Daily Market Review

Can we trust the EU GDP surprise?

Author: Pro Skills

Friday, 29 July 2022 Number of words: 374 Study time: 2 Minutes Views: 572

Market update

After disappointing US GDP numbers, today's EU GDP surprised the market participants with 0.7% raise in the second quarter.  

Growth where was not expected!

Thanks to the growth in Spain, France, and Italy, the Eurozone gross domestic product rose 0.7% in the second quarter, much better than 0.2% expected. On an annual scale, GDP in the EU rose by 4.0%, while market participants were expecting a 3.4% year-over-year rise. Even though it is good news, it is still a primer number and can change in the next update.

Also, we should worry about growth in the EU's biggest economy. German economy officially stagnated in the second quarter. On top of that, J.P. Morgan's latest outlook from the Eurozone shows that GDP growth would contract by 0.5% in both the fourth quarter of this year and the first quarter of next year. 

Out of the EU, in the US, numbers were somehow worrying. Initial estimates of the annualized quarterly rate of real GDP in the second quarter confirmed the US economy entered a technical recession, with a -0.9% contraction.

In comparison, the market expected a 0.5% growth. In its report, the Bureau of Economic Analysis noted that declines in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment contributed to the decline in real GDP.

However, the decline was likely due to increased exports and personal consumption expenditures. Even though the GDP numbers show recession, the labor market, retail sales, and the housing market are still improving in general and do not confirm that the US economy entered the rescission.

Off curse analysts have very different opinions on this matter. 

After all these data and events, the market maintained its favorable conditions, even though the growth pace had already slowed. This positive sentiment strengthened even more with optimistic forecasts and results from Apple and Amazon. Apple and Amazon stocks increased by 3.6% and 11% on Friday after positive earnings and outlooks. Tech giants' growth increased the Nasdaq Tech-based index by 1.1%. SP500 and Dow Jones Industrial Average also gained 0.8% and 0.4%, respectively. 

In the end, while the CBOE Volatility index, known as Wall Street's fear gauge, hit a 3-month low, in the next few days at least, the market can hold its positive sentiment.

Source: IFC Markets
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