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UK GDP, SVB & Non-Farms in Focus

This morning UK GDP has come in higher-than-expected hitting month-on-month growth of 0.3% for January, against forecasts of 0.1%.

The opening month of 2023 saw the services sector grow by 0.5% while consumer-facing services also rose by 0.3%, though production output fell by 0.3%. This morning’s data follows last month’s print which showed a 0.5% contraction as strikes hampered the economy and thus January’s growth will help to restore some confidence in the UK economy which has been subject to question.
For example, the IMF’s latest forecast suggested that the UK will be the only economy in the G7 to shrink this year, with contractionary growth of 0.6% between Q4 2022 and Q4 2023. This forecast was downwardly revised from their previous October estimate of a 0.2% contraction over that same period with the organisation citing high energy prices, tighter fiscal and monetary policies and stretched household budgets.

While the UK labour market remains hot with unemployment levels close to record lows, job vacancies remain close to record highs, thus indicating lost potential vis-à-vis productivity which will continue to hinder growth if this trend continues. Moreover, a recent study also suggested a worker shortfall of 330,000 people due to Brexit related restrictions, thus exacerbating shortfalls in the UK labour market which will continue to weigh on investors medium to long-term view of the UK economy.

Following this morning’s print, many analysts may thus upwardly revise the UK economic outlook for this year as energy prices ease below £1.30 a therm (down from a peak of £5.95 in August 2022), which if the trajectory continues will further help ease inflation.

Shares in Silicon Valley Bank Plummet

One of the primary lenders to technology start-up, SVB, has seen their share price plummet over 60% yesterday, as depositors withdraw funds in droves.

This followed the bank’s announcement earlier in the day that they would sell $2.25b worth of shares in an attempt to support its finances. As the FT writes “SVB said on Wednesday it had lost roughly $1.8bn on the sale of about $21bn of securities, which represented about 80 per cent of its securities portfolio marked as available for sale.” This itself follows SVBs decision to buy $91b worth of deposits during 2021 in longer-dates US treasuries which have since lost $15bn in value. As such, all eyes will be on SVB bank today and whether there is any contagion on other banks.

13:30 will see the release of Non farms where the general market consensus is expecting a print of 205,000 jobs, down from last month’s surprise figures of 517,000 (which well surpassed expectations of 185,000). On Tuesday Powell expressed confidence in the strength of the US labour market while ADP figures also came in at 242,000 jobs, above market expectations of 200,000. Earlier last year, Powell suggested that Non farms would need to ease to some 100,000 to remain in line with population growth while not overly impacting inflationary pressures. Thus, even a relatively softer-than-expected print would still indicate a relatively tight labour market.

Equities Update

Yesterday saw further pressure on equities as investors digested US unemployment claims rising at the fastest pace in five months while also upwardly revising a terminal rate of around 5.6% from the Fed. As such the S&P 500 ended yesterday 1.66% lower while the tech heavy Nasdaq and Dow Jones also lost 2.05% and 1.85%, respectively. Across the Atlantic, European shares also ended in the red, with the Stoxx 600 falling 0.2% over the session, though this was itself a slight rebound from a 0.8% decline earlier in the session. This comes as markets weigh on the prospect of the ECB raising rates 0.5% later this month, further restricting monetary conditions.

Oil in Focus

As investors upwardly revised their rate hike expectations from the Fed, the prospect of suppressed demand due to easing growth saw pressure on oil with WTI crude futures falling 1.2% over the last 24-hour session. This comes as markets also digested OPEC’s Secretary-General Haitham Al-Ghais warning over the potential for suppressed demand from Europe and the US and the CCP setting only modest growth targets for China – the world’s largest importer of crude oil. Yesterday’s move indicates that WTI crude futures have fallen a little over 6.8% on the month, and 27.5% on the year, having spiked at around $120dpb last March.

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