Joshua Mahony MSTA
Scope Markets
Strong UK GDP reading sparks stronger pound while early gains in FTSE are erased
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FTSE rally fades after strong GDP reading
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UK reliance on services sector highlights threat of Brexit
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Deutsche Bank earnings provide welcome relief
Early gains for the FTSE have been stifled by a surprisingly robust UK GDP reading, proving that while the Brexit referendum result heightened fears of an unravelling in UK economic activity, we remain on track for now. Dig a little deeper and it is clear that the UK remains disproportionately reliant upon the services sector (+0.8%), the only sector to grow amid shrinking output in construction (-1.4%), agriculture (-0.7%) and production (-0.4%). Unfortunately it is the services sector - accounting for almost 80% of UK GDP - which is expected to suffer most from Brexit, putting future UK growth in a precarious position.
In a week where the FTSE has been dragged lower by falling crude oil prices, a rising pound and negative sentiment brought about by poor earnings data, today’s strong GDP reading provides another reason to sell. Everything seems to come down to the value of the pound, and given the post GDP rise it comes as no surprise that the FTSE weakness is back in play.
Today is all about corporate earnings, with a whole host of European and US companies likely to drive significant volatility across the market. A surprise move into profit for Deutsche Bank has allayed some of the fears that sent shares in Germany’s biggest bank into freefall, with almost €7 billion set aside for the US Department of Justice lawsuit. Traders are eagerly awaiting data from US heavyweights Alphabet, Amazon and Twitter, following yet another disappointing set of figures from Apple.
Ahead of the open we expect the Dow Jones to open 63 points lower at 18,106.
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