UK economy beats expectations in Q2, US PPI stronger but not a concern

The UK economy showed further resilience toward the end of the second quarter, buoyed by better weather.

The cost-of-living crisis has clearly been an immense drag on the economy and due to its nature, will have hit some households much harder than others. But overall, consumer activity has been very resilient which has ultimately stopped the economy from falling into recession, an outcome that now looks increasingly unlikely.

The economy grew 0.5% in June from a month earlier, much stronger than anticipated and contributing to 0.2% quarterly growth. That's nothing to write home about, of course, and the economy still faces enormous challenges and pressures, but inflation falling below average earnings growth could enable that spending resilience to continue.

The pound was higher on the back of the data, although it gave back almost all of those gains against the dollar following the release of US PPI data, which was slightly stronger on both the headline and core level.

When taking the revisions and other data into consideration, the numbers aren't too big a deal in reality although they do serve as a reminder that we are approaching a stage in which the stickiness of inflationary pressures could become more clear and frustrating.

Oil looking a little tired, Gas prices holding onto the bulk of their gains

Oil prices have risen more than 20% since late June, buoyed by the actions of OPEC+ and the unilateral additional cuts by Saudi Arabia and Russia, both of which have been extended to September. Furthermore, the economic outlook has become less bleak as countries have been seen to be making progress on inflation, allowing for the end - or near-end - of tightening. While those things may change over the coming months, there’s clearly more optimism now.

That said, we are seeing some signs of momentum waring thin as Brent approaches $90 and trades around its 2023 highs.

Natural gas prices have been extremely lively this week which has been put down to a couple of factors, most notably the risk of strike action at an LNG facility in Australia. The moves highlight how sensitive the market remains right now with the 40% spike in European gas futures on Wednesday huge under the circumstances. It’s held onto the bulk of these gains and so in the near-term, trading conditions could remain very volatile.

Gold struggles to build on better US inflation report

The US CPI report wasn’t much of a game-changer for gold despite the initial price spike. Those gains were quickly pared and the yellow metal returned roughly back to where it was trading pre-release, despite the numbers being more promising than anticipated.

That could be a bearish signal for gold but the yellow metal remains above its June lows. A break of that could be a very bearish development. 

Bitcoin is far from thrilling at the moment

Bitcoin has been very choppy over the last couple of months but it hasn’t really gone anywhere in that time. From trading largely between $30,000-$31,000 between late June and early July to mostly between $29,000-$30,000 since, it’s not been the most thrilling of periods. It threatened to break back above $30,000 this week after a strong surge on Tuesday but that appears to have fallen short of momentum.