The latest data on the UK economy has come in on the soft side with the second estimate of UK GDP for the first quarter expanding at a slower pace than expected. The FTSE 100 came within a whisker of posting an all-time high this morning after a strong open following the release of the FOMC minutes last night, but has faded back as the morning has drawn on and recently turned red on the day.
Sterling remains in narrow range
The pound is still higher on balance as the reaction to the 0.2% rise in GDP quarter-on-quarter has been fairly muted as is typical with lagging data. The data refers to the first quarter of 2017 and whilst a downward revision to the first forecast is obviously a negative development, there has not been a strong reaction in the markets. The trading range of the pound has tightened up in recent sessions and it appears that market participants are looking for further signals before the next move will occur. Month end flows may start to be seen in the coming days and with another batch of PMI data and the general election both due in the next fortnight this lull in volatility is unlikely to last for too long. Employment levels and business investment both remain robust, meaning this slowdown is likely attributed to a drop in consumer spending which has remained unexpectedly strong since the Brexit vote.
OPEC meet to discuss output cuts
Today's trade will likely be dominated by the outcome of the latest OPEC meeting with members convening in Vienna to discuss the organisation's production strategy. The market consensus seems to be for a 9-month extension to the current level of production cuts but this may not be enough to support the oil price for long. Comments from the Saudi Oil minister, Khalid Al-Falih, that a 9-month extension is the "safe bet" and that deeper cuts weren't necessary caused a near panic reaction this morning with Brent Oil dropping almost $2 in the minutes that followed. The price has recovered somewhat since then but the decline is an early indication as to how high expectations are at present in the market. There now seems to be little scope for an upside surprise and plenty of room to disappoint. Should an extension be deemed insufficient to support the oil price, then the outlook could become quite grim going forward and OPEC may have to then consider either stronger measures in the future - or let price fall back to a level where it once more becomes uneconomical for a significant number of US shale producers to remain active.
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