Has the UK growth machine started again?

Two years of growth has just been added to the UK’s Gross Domestic Product!

Anyone who has read anything financial since the pandemic will have heard the persistent banging on about how the UK has recovered more slowly than any other G7 nation.

Does anyone else remember this?

In November 2022, the OECD Organisation for Economic Co-operation and Development announced that U.K. growth has lagged behind the world’s biggest economies since the Covid-19 pandemic and is substantially below the OECD average, according to a new report from the influential Paris-based group.

U.K. gross domestic product has contracted by 0.4% between the fourth quarter of 2019 and the third quarter of 2022, versus a cumulative 3.7% growth in the 38-member Organisation for Economic Co-operation and Development.

In the G-7 nations — which includes Canada, France, Germany, Italy, Japan, the U.S. and the U.K. — GDP has grown by a cumulative 2.5%, with only the U.K. recording a decline.

WELL, it turns out this was absolute rubbish.

Official statistics on Friday added almost 2 per cent to the size of the UK economy, in a surprise move that showed the country recovered much faster from the pandemic than previously reported.

The Office for National Statistics revisions mean that Britain was/is no longer the worst-performing economy in the G7. The changes reveal that, by the end of 2021, the country’s economy was 0.6 per cent larger than pre-pandemic levels — instead of 1.2 per cent smaller, as previously estimated. That’s a pretty big miss, and slightly embarrassing for all those who blamed Brexit for the poor performance that never existed.

In a preview of new national accounts data to be included in official figures from October, the ONS said it had uncovered big sources of growth it had previously not taken account of, particularly as the economy recovered from the pandemic in 2021.

Simon French, chief economist at UK investment bank Panmure Gordon, described the revisions as “extraordinary”, adding: “The entire UK economic narrative — post-pandemic — has just been revised away.”

As recently as mid-August, official data reflected ONS estimates that the economy had still not reached its pre-pandemic level, even by the second quarter of this year. But, after the revisions are included in official figures in October, they will show that the UK economy recovered from the pandemic in late 2021, a recovery as strong as France’s and better than Germany’s.

That will add the equivalent of two years of current UK growth to the country’s gross domestic product.

We couldn’t start the weekend review without pointing this out. We will discuss it further later in the week, but such destruction of the economic narrative of the last 2 years, simply couldn’t be ignored.

Now, onto the markets.

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This week the pan-European STOXX Europe 600 Index ended 1.49% higher on hopes that interest rates would soon peak and that a recession, while possible, would likely prove to be shallow and short-lived.

Stocks also appeared to receive a lift from China’s efforts to bolster its economy. Major stock indexes in France, Germany, Italy, and the UK also advanced.

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European government bond yields edged lower as core inflation data and comments from policymakers suggested that the European Central Bank could be nearing the end of its monetary policy tightening cycle. The yields on 10-year government bonds issued by France and Germany ticked lower. Softer economic data pushed the yield on UK 10-year sovereign bonds near one-month lows.

The annual inflation rate in the eurozone was steady at 5.3% in August, according to a preliminary estimate from Eurostat, the European Union’s official statistical office. The result was slightly higher than the 5.1% expected by economists polled by FactSet. The core inflation rate, a measure of underlying price pressures that filters out volatile food and energy costs, slowed in line with expectations, coming in at 5.3%—a 20-basis-point improvement from July. (A basis point is 0.01 percentage point.)

The minutes from the ECB’s July meeting called out the strong labour market in the euro area and suggested that a soft landing might be possible for the slowing eurozone economy. The seasonally adjusted unemployment rate stayed at a record low of 6.4% in July, matching a consensus forecast.

Consumer price inflation moderated in August to 6.1% year over year, matching a 14-month low hit in May. Meanwhile, retail sales fell in July by 0.8% sequentially, compared with the 0.5% decline expected by economists polled by FactSet.

Bank of England mortgage data showed that the number of home loans approved but not yet completed in July dropped 10% from the prior month. Meanwhile, UK house prices fell 5.3% in August—the largest decline since July 2009—according to mortgage lender Nationwide.

In the US, hopeful signs on the inflation front helped the major benchmarks end with solid gains for the week, although stocks closed out their first negative month since February. A decrease in longer-term interest rates over much of the week provided a boost to growth shares in particular by reducing the implied discount on future earnings. Smaller-cap stocks outperformed, however, narrowing the significant year-to-date gap with large-caps.

