The time has finally come to take a punt on the recovery
THIS week’s eagerly anticipated third quarter GDP figure will be make or break for the UK economy. A return to growth, however modest, will confirm that the darkest days of the recession are indeed over and that we are on the slow path of recovery.
But with recent industrial production data showing an unexpected slump and the reliable GDP forecast from the National Institute of Economic and Social Research (NIESR) showing output stagnating in the third quarter, this expectation of growth has been called into doubt.
With a question mark over whether the figure will be positive or negative, there will be ample opportunity for spread betters to take advantage of the market responding to the precise data, which will be released at 9.30am on Friday.
A positive reading above consensus expectations of a 0.2 per cent rise will compound the feel-good factor that has been growing in the equity markets. Traders have already been switching out of perceived safe-havens into the equity markets to take advantage of the third quarter earnings season, and a good figure is likely to encourage this.
Manoj Ladwa, senior trader at spread betting-provider ETX Capital, says: “Many companies have trimmed staff and cut costs and are in a stronger position come the recovery. Therefore, we are likely to see interest in those stocks that are market leaders in their sectors.”
Sterling is also likely to come under the spotlight this week with the minutes of the October Monetary Policy Committee (MPC) meeting and the public finances data both coming in ahead of the GDP data. Should the growth data be disappointing, against a backdrop of accommodative monetary policy and a growing shortfall in public funds, then the downward pressure will remain on sterling.
However, should the GDP figure indicate that the UK is on track for recovery, then this points towards inflation and eventually higher interest rates. David Jones, chief market strategist at IG Index, says: “With cash yields depressed on a global basis, anything that starts to look as if it will hold more positive returns has the potential to become more popular. Increased demand for pounds may help redress some of the deficiencies we’ve seen, especially against the likes of the euro.”
Jones also says that spread betting markets on house prices may see some movement in the wake of the GDP data. Recent monthly price rises have been down to a shortage of stock coming on to the market but any move of the economy out of the recession has the ability to send a very positive signal to consumers. “With lending conditions continuing to improve, headline news of a better economic outlook has the potential to encourage more individuals to venture back into the housing market,” he adds.
Spread betters can take a position on the GDP data through a number of different asset classes either in anticipation of a sustained uptick or downward move in sentiment or merely to day trade the announcement.
Just be ready to cut your losses if it’s not as you predicted.