This morning’s GDP print indicated that the UK economy shrank by 0.1% in March, falling below market expectations of 0.1% growth and hence acting as the latest signal to concern investors over the prospect of a recession. The ONS also revised figures for February’s GDP print indicating that there was no growth over the month. Therefore, when accounting for January’s print the UK economy grew 0.8% over Q1, again falling short of the general market consensus’ estimates of 1%. This means that the level of quarterly GDP in Q1 2022 is 0.7% above its pre-coronavirus level in Q4 2019.Data from the ONS also shows that while production output rose by 1.2% in Q1 2022, it is nonetheless still 1.8% below pre-pandemic levels, partially given persisting supply chain issues. Indeed, recently it was reported that UK car manufacturing dropped by almost 1/3 as figures showed that around 100,000 fewer cars were produced in Q1 2022 than Q1 2021 with the Society of Motor Manufacturers and Traders similarly citing the surging cost of energy and issues around microchip shortages.
The stability of the UK economy has come under scrutiny in recent weeks with the IMF forecasting that it will have the second lowest level of growth amongst the G20 during 2023. Citing the rising cost of living, Brexit and supply shortages the in April the IMF reducing the UK’s growth forecast from 4.7% to 3.7% over 2022. Just last week the Bank of England’s Governor, Andrew Bailey stated that the economy would likely begin to contract in Q4 2022 while forecasting that GDP will fall 0.25% over 2023.
Accordingly, this morning’s data also highlights that business investment fell by 0.5% in Q1 2022, remaining 9.1% below its pre-pandemic levels, far worse than what the Bank of England had previously predicted.
This comes after alarming data in relation to consumer confidence and retail sales for March which indicated that consumer confidence was at its lowest level since 2008, highlighting the impact of rising inflation, falling real wages and a poor outlook on the future health of the British economy. The Major Purchase Index also fell eight points to -32 pts, further suggesting that consumers are holding off major purchases given their assessment on the future economic climate and personal finances. These low levels of consumer confidence appear to have manifested themselves in poor retail rales released this morning which indicate that m-o-m figures fell 1.4% in March, putting it well below market expectations of -0.3% while retail remains 2.2% above pre-pandemic levels.
Following this morning’s print, the FTSE fell some 1.9% to 7,207pts underlying investors concerns over the prospect of recessions moving forward.
US Inflation Surpasses Expectations
Headline CPI data suggests that inflation stood at 8.3% over April on an annualised basis, surpassing expectations of 8.1%. While this indicates that the rate of inflation has come off since March’s print of 8.5%, the fact that it was higher than forecasted demonstrates the extent to which alarmingly high inflation is still prevalent within the world’s largest economy. Excluding volatile items including energy and food, core inflation rose 0.6% over April – above the general market consensus of 0.4% implying that on an annualised basis, core inflation stood at 6.2%.
Given the readings, investors weighed on the prospect of further monetary policy tightening from the Fed by further rate hikes and tapering of the Fed’s $9trn balance sheet.
The print sent two-year Treasury yields rising by some 0.12 percentage points to 2.73% before dropping off again to 2.64% while the 10-year treasuries fell back below 3%. In the stock market, there was a considerable sell off in tech with the Nasdaq closing 3.2% down while the S&P 500 fell 1.6%.
Apple Falls from the Top of the Tree
Yesterday evening, Saudi Aramco surpassed Apple’s market capitalisation meaning that it is now the worlds largest company. Following the tech company’s valuation falling 4.4% to $2.3trn, Aramco’s gains saw it reach to $2.4trn. The move is of course indicative of the recent shifts in the global economy which has seen the cost of energy surge while tech indexes drop significantly. Indeed, just a few months ago Apple held a market cap of $3tn which at the time was some $1trn more than Aramco’s, however since then Apple shares have fallen 19% while Aramco’s has surged 27%. However, while Apple’s falls are significant, they are better than the decline of the Nasdaq 100 Index which has dropped 24.8% over the last year.
Have a great day.