US GDP Contracts 0.5%
admin | December 24, 2008The US economy contracted 0.5% in the third quarter sending global equity markets lower yesterday. The US accounts for 25% of global GDP and economic contraction in the US has significant implications for global market confidence. Otherwise, market movement is limited due to the holiday period.
Pound Sterling – UK Markets
The Pound is sitting at 1.47 versus the US Dollar and trading at 1.05 versus the Euro this morning after taking a further battering following the release of third quarter GDP data.
The Office of National Statistics announced yesterday a 0.6% economic contraction in the third quarter, the fastest rate for nearly 20 years. Production output declined 1.4% and the service sector shrunk by 0.5%. Government services remain the only growing sector of the economy at present and BBA figures showed new mortgage approvals have also fallen by 60%. There is little economic data between Christmas and New Year and Sterling is likely to occupy low ranges as markets price in expectations of a further interest rate reduction on January 8th.
US Dollar – US Markets
The Dollar has declined against the Pound and Euro, suffering from the release of GDP statistics yesterday which showed the US economy contracted by 0.5% in the third quarter.
World equity markets lost ground on the news as the US accounts for 25% of the global economy. Home sales and prices also fell at record levels which had the effect of bringing the price of crude back to $40 a barrel. Jobless claims, personal income and spending figures are released in the US today and could induce some volatility in the Dollar rate.
Euro – European Markets
The Euro retained its strength overnight, as Sterling and the US Dollar suffered from the release of negative economic data. The Euro is currently at 1.39 versus the US Dollar and 0.95 against the Pound.
Spain has become the latest in the long list of countries to officially join recession and the ECB is not ruling out further interest rate cuts, commented Ewald Nowotny yesterday. Nowotny is a member of the ECB Governing Council member and head of the Austrian central bank. Data has been light in the run up to Christmas for the Eurozone and there are no major figures over the coming days which indicate we could see the continuation of the Euro’s bullish run on Sterling and the US Dollar.
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