Thursday, August 13, 2020

London Stocks Rise Despite UK Economic Contraction

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News shaping
the markets today

     

What’s happening: UK stocks record sharp gains on Wednesday despite the country officially entering into recession.

What happened: With the UK reporting its sharpest GDP decline on record in the second quarter, the economy wiped out about 17 years of growth.

Despite this, London’s FTSE 100 closed near a one-month high yesterday, as investors focused on the earnings reported by various companies.

Why it matters: Britain reported that its GDP contracted by 21.7% year-on-year during the second quarter. Although the decline was the steepest since the compilation of records in 1956, it was better than the consensus estimate of a 22.4% contraction in the economy.

Construction orders in the country also dropped the most on record, plunging 45% year-over-year in the latest quarter. The UK’s trade surplus narrowed to £5.3 billion in June, versus a reading of £7.7 billion in May. Imports rose by 21.9% in the month, while exports grew by 13.1%.

Investors shrugged off concerns around the economy and focused on the better-than-expected results reported by various companies. Admiral Group’s shares climbed around 6% on Wednesday, after the insurer reported an increase in profit and reinstated its special dividend. Shares of Just Eat Takeaway.com gained more than 3% after the online takeaway platform posted revenue growth for the first half of the year, backed by higher demand for food deliveries.

Sentiment was also lifted by some economic data coming in better than expected. Industrial production in the UK surging 9.3% in June, after rising 6.2% in the previous month.

The country’s manufacturing production contracted 14.6% in June, versus market expectations of a 15% decline. Construction output fell 24.8% in June, significantly better than the 40% decline recorded in May.

Investors also focused on the rally in oil prices and news of a potential covid-19 vaccine. Brent crude oil climbed 2.1% to close at $45.43 a barrel on ICE Futures Europe.

The blue-chip FTSE 100 index gained 2% to settle at 6,280.12 on Wednesday, while the mid-cap FTSE 250 index rose 0.5% to reach 18,089.58.

What to watch: With no major economic data due for release by the UK this week, investors may focus on news from drug-makers about progress on their covid-19 vaccine candidates. Covid-9 remains a major concern for investors across the globe, as total cases climb to 20.4 million.

Markets will also keep a close eye on developments around US lawmakers agreeing to a new coronavirus relief package.

The Markets Today

     

The Canadian dollar will be in focus today, after surging to a five-month high in the previous session.

Context: The Canadian dollar climbed versus the greenback on Wednesday, reaching notching its highest level since February 21. The loonie was driven by the rise in oil prices as crude inventories declined more than projected.

Details: US crude oil inventories declined for the third consecutive week, falling by 4.512 million barrels in the week ending August 7, versus expectations of a 2.875 million decline, according to the latest Energy Information Administration report.

Declining stockpiles suggests higher demand, which supported crude price on Wednesday, taking the WTI crude oil higher by 2.6% to $42.67 a barrel. This, in turn, boosted sentiment for the loonie, as crude oil is one of Canada’s major exports.

The Canadian dollar also found support from a weaker greenback, which recorded losses due to the lack of progress around the US government’s new covid-19 rescue package. The US dollar index, which measures the greenback’s performance versus a basket of major rivals, dropped to 93.44 on Wednesday.

Canadian 10-year yield also jumped to the highest level in over two months, improving by 4 basis points to 0.617% on Wednesday. The USD/CAD forex pair closed the session at $1.3248 yesterday.

What to watch: Markets will monitor oil prices and news related to additional fiscal stimulus from the US. Investors also await data on new motor vehicle sales and manufacturing sales from Canada, scheduled for release on Friday.

Other Markets: US indices trading closed higher on Wednesday, with the Dow Jones index, S&P 500 and the Nasdaq 100 up by 1.05%, 1.40% and 2.13%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s unemployment rate, Germany’s inflation rate and wholesale prices, Spain’s inflation rate, South Africa’s mining production and gold production, Turkey’s gross foreign exchange reserves, Mexico’s interest rate decision, China’s foreign direct investment, Argentina’s consumer price index as well as the US export prices, import prices, initial jobless claims and EIA’s natural gas stocks.