UK data update signals a boost from export may fade soon
Preliminary data has been released on British economy which revealed little to no positive surprises for Pound investors. The country's GDP grew by 1.7% in the second quarter, but export growth slowed to 0.7% despite a 1% forecast. This suggests that the devaluation of the pound that occurred after the country left the European Union has exhausted itself as a driver for the export sector, since the national currency has since been able to win back a significant share of losses. The increase in business investment has not changed compared to the first quarter, what indicates that the burden of economic growth shifts back to consumers whose budgets has squeezed out in purchasing power due to the deterioration of the inflation front. The government has taken up the matter by increasing fiscal support to the economy. In the second quarter, budget expenditures increased by 0.6% with a forecast of 0.3%. Increased intervention indicates that the government is worried about the economic situation in the country. The pound climbed to positive territory after the release of data on economic growth, but the outlook remains bearish, as there are no visible fundamental reasons for strengthening the economy while investors are building up short positions on the British currency. On August 18, the net position on the pound was -31K positions, declining for the fourth consecutive week.
Pressure on the British currency, however, may be offset with peaceful tone of central banks bosses of the United States and Europe, who will discuss key issues of the development of monetary policy in Jackson Hole on Friday. Markets are preparing for the event by reducing positions on risky instruments. US stock exchanges finished Wednesday in the red, Asian stocks picked up pessimism, but it was not transferred to European markets, which hold quite solid. Europe's main stock markets DAX, Stoxx 50 and CAC 40 tempered gains, emerging markets are also pretty brave in the eyes of great uncertainty in the form of speeches by Janet Yellen and Mario Draghi.
The US dollar retreated after yesterday's decline, the dynamics of gold show that now the asset is in a state of equilibrium (all major economic and political events are priced in) and the future depends on the signals from Jackson Hole. Oil quotes cut growth, meeting with relief the bullish EIA report yesterday. Traders looking for signals from the oil market should pay attention to the marginal productivity of the shale rigs, which is falling very fast, the pace of introduction of new ones, as well as the dynamics of debt financing of shale companies, since 2015-2016 turned out to be unprofitable for them and now they need to borrow to strike the balance sheet. Political crises, such as in Venezuela and instability in North Africa and the Middle East, can also give an idea of the changes in world output.
Pressure on the British currency, however, may be offset with peaceful tone of central banks bosses of the United States and Europe, who will discuss key issues of the development of monetary policy in Jackson Hole on Friday. Markets are preparing for the event by reducing positions on risky instruments. US stock exchanges finished Wednesday in the red, Asian stocks picked up pessimism, but it was not transferred to European markets, which hold quite solid. Europe's main stock markets DAX, Stoxx 50 and CAC 40 tempered gains, emerging markets are also pretty brave in the eyes of great uncertainty in the form of speeches by Janet Yellen and Mario Draghi.
The US dollar retreated after yesterday's decline, the dynamics of gold show that now the asset is in a state of equilibrium (all major economic and political events are priced in) and the future depends on the signals from Jackson Hole. Oil quotes cut growth, meeting with relief the bullish EIA report yesterday. Traders looking for signals from the oil market should pay attention to the marginal productivity of the shale rigs, which is falling very fast, the pace of introduction of new ones, as well as the dynamics of debt financing of shale companies, since 2015-2016 turned out to be unprofitable for them and now they need to borrow to strike the balance sheet. Political crises, such as in Venezuela and instability in North Africa and the Middle East, can also give an idea of the changes in world output.
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