UK markets managed a slight Santa rally this week with the FTSE 100 rising by 1.63% to trade at 7,470 points at the time of writing.
Revised data showed the UK economy shrank more than thought in the third quarter, contracting by 0.3% in the three months to September 30th against a previous estimate of 0.2%, the office for National Statistics reported this week.
Commenting on the decline, the Office for National Statistics said the reduction “might reflect changes in business and consumer behaviour in response to higher energy prices”, causing a decline in manufacturing and production. Business investment in the UK fell by 2.5% on quarter in the third quarter of 2022, higher than an initial estimate of a 0.5% decline and reversing a 5.5% increase in the previous quarter.
Business investment remains below pre-coronavirus levels at negative 8.1%. All other G7 economies, by contrast, have regained ground lost during the pandemic.
In the three months to September 2022, the US economy was 4.3% larger than in the fourth quarter of 2019, while Eurozone output was up 2.2%. The London Stock Exchange will shut at 12:30pm GMT on Friday and will be closed on Monday and Tuesday for the Christmas holidays.
Commodity markets
In the commodity markets, Brent crude futures traded around $82 per barrel on Friday and are set for a weekly rise, as an anticipated surge in travel for the holiday season is threatening to exacerbate tightening US energy supplies.
The latest data showed that US crude inventories fell by 5.89 million barrels last week, much higher than forecasts of a 1.66-million-barrel drop. Uncertainties around Russian crude flows also added to the bullish case for oil, with Russia’s Baltic oil exports predicted to decline by 20% month-on-month in December after the European Union and G7 nations-imposed sanctions and a price cap on Russian crude.
Investors also worried about surging covid cases in China that could disrupt economic activities, as well as the prospect of a global economic slowdown next year.
Gold traded around $1,800 an ounce on Friday and is set to end the week little changed, due to shifting views on the trajectory of US Federal Reserve interest rate hikes. Gold is set to end the year close to its highest level in six months, owing to concerns that further monetary tightening from major central banks could tip the global economy into recession next year.
US equity markets
US equity futures traded sideways on Friday, after the major averages sold off during Thursday’s session, as fresh economic data raised concerns that further monetary tightening would be necessary, which could push the economy into a recession.
In regular trading on Thursday, the Dow Jones Industrial Average ended the day 1.05% lower, whilst the S&P 500 and the Nasdaq Composite dropped 1.45% and 2.18% respectively. US economic activity unexpectedly jumped more than previously estimated in the third quarter, according to revised data released by the Commerce Department on Thursday.
The report showed the surge in real gross domestic product in the third quarter was upwardly revised to 3.2% from the previously reported 2.9%, whilst economists had expected the pace of GDP growth to be unrevised.
The notable rebound in GDP in the third quarter reflected increases in exports, consumer spending, non-residential fixed investment, and government spending along with a decrease in imports.
Correspondingly, the number of Americans filing new claims for unemployment benefits rose by 2,000 to 216,000 in the week ending December 17th, below market expectations of 220,000 and extending signals of a stubbornly tight labour market, adding to hawkish projections for the Federal Reserve.
The information provided in this communication is not advice or a personal recommendation, and you should not make any investment decisions on the basis of it. If you are unsure of whether an investment is right for you, please seek advice. If you choose to invest, your capital may be at risk and the value of an investment may fall as well as rise in value, so you could get back less than you originally invested.