Weekly round up
UK markets made further gains this week with the FTSE 100 Index rising by 0.5% to trade at a two-month peak of 7,515 points at the time of writing.
Data revealed that the UK economy contracted in the second quarter of 2022, with households cutting spending as the cost-of-living crisis began to bite, and health sector output falling as Covid cases and testing declined. Gross Domestic Product fell by 0.1% in the second quarter of the year after rising by 0.7% in the previous quarter. Current forecasts point to a temporary recovery in the third quarter before the UK slides into recession, as further rises in energy prices squeeze household incomes and hit spending.
Overall, the figures released on Friday were close to those expected by economists and the Bank of England. Nevertheless, concerns remain that a severe contraction is likely hit the UK, with household incomes already squeezed by rising inflation, while rising interest rates are making servicing mortgages less affordable. The UK economy performed better than the US in the second quarter, but worse than the other G7 economies of German, France, Italy and Canada, which saw greater bounce backs from the pandemic in the second quarter. Trade performance was poor, with another record trade deficit, excluding precious metals. Exports were £27.9 billion lower than imports, a gap representing 4.5% of national income, the highest since comparable records began in 1997.
In the commodity markets, Brent crude futures traded around $99 per barrel on Friday and are set to end the week around 5% higher amid various supply disruptions and expectations that fuel switching will boost demand. Six oil and gas fields in the Gulf of Mexico have been shut after a leak at a Louisiana booster station halted two pipelines, but oil major Shell Plc said that it expected pipeline service to resume on Friday. Three of the six deep-water platforms owned by Shell produce a combined 410,000 barrels of oil per day.
The International Energy Agency raised its forecast for global oil consumption this year by a further 380,000 barrels per day to 2.1 million additional barrels per day, citing surging natural gas prices and heat waves that incentivises a switch to oil for power generation.
Gold traded around $1,790 an ounce on Friday, holding onto its recent rise, due to a retreat in the US dollar following the release of lower-than-expected US inflation numbers for July.
US equity futures rose on Friday and all three of the major averages are set to end the week in positive territory, with investors reassessing the outlook for US inflation and Interest rates. A key measure of US producer prices unexpectedly fell in July for the first time in more than two years, largely reflecting a drop in energy costs and representing a welcome moderation in inflationary pressures.
The producer price index for final demand decreased 0.5% from a month earlier and rose 9.8% from a year ago, Labour Department data showed on Thursday. The figures suggest some pipeline inflationary pressures are beginning to ease, which could ultimately temper the pace of consumer price growth in the coming months. Commodity prices have dropped sharply in recent months, and there are indications that supply-chain conditions are improving. This followed a softer than expected US consumer price index reding on Wednesday, prompting markets to speculated that the Federal Reserve will tighten less aggressively, with markets now pricing in a higher chance of a 0.5% interest rate hike in September, versus earlier speculations of a 0.75% increase.
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