Daily Market Report - 28/07/2014

The pound strengthened off the back of data stating Britain's economy is now bigger than it was before the financial crisis struck six years ago. This news came after strong growth in the second quarter that keeps it on track to lead the way among developed countries this year. 

The return to its pre-crisis size comes years after other major economies passed the same landmark, but will be a relief for the government ahead of the national election in 2015. 

Official data on Friday showed GDP expanded 0.8 percent in the April-June period, the same strong pace as in the first three months of the year. In annual terms, growth  was 3.1 percent, the fastest pace since the end of 2007.The growth means that total economic output was 0.2 percent larger than its previous peak in the first quarter of 2008.

U.S. business equipment orders increased in June having fallen during the prior month, forming an inconsistent pattern that indicates corporate investment lacks the momentum needed to propel economic growth to a higher level. 

Bookings for non-military Capital Goods (excluding aircraft) climbed 1.4 percent after a 1.2 percent decrease in May that was previously reported as a 0.7 percent gain. Future business spending declined 0.9 percent over the past three months, dimming the third-quarter outlook.

US payrolls were up 288,000 workers in June, lifting the average gain so far this year to 231,000, compared to a 194,000-per-month average for all of 2013.

GDP is now expected to grow at a 3.1 percent year on year this quarter after a 3.3 percent expansion in the quarter that ended in June. That comes after a 2.9 percent first-quarter contraction, the worst reading since the depths of the recession, during an unusually harsh winter. 

German business confidence dropped to the lowest level since October as weaker growth and escalating tensions in Ukraine weigh on the outlook for Europe’s largest economy. 

The IFO institute’s business climate index, fell to 108 from 109.7 in June, marking the third straight monthly decline. IFO’s gauge of current conditions fell to 112.9 in July from 114.8, while a measure of expectations declined to 103.4 from 104.8 in June. 

German  construction also declined in the second quarter after activity was bolstered by mild weather at the beginning of the year, while manufacturing suffered from political woes outside the country. However, factory and services activity suggest the economic slowdown may prove temporary. PMI for services expanded at the fastest pace in three years in July and manufacturing accelerated. 

Key Announcements:
14:45  BST - USD  Markit US Services PMI (July) expected to be lower at 59.8

15:00  BST - USD  Pending Home Sales (June) expected to be lower at 0.5% growth

Our dealers are available via e-mail (dealers@rationalfx.com) or by phone (0207 220 8181).