The Weekly : 2020 #50

October GDP figures paint gloomy picture for UK economy

With UK GDP figures now showing 4 straight months of declining growth the immediate recovery appears to be running out of steam

December 12, 2020 / 1 min read

October GDP figures paint gloomy picture for UK economy

The Office for National Statistics reported this week that the UK grew only 0.4% in October. As the 4th straight monthly decline, the immediate recovery appears to be running out of steam. With GDP still 7.9% below the levels of a year ago it doesn’t paint a pretty picture, although markets appear to be shrugging that off, at least for now.

According to the latest Bank of England Financial Stability Report, UK banks have strong balance sheets and are well capitalised, and “although there are material downside risks, banks are resilient to a wide range of possible economic outcomes…”, so a repeat of 2008 in that sense looks unlikely. What that next spark turns out to be is anyone’s guess, although economists see some obvious possibilities – geopolitical events, a debt crisis in a slowing China, failure of a big institution, or even something like a cyber attack that disrupts sensitive systems. It could come from anywhere.

Back to the present

This week had a feel of uncertainty about it. Oil continued to climb but the S&P and FTSE stalled, and gold held onto its recent gains.

Despite the macro argument for gold being a strong one, credit rating agency Fitch has said it expects its price to “slip due to reduced risk-off sentiment”. Having said that some expect it to reach new highs in 2021 so it’s clear there isn’t consensus.

Another possible headwind is that some believe it’s recent weakness to be partly explainable by bitcoins emergence. JP Morgan believe gold could find itself challenged as a traditional safe haven as investors shift allegiance to cryptocurrencies.

As to its current price, bitcoin has held up pretty well following its recent run up, currently consolidating near all time highs. A drop towards the 200-weekly EMA wouldn’t be unexpected but for the moment its looks resilient.

With MicroStrategy raising another $400m expressly to buy more bitcoin the appetite amongst institutions shows no sign of letting up.