European Market Open: UK economy suffers deepest fall on record in 2020
Joshua Warner February 12, 2021 7:23 AM
European markets are expected to open lower today, as UK investors grapple with a large data dump this morning showing the UK economy suffered its deepest contraction on record in 2020.
- UK GDP figures showed the economy delivered 1% growth in the final quarter of 2020
- UK considers keeping some coronavirus restrictions in place for longer, while the US warns it won’t be able to vaccinate all adults by the end of the summer.
- Mario Draghi inches closer to forming a new Italian government after securing the support of 5-Star Movement.
- Bumble shares soar on the first day of trading in the US, whilst Disney stays in the black thanks to its streaming service.
- In commodities, oil was trading lower as OPEC trimmed its growth for oil demand this year.
FTSE 100 to open lower
The FTSE 100 is set to open 0.3% lower this morning at 6506.0.
European markets to follow lower
France’s CAC 40 is set to open 0.4% lower today at 5652.5.
Germany’s DAX is called to open 0.3% lower at 13984.0.
UK GDP suffers deepest contraction on record in 2020
UK GDP grew by 1% in the final three months of 2020, capping off a torrid year for the economy.
The UK economy, like other countries, has seen the economy suffer during the pandemic as lockdown rules prevents growth. Still, the economy wasn’t in ideal shape even before the pandemic erupted in the UK considering GDP fell 2.8% in the first quarter of 2020. The fall in the second quarter was even greater at 18.8% as lockdown rules were introduced, before bouncing back in the third quarter by 16% as rules were eased and schemes like Eat Out to Help Out were introduced.
The mild growth seen in the final quarter means the UK has, at least for now, avoided a double-dip recession. Still, the economy remains 7.8% smaller than this time last year and overall the UK economy contracted by 9.9% in 2020 – marking the largest annual fall on record.
BoE chief economist: UK economy like a coiled spring
Andy Haldane, the Bank of England’s chief economist, has said the UK economy is like a coiled spring’ that is ready to unleash a large amount of ‘pent-up financial energy’ once the vaccine programme allows things to start returning to normal.
Haldane said that he believes the risk of death or hospitalisation has ‘already probably halved’ since 13 million of the most vulnerable people had been vaccinated and said this could be cut by as much as three-quarters by the end of March.
‘Having been bottled in for a year, most people are desperate to get their lives, including their social lives, back,’ Haldane said. ‘When given the opportunity to do so safely, they will seize it’.
When will the UK relax lockdown restrictions?
The managing director of Public Health England, Susan Hopkins, has warned that the UK may have to keep some lockdown measures in place until all the adult population is vaccinated, prompting concerns that restrictions will remain in place for far longer than expected.
‘I think we are going to have to have some measures in place until the whole population is vaccinated, at least all of the adult population,’ she told Sky News. ‘And even then I think we’ll need to know more about transmission before we can release everything and get back to life as it was.’
A separate report in The Times suggested ministers were now considering keeping social distancing rules in place until the end of autumn, while rules around wearing face masks will also remain in place for longer – potentially until the end of the year.
The prime minister Boris Johnson is due to outline his roadmap out of lockdown later this month.
Merkel says German lockdown won’t last longer than necessary
German chancellor Angela Merkel has called for patience after extending the country’s national lockdown from February 15 to March 7, stating that restrictions would not be imposed longer than what is necessary.
Although cases are in decline, fears about new variants spreading is causing politicians around the world to be hesitant about easing rules. The chancellor added that she doesn’t want to rush into easing restrictions only to have to plunge the country back into lockdown, and that she would rather wait ‘a few days longer’ to ensure the right decision is being made.
US will not be able to vaccinate all Americans by end of summer
US president Joe Biden has had to rollback an ambition to vaccinate all American adults by the end of the summer, claiming there will not be enough supplies. He made the comment during a visit to the Viral Pathogenesis Laboratory at the National Institutes of Health yesterday.
The US has recently purchased significant new supplies of vaccines from the likes of Pfizer and Moderna, but the new supplies will not be delivered until the middle of summer, making it almost impossible to get them administered by the end of the season.
