The U.K. economy is showing growth despite recession, reports Fiona Cincotta—who provides a Covid-19 stock winner.
European bourses are looking towards a lower start to trading on Wednesday, following a choppy session in Asia amid rising uncertainty over whether U.S. lawmakers will agree to an additional round of stimulus. The FTSE 100 looks to outperform its peers, aiming higher after better than forecast GDP data and on rising oil prices (see chart below).
Britain is officially in recession. The UK economy contracted by a record 20.4% in Q2 versus. This was down significantly from the 2.2% contraction in Q1, reflecting the full effects of the Coronavirus lockdown and the devastating impact that it had on the economy.
Month on month, UK GDP showed that the UK economy expanded sharply in June, +8.7%, versus 8% forecast. This is steep uplift from May’s 1.8% expansion. It could be argued that the June reading is of more interest than the quarterly reading because this tells us how the UK economic recovery is going rather than how deep the contraction was.
While the data shows that the UK economic recovery is on the right track, caution remains particularly given the cracks that are appearing in the British labor market and rising fears over a second wave. A labor market crisis or another strong rise in Covid-19 infections could quickly knock this fragile recovery off course.
GBP/USD has picked up from overnight lows and is attempting to push back into positive territory at the familiar level of $1.3050, despite US Dollar strength.
Gold sinks
After its phenomenal run higher, gold is dropping hard this week. The precious metal is already down more than 7% this week and could slip further considering the excessively quick upswing overt the past month. Vaccine hopes and global economic recovery optimism have taken the shine off gold. U.S. Treasury yields and the dollar rebound have also added downward pressure to the price of the gold.
A stronger dollar makes gold more expensive for holders of other currencies while rising Treasury yields increase the opportunity cost of holding non-yielding gold. Gold has soared 25% from its March lows and 10% in July alone. Profit taking after such a quick run higher is hardly surprising.
Just Eat
There aren’t many stocks which have benefited from the coronavirus lockdown, but Just Eat Takeaway.com NV (TKWY) has been one of them. The online food ordering company saw a surge in revenue and underlying profit in the first six months of the year, a customers and restaurants alike rushed to use its services. The stock is up an impressive 18% year to date.
Fiona Cincotta is a Market Analyst for Currency Live
