session.