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FTSE 100 edges higher despite UK GDP growing by less than expected; Burberry drops again

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Leading shares have made a cautious start after the UK economy saw a sharp slowdown in the third quarter.

The FTSE 100 is up 13.2 points or 0.18% at 7352.27 as investors assess the fall in GDP growth from 5.5% in the second quarter to 1.3% in the three months to September.

And growth could fall further in the fourth quarter, according to economists.

Rory Macqueen at think tank NIESR said: ”The post-COVID-19 bounce seems to be nearing its end, with hospitality returning to normal growth rates in September after a bumper August. Wholesale and retail activity shrank for a fifth consecutive month and gas distribution for the fourth, which may suggest supply constraints or the unwinding of unusually high demand earlier in the year

“Overall growth is likely to slow further in the fourth quarter but will benefit if public confidence in keeping COVID-19 under control has enabled a return to growth in consumer-facing services sectors.”

Earlier this week NIESR raised its growth forecasts for this year but cut them for 2022.

It has raised its forecast for UK GDP growth for this year from the 6.8% it pencilled in in August to 6.9%. But it now expects the economy to grow by 4.7% in 2022, down from the previous figure of 5.3%.

Burberry Group PLC (LSE:BRBY) is a big faller down 7.78% following its figures.

Half year revenues jumped 38% to £1.2bn, with adjusted operating profit rising four-fold to £196mln. The dividend was raised 3% to 11.6p per share and a £150mln share buyback was restarted.

But there are still concerns about the economy in China, which is one of the company’s key markets and where inflationary pressures are growing and there are plans to narrow the wealth gap among its citizens.

Freetrade analyst Gemma Boothroyd said: “A geographically diversified sales strategy is good news, but with China’s ‘common prosperity’ drive in full swing – how precarious is Burberry’s footing?

“It’s impossible to know how much of an impact these policies will have on Chinese spending power. But if China’s upper-class soon ends up with a lot less money to play with, Burberry needs a plan b.” 

The problems with the struggling property group Evergrande are also hanging over the country’s economy, despite the firm reportedly making another key bond payment at the last minute to avoid default.

7.45am: UK growth disappoints

The UK economy grew by less than expected in the third quarter, according to the latest official figures.

The country’s GDP grew by 1.3% in the three months from July to September, lower than the 1.5% forecast by economists.

And it was much lower than the 5.5% recorded in the second quarter, as the economy emerged from lockdown.

For September the rise was better than forecast, up 0.6% compared to an expected rise of 0.4%.

But the August figure of 0.4% has been revised down ot 0.2% and the July fall is worse, now seen as a 0.2% decline rather than the initial fall of 0.1%.

Despite the disappointment, some economists believe the Bank of England could still raise rates in December.

Dean Turner, economist at UBS Global Wealth Management, said: “While today’s GDP figures mark a sharp slowdown from the second quarter of the year, and came in slightly below consensus, there’s no need to sound the alarm just yet. The release confirms that the economy continues its recovery from the pandemic, with activity in services recovering as business returns to normal.

“The service sector led the economy in the third quarter, with activity almost back to pre-pandemic levels, helped by a notable recovery in areas such as accommodation, and arts, recreation, and entertainment. In our view, the switch to spending on services and away from goods is likely to continue in the coming months which, along with supply chain bottlenecks easing, should relieve some of the pressure on inflation – which we still expect to fall from spring of next year.

“As we move towards the end of the year, the key focus of markets will be the timing of the Bank of England’s interest rate hike. Today’s GDP release, although slightly below the Bank’s recent forecasts, is unlikely to be a deciding factor on the timing of its next move. The two labour market reports that will be released before they next meet will be of more importance. We expect these will be relatively strong, giving the Bank the green light to increase rates when they meet in December.”

6.50am: Markets set to open marginally higher

The FTSE 100 is seen slightly higher ahead of what’s set to be a quieter Thursday in the markets.

CFD firm IG Markets has the London benchmark creeping around 7 higher, making a price of 7,321 to 7,325 with just over an hour to go until the open.

The UK market diary is somewhat shy of catalysts meanwhile Veterans Day in the United States and Canada will lead to lighter trading volumes.

Sentiments in the US particularly are being weighed by worries over inflation, after this week’s CPI data marking America’s highest level in decades.

“Not only did US CPI hit its highest levels in 31 years, at 6.2%, but core prices also surged, rising to 4.6%. With the biggest components of the rise being in food and energy, there is rising concern that we could only be getting started with further increases in prices, especially as the weather hasn’t even started to get cold yet,” said Michael Hewson, analyst at CMC Markets.

“There is a fear now that consumers, as well as markets may well have to absorb further price rises, with all the inherent risks that brings for company profit margins, and consumer inflation expectations.”

The Dow Jones ended Wednesday down 240 points or 0.66% at 36,079 whilst the S&P 500 dropped 0.82% to 4,646.

Closing at 15,622, the Nasdaq ended the session down 1.66% whilst the small-cap focussed Russell 2,000 moved 1.55% lower to 2,389.

In Asia, Japan’s Nikkei meanwhile rose by 148 points or 0.59% to trade at 29,255 and Hong Kong’s Hang Seng added 0.72% rising to 25,181. The Shanghai Composite moved higher, up 1.1% to 3,531.

Around the markets

The pound: US$1.3432, up 0.2%

Gold: US$1,852 per ounce, up 0.2%

Silver: US$24.99 per ounce, up 0.93%

Brent crude: US$82.55 per barrel, down 2.6%

WTI crude: US$81.33 per barrel, down 3.3%

Bitcoin: US$64,829, down 2.3%

Ethereum: US$4,667, down 1.1%

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were mixed on Thursday as employment in Australia fell unexpectedly by 46,300 jobs in October.

That was far off expectations for a 50,000 rise by analysts in a Reuters poll.

China’s Shanghai Composite gained 1% while Hong Kong’s Hang Seng index rose 0.51%

In Japan, the Nikkei 225 lifted 0.59% but South Korea’s Kospi dipped 0.33%.

Australia’s S&P/ASX200 slipped 0.57% to 7,381.90 as unemployment in Australia climbed to 5.2%, higher than the 4.8% expected in a Reuters poll.

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Story by ProactiveInvestors


Source: https://www.proactiveinvestors.com/companies/news/965943/ftse-100-edges-higher-despite-uk-gdp-growing-by-less-than-expected-burberry-drops-again-965943.html


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