Draghi gains support of 5-Star to form new Italian government
Mario Draghi took a major step closer toward forming a new Italian government yesterday as the largest party in the country’s parliament, the anti-establishment 5-Star Movement, voted to support the former boss of the European Central Bank to lead a new coalition.
5-Star often asks its members to vote on major decisions and an online poll saw 59.3% of its members vote in favour of supporting Draghi. Although Draghi has clearly not won the support of many, he now has broad backing from most parties and is expected to propose a list of ministers today and unveil his policies in parliament next week.
UK food exports to EU slump after Brexit
Food exports from the UK to the European Union slumped by as much as 60% since the start of 2021 as companies continue to struggle with post-Brexit trade, the Food and Drink Federation warned.
The organisation’s chief executive Ian Wright warned the industry had been dramatically affected by the new post-Brexit trade rules and said there had been a lot of confusion, accusing some officials as ‘making it up as they go along’.
Speaking to the Commons International Trade Committee, Wright said exports to the EU had probably declined by 50% to 60% in January. He said this could be because companies stockpiled before the end of 2020 to avoid potential disruption, providing opportunity for this figure to bounce back in the coming quarters, but said it was a ‘big number to recover’.
That builds on recent warnings rom the Road Haulage Association that said exports through British ports to the EU fell 68% in January.
Bumble shares jump after IPO
Dating app company Bumble enjoyed a stellar first day as a publicly-listed company after its share price rocketed after its IPO. The company listed at an IPO price of $43 a share – higher than expected – and started off with a valuation of around $8.2 billion.
However, shares soared over 70% during the first day of trading, ending its first day at over $70 a share and achieving a market cap of over $13 billion.
You can read more about the Bumble IPO and the company here.
Disney returns to profit thanks to streaming
Disney managed to stay in the black during the final quarter of 2020, all thanks to the huge success of its streaming service Disney+.
The company has suffered as the pandemic has kept many of its businesses shut, including theme parks, cruises and hotels. However, the focus on streaming its endless content has given it a way to soften the blow at it shifts to entertaining people in their own homes.
Revenue in the three months to January 2 fell 22% and net profits plunged 99% to just $18 million, but that was better than the losses expected by Wall Street.
Disney+ now has nearly 95 million paid subscribers after only being launched in November 2019, just under half the 200 million boasted by Netflix that was launched in 2007. Combined with its other streaming services like Hulu and ESPN+, Disney has 146 million paid subscribers.
Revenue from Disney’s streaming services jumped 73% year-on-year to $3.5 billion and losses shrank to $466 million from $1.1 billion the year before.
Forex: GBP/USD falls after UK GDP data
GBP/USD was trading down 0.2% this morning as the pound lost ground following the GDP data at 1.37944.
EUR/USD was trading slightly lower this morning at 1.21233.
EUR/GBP was trading a smidgen higher this morning at 0.87883.
Commodities: Oil prices dip as OPEC trims forecasts
OPEC yesterday said it expected a slower recovery in oil demand during 2021 than it originally hoped for, prompting it to trim its growth forecasts. OPEC said it expected oil demand to rise by 5.79 million barrels per day in 2021 to 96.05 million barrels per day, down by 110,000 barrels daily from its previous estimate.
‘While the global economy is showing signs of a healthy recovery in 2021, oil demand is currently lagging, but is forecast to pick up in the second half of 2021,’ OPEC said in a statement yesterday. The slower recovery is expected to prompt OPEC to delay any plans to increase output again after introducing significant cuts earlier this year.
‘The global vaccination rollout is gaining pace, infection rates are falling in some areas, improvements in treatment and the growing use of rapid testing facilities all lend support to an acceleration of economic activity after the first quarter,’ it added.
Brent was trading down 0.5% this morning at $60.44 a barrel, while WTI was down 0.4% at $57.58.
The Baker Hughes US oil rig count, which provides an insight into drilling activity in the country, will come out at 1800 GMT.
Silver was up 0.2% this morning at $27.03 an ounce.
The economic calendar is light following a flurry of data early this morning. This afternoon there is a speech from the president of the Federal Reserve of New York at 1500 GMT, when the Michigan consumer sentiment index will also be released.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.