UK GDP Shows No Growth: Insights into the Global Market Trends and US CPI Impact
Key Takeaways
- UK GDP stalls: The British economy experienced zero growth in both June and July 2024, missing expectations of a 0.2% rise.
- Service output marginally increases, but declines in production and construction contributed to the stagnant GDP figures.
- Japanese Yen (JPY) strengthens due to China’s economic challenges and hawkish comments from the Bank of Japan (BOJ), resulting in notable losses in JPY crosses like GBPJPY and EURJPY.
- The US CPI release today is the biggest market event, expected to influence Federal Reserve’s rate pricing.
- Gold shines ahead of the US CPI, testing a crucial resistance level of $2530. Traders are eager to see whether it breaks through.
- US Oil (USOIL) recovers slightly after crashing due to China’s weak oil demand data but faces resistance at $67.00/bbl.
- Sentiment remains tentative across global markets, with mixed movements in equities and commodities like copper.
- The US CPI’s influence on rate cuts is crucial: A weaker-than-expected print could lead to a USD decline, while a stronger-than-expected result could reverse some losses.
Summary: Global Market Movements and Key Economic Indicators
- The UK economy stalled in July 2024, mirroring its zero growth in June, falling short of market expectations for a 0.2% increase.
- Services output grew by 0.1%, while declines in production output (-0.8%) and construction output (-0.4%) led to a lack of overall growth.
- The Japanese Yen (JPY) extended its gains, bolstered by economic difficulties in China, with significant drops in JPY crosses such as GBPJPY (-190 pips) and EURJPY (-152 pips).
- The US CPI data is anticipated to play a pivotal role in determining the Federal Reserve’s rate policy, with potential for significant market shifts depending on the results.
- Gold prices are testing a crucial resistance level at $2530, while USOIL recovered slightly after crashing due to weak oil demand in China.
- FX sentiment remains cautious, with a preference for safe-haven currencies like the JPY, while the USD shows cumulative weakness.
UK GDP: A Stagnant Economic Landscape
In July 2024, the UK economy experienced no growth for the second consecutive month, a clear indication of its struggle to bounce back from a challenging global economic environment. With services output inching up by a mere 0.1%, the positive performance in this sector could not offset the negative results in other areas such as production output, which decreased by 0.8%, and construction output, which fell by 0.4%.
Factors Contributing to the GDP Stagnation
Several factors can explain the UK’s stagnant GDP:
- Weak international demand: Ongoing economic slowdowns in major trading partners like China and the EU may have reduced demand for UK exports.
- Inflationary pressures: Rising energy prices and inflation have likely contributed to weaker consumer spending, further stifling growth.
- High interest rates: The Bank of England’s aggressive rate hikes aimed at curbing inflation have raised borrowing costs, limiting business investments and household consumption.
JPY Gains Amid China’s Economic Woes
The Japanese Yen (JPY) has shown notable strength, driven by China’s economic troubles and hawkish comments from the Bank of Japan (BOJ). JPY crosses like GBPJPY and EURJPY saw significant losses, with the GBPJPY down by 190 pips and the EURJPY by 152 pips.
China’s Economic Gloom
China’s economy has been dealing with significant headwinds, including weaker-than-expected growth and dwindling demand for oil. The release of poor import data sparked a negative sentiment across global markets, reinforcing a flight to safety, with investors favoring currencies like the JPY.
The US CPI: A Pivotal Event for the Federal Reserve
The most anticipated event of the week is the release of the US Consumer Price Index (CPI), scheduled for 1:30 pm today. Traders and investors are on edge, awaiting the results that could significantly influence the Federal Reserve’s rate decisions. Currently, markets are speculating about a 50-basis-point rate cut, and the CPI print will either solidify or challenge this expectation.
Possible Scenarios
- Weaker-than-expected CPI:
Should the CPI come in below expectations, it could accelerate a potential rate cut, further weakening the USD and bolstering safe-haven assets like Gold. - Stronger-than-expected CPI:
Conversely, a stronger print would likely reaffirm the need for continued monetary tightening, allowing the USD to recover some of its recent losses.
