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Aug 12, 2020

News | Business | Markets | UK: UK shares outpace European peers as traders take solace in June GDP

Sarah Provan  and Hudson Lockett 

UK markets climbed higher on Wednesday, contrasting a soggier session on the continent, with investors homing in on a nascent economic rebound at the end of the bleak second quarter and upbeat earnings reports.
The FTSE 100 index of British blue-chips rose 0.7 per cent in morning trading, compared with a 0.1 per cent fall for Frankfurt’s Dax and a 0.1 per cent increase for the CAC 40 in Paris. Europe’s Stoxx 600 rose 0.2 per cent.
Figures released on Wednesday painted a grim picture of the British economy under lockdown, with output diving by a fifth in the second quarter. The slump was broadly anticipated, however, and economists took some solace in a pick-up in activity in June as the coronavirus-related lockdown was lifted. Output rose 8.7 per cent that month from May, better than forecast.
“We’d expect to see another decent bounce in GDP during July when a wider range of service-sector businesses were allowed to open,” said James Smith, economist at ING. “The timing of all of these changes (towards the end of the second quarter, or early into the third) probably means that the UK’s third-quarter rebound is likely to appear larger than in many other economies.”
UBS Wealth Management added that there was a “strong bounce in activity as the economy emerged from lockdown” and that it expected “pent-up consumer demand to drive a strong recovery in the third quarter”. It added that UK assets “look undervalued” and that it preferred UK equities to those in the eurozone.
Still, sterling barely budged after the release of the data. It was recently up 0.1 per cent at $1.3057. The more domestic-focused FTSE 250 index of UK mid-cap groups was down 0.2 per cent.
Georgina Taylor, a fund manager at Invesco, warned that the UK was “at the bottom of the pile at the moment” compared with its European peers because of the economy’s large weighting towards services.
“Nowhere is doing well but, as manufacturing comes back on line, those economies where it is a bigger driver of economic growth can come back quicker than a services-based economy such as the UK,” she said.
UK markets were also supported on Wednesday by a series of upbeat earnings reports. Insurer Admiral was among the top performers after it reported a sharp rise in profits as the number of road accidents fell sharply during the lockdown, pushing down insurance claims.
Asos, the ecommerce fashion retailer, said it expected its annual sales and profits to be “significantly” better than expected thanks to fewer returns and customers buying lockdown-related clothing.
Across the Atlantic, Wall Street was set to recover after a fall on Tuesday that came after Mitch McConnell, the Republican leader in the US Senate, said there had been no talks on a new economic stimulus package since Friday. S&P 500 futures were up 0.7 per cent in recent dealings.
Gold bounced back after its biggest fall in seven years, with the precious metal trading 1.9 per cent higher at $1,948 a troy ounce. The yield on 10-year US Treasuries, which climbed 0.07 percentage point on Tuesday, added another 0.02 percentage point to 0.679 per cent. Bond yields rise as prices fall.
Equities in the Asia-Pacific region slipped. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks shed 0.7 per cent on Wednesday while Hong Kong’s Hang Seng rose 1 per cent. Australia’s S&P/ASX 200 dropped 0.2 per cent.
In New Zealand, the S&P/NZX 50 index fell 1.5 per cent on Wednesday as authorities put the city of Auckland back into strict lockdown in response to the first locally acquired cases of Covid-19 in more than 100 days. Authorities were probing whether the outbreak was linked to infected refrigerated freight imports.
The US dollar, as measured against a basket of its peers, edged down 0.1 per cent. Japan’s benchmark Topix equity index rose 1.2 per cent as the yen weakened 0.3 per cent to ¥106.77 per dollar.
Additional reporting by Daniel Shane in Hong Kong

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