Friday’s closely watched nonfarm payrolls report appeared to confirm loosening labour market conditions. The Labor Department reported that employers added 187,000 jobs in August, somewhat above consensus expectations, but gains for the previous two months were revised lower by a combined 110,000. Average hourly earnings also rose by only 0.2% for the month, a tick below expectations. Most notably, perhaps, the unemployment rate climbed from 3.5% to 3.8% to reach its highest point since February 2022.?

Japan’s stock markets gained over the week, with the Nikkei 225 Index rising 3.4% and the broader TOPIX Index up 3.7%. Some weaker-than-forecast U.S. economic data releases boosted expectations that the U.S. Federal Reserve was getting closer to halting its interest rate hiking cycle, supporting sentiment. Investors also welcomed China’s latest measures to boost its markets and economy.

Seeking to alleviate the effects of high fuel costs on households and businesses, Japan’s government pledged measures to ease record-high gasoline prices and to extend its subsidy program for oil wholesalers beyond September until the end of the year.

On the economic data front, Japan’s unemployment rate unexpectedly rose to 2.7% in July from the prior month, against expectations of a 2.5% increase. Labor demand weakened, with the number of manufacturing sector openings trending downward.

Chinese stocks rose after the government issued a series of stimulus measures aimed at reviving the economy. The blue-chip CSI 300 Index and Shanghai Composite Index both advanced for the week. In Hong Kong, the benchmark Hang Seng Index rose for the week ended Thursday after financial markets were closed Friday due to the approach of a typhoon.

The previous Friday, China’s central bank cut the amount of foreign currency deposits that domestic banks must hold as reserves. The reduction in the foreign exchange reserve requirement ratio from 6.0% to 4.0% effectively freed up more foreign currency in the local market to buy the renminbi currency, which fell to its lowest level since 2007 against the U.S. dollar in August. The central bank’s move came hours after China’s financial regulator said it would reduce minimum down payments for homebuyers nationwide and encouraged lenders to lower rates on existing mortgages.

Next week will be a holiday-shortened trading week, with U.S. equity markets closed for Labor Day on Monday. With earnings of the vast majority of S&P 500 companies already out of the way, it's expected to be relatively quiet.

We will get final PMI readings for the Euro Area where services activity is expected to return to expansion after a brief drop. Out of Europe, we will also see retail sales on Wednesday and GDP on Thursday.

House prices are struggling in the UK at the moment, and we’ll get an update on Thursday from Halifax. Another negative number is expected, although a drop in house prices actually has very little impact on the overall economy and tends to bring more concern than it really warrants.

In the US we will also get PMI surveys from S&P Global and the?Institute for Supply Management, the Fed’s latest?Beige Book, and then an inflation reading out of China.

Gamestop, American Eagle Outfitters, and supermarket chain Kroger will also release their earnings, but on the whole, it ‘should’ be a relatively quiet week.

However, things in the market never tend to go according to plan, so always expect the unexpected.

Closing comments: The last 5-6 weeks have been volatile for European stock markets. A sharp retracement kicked off the period, as?equity bears?came out in force.

However, in short term periods like this experienced traders tend to take the opportunity to modify their portfolios. Many of the strategies showcased on TPP did exactly this. Firstly, liquidating some 'short sell' positions in profit, and by also adding small increments on the BUY side as the markets fell.

A well known saying in the investment market is 'buy?the dip' and this was certainly the case.

Over the last couple of weeks we have witnessed many of the European stock markets bounce back, and the result has been that many of the TPP strategies are moving closer to previous highs again.

This is despite the FTSE 100 (a large holding within our strategies) being substantially lower than it was earlier this year.

As the week closed we have once again started to witness some SELL positions being added on portfolios on the US stock market. Therefore, the overall bias is 'BUY FTSE, SELL US TECH' coming into a new week.

It's the subtle tweaks made with the?strategies on TPP that result in market beating performance.

Can your wealth manager say the same?

Would your IFA even know how to place a trade in the markets?

It's what separates TPP from the masses. It's one of the many competitive edges that we have. At TPP we offer a multitude of different strategies and trading techniques- they all have one thing in common. They are all designed to beat their market benchmark. Their track records suggest they will do exactly that.? TPP has been built for frustrated investors. It's time to empower yourself and beat your market benchmark. It's time for change. No more exposure to underperforming?funds. More exposure to a game changing platform. Don't just hear about the revolution: Join it. Welcome to the future of investing.???