“The US CPI is a defining moment for markets. A lower print could lead to significant downward pressure on the dollar, while a stronger-than-expected figure could delay the anticipated rate cuts,” said Timothy Adams, a senior analyst at Morgan Stanley.
Gold Tests Resistance at $2530
Ahead of the CPI event, Gold is trading higher, nearing the critical $2530 resistance level that has been a persistent hurdle for months. Traders are closely watching to see if today’s CPI release will provide the catalyst needed for a breakout above this level.
Should the US CPI print below expectations, weakening the USD, we may finally see Gold break through this barrier. However, a stronger-than-expected CPI could reinforce the dollar’s strength, pushing Gold prices back down.
US Oil Prices Slump Due to China’s Weak Demand
In commodity markets, USOIL experienced a sharp decline on the back of weaker-than-expected import data from China, highlighting concerns over the country’s waning demand for oil. Prices fell from $69.00/bbl to as low as $65.50/bbl, before recovering to $67.00/bbl this morning.
The market is now looking for signs of stabilization, with resistance likely at $67.00/bbl, where sellers may push prices lower unless there are improvements in demand forecasts.
Sentiment Analysis and Currency Movements
Tentative Risk Mood
The global risk mood remains cautious this morning, as the markets await the US CPI release. While equities are showing mixed results, commodities like Copper are up by 1.30%, reflecting some resilience in demand.
Cumulative Currency Strength and Weakness
| Currency | Cumulative Strength |
|---|---|
| JPY | 0.64% |
| USD | -0.23% |
| NZD | -0.20% |
The Japanese Yen is the strongest performer today, driven by the BOJ’s hawkish stance and negative developments from China. Meanwhile, the USD and NZD are showing cumulative weakness, with NZDJPY finding resistance at 87.050. Sellers are likely watching for a break below 86.600 to initiate new trades.
US CPI and the Federal Reserve’s Rate Cut Decision
As traders gear up for the US CPI event, the broader expectation remains that a softer-than-expected inflation print will give the Federal Reserve more room to enact a 50-basis-point rate cut. This is critical as it would ease monetary tightening and support economic growth, but at the risk of weakening the USD further.
If CPI prints stronger-than-expected, however, the Federal Reserve may be forced to hold off on rate cuts, causing a rally in the USD.
Conclusion
The global economy is in a delicate position, with the UK experiencing stagnant growth, China’s economic troubles spilling over into commodity markets, and the US preparing for a crucial CPI release. The US CPI will likely determine the near-term direction of the markets, influencing everything from currency movements to commodity prices.
With the Japanese Yen gaining strength and the USD facing weakness, market participants are carefully watching today’s events to make informed trading decisions.
Register with our trusted forex broker here
Hashtags
#USCPI #UKGDP #Forex #Commodities #GlobalMarkets #Economy #Gold #Oil #BOJ #FedRate #MarketSentiment
NOTICE: We have an affiliate link with our broker, If you register with the link we will get a commission from the broker. Support us.
Author: Simeon Bala
An Information technology (IT) professional who is passionate about technology and building Inspiring the company’s people to love development, innovations, and client support through technology. With expertise in Quality/Process improvement and management, Risk Management. An outstanding customer service and management skills in resolving technical issues and educating end-users. An excellent team player making significant contributions to the team, and individual success, and mentoring. Background also includes experience with Virtualization, Cyber security and vulnerability assessment, Business intelligence, Search Engine Optimization, brand promotion, copywriting, strategic digital and social media marketing, computer networking, and software testing. Also keen about the financial, stock, and crypto market. With knowledge of technical analysis, value investing, and keep improving myself in all finance market spaces. Pioneer of the following platforms were I research and write on relevant topics. 1. https://publicopinion.org.ng 2. https://getdeals.com.ng 3. https://tradea.com.ng 4. https://9jaoncloud.com.ng Simeon Bala is an excellent problem solver with strong communication and interpersonal skills.
