FTSE 100 analysis: UK GDP surprise lifts pound and sinks stocks – Top UK stocks

FTSE 100 falls

The FTSE 100 is down 0.5% in early trade this morning.

UK GDP: Big beat could stoke inflation fears

UK GDP came in much stronger than anticipated this morning, defying economist expectations that thought the economy would have stalled in the second quarter because of strike action and the extra bank holiday we saw in May.

UK GDP rose 0.5% month-on-month in June, coming in ahead of the 0.2% forecast by economists. That was primarily driven by a 1.8% lift in production output, 1.6% growth in construction and a more tepid 0.2% increase in services. The hot weather certainly helped construction and hospitality, the ONS said. Manufacturing was also strong after rising 2.4% when economists had anticipated a rise of just 0.2%.

That meant GDP was up 0.2% in the second quarter compared to the first, a welcome figure considering the consensus pointed toward 0% and marking the best reading in over a year! GDP was 0.4% higher than the year before compared to the 0.2% estimate.

The positive surprise is supporting sterling, with GBP/USD edging back above the $1.27 mark this morning, which will be hurting the internationally-focused stocks that dominate the FTSE 100.

Markets may also be taking a knock because the Bank of England’s chief economist, Philip Huw, recently warned that the economy could not grow too fast without fuelling inflation, suggesting today’s strong GDP reading is causing fears inflation will be stickier than hoped going forward, with the UK already having a tougher time bringing it down than other nations.

We didn’t see much movement in terms of interest rate expectations in wake of the data, although we have seen hopes of the first rate cuts pushed back.

FTSE 100 analysis: Where next for the UK 100?

The UK 100, which tracks the FTSE 100, continues to drift rangebound today between the 7,650 level of resistance-turned support and the 7,450 floor. We are waiting for a breakout for a stronger signal on the future direction. Beyond here, the longer-term trendlines – with the falling resistance tracing back to February while the rising, supportive trendline goes all the way back to the pandemic-induced lows we saw in March 2020 – are back in play.

The 50-day moving average has provided a reliable level of support this week, with buyers re-entering the market when it has briefly slipped below here. That suggests 7,540 could be the immediate floor. Meanwhile, the two longer-term moving averages have converged at 7,630, which may provide a new ceiling in the short-term.

Top UK stock news

Rio Tinto is down 0.7% this morning after the miner said the Simfer joint venture has reached an important milestone after signing key agreements covering the infrastructure for the Simandou iron ore project. A co-development agreement has been signed with the country that will pave the way for a new 600km rail network and port facilities to be constructed to help export iron ore out of the mine and to the southeast of the country.

The UK Competition & Markets Authority has provisionally cleared the takeover of EMIS Group by US giant UnitedHealth following a Phase 2 investigation. A final decision will be made by October 5. That is sending EMIS shares up 24.6% this morning!

Domino’s Pizza Group has been downgraded to Hold by Deutsche Bank, which has a price target of 410p on the pizza company, which is down 2.5% at 399.34p in early trade.

OneSavings Bank is up 0.8% despite reporting a sharp fall in profits in the first half. Gross organic lending rose 2% in the first half while its net loan book increased 4% to £23.6 billion. However, pretax profit was down 71% in the first half at £268.1 million as its net interest margin, representing the amount it makes on loans, tightened to just 1.71% from 2.80% the year before. The bank said this was significantly impacted by the adverse effective interest rate adjustment announced in July on some mortgages. It said its performance stripping out this £180.7 million adjustment ‘remained strong’.

Murray International Trust is down 0.6% today after it reported a net asset total return of 2.2% in the first half, underperforming the 7.9% increase booked by its benchmark index in the same period. It is currently trading at a 1.5% discount to its net asset value. Total net assets were down 0.1% from the year before at £1.6 billion.