Derren Nathan, head of equity research, Hargreaves Lansdown: “Investors can be forgiven for feeling a little seasick after this week’s wild gyrations. However the FTSE looks set to open with a sense of optimism after UK GDP figures showed the economy grew 0.5% in February, faster than the 0.1% expected by economists. Construction, services and production were all in positive territory with production leading the way at 1.5% led by the manufacturing sector. Technology and pharmaceuticals had the strongest showings showcasing the UK’s strength in specialist areas and highlighting the pressure on the government to ensure that the UK remains a competitive home for workers and companies in knowledge intensive industries.
The Friday bump to UK stocks contrasts to yesterday’s sell off in Wall Street. Stocks gave up some of the strong gains seen after Donald Trump called a partial ceasefire in the trade war. But where global import taxes eventually land remains unclear and fears that the US economy is teetering on the brink of recession continue to weigh on US assets in particular. 10-year treasury yields have reached 4.4% compared to year-to-date lows of under 4% in early April and the dollar trades at 20 month lows compared to a basket of currencies.
For American companies that’s going to add further inflationary pressure into the supply chain on top of the likely effect of tariffs. This adds weight to research by Yale University’s budget lab which expects US retailers to push up prices imminently by around 2.9% equating to 18 months of ‘normal’ inflation over a matter of weeks.
Brent crude prices are broadly in line where they ended yesterday at $63.6 well above the $58.5 low point seen earlier in the week but still more than $10 under the price levels seen at the beginning of the month. It’s a challenging time for oil producers. Those with robust trading functions are likely to be seeing some benefit from the volatility. Firms with strong balance sheets and competitive production costs are those with the best chance of being able to stick to their investment commitments and maintain shareholder payouts through the cycle. For the wider economy if prices remain depressed it may take the edge off inflationary pressures.”
Nicholas Hyett, Investment Manager at Wealth Club said: "GDP data often feels a bit dated by the time it's published - the Trump shaped asteroid that hit markets in the last week means February's data feels practically pre-historic. Nonetheless the picture it paints is a rosy one, as output grew across all three major sectors. The manufacturing sector grew rapidly, while consumer services also show signs of healthy progress. Overall growth of 0.5% in a month is genuinely impressive, far faster than either the market or we had expected, and in the absence of disruption would have been a sign the UK economy was evolving nicely. Unfortunately a lot has changed since February. Higher living wage and national insurance expenses kicked in in April, though these numbers suggest they may not have been the headwind to growth we had anticipated, and perhaps more importantly Donald Trump has upended the global trade system. That could have caused UK economic growth to go extinct - making today's numbers a fossilised window into a lost world."
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