Q.Dear Josh, what’s the market sentiment for the prospect of a double- dip recession after Friday’s GDP data?
A.First both UK and US GDP readings were subject to revisions on their second readings, which were released last week. The UK’s GDP data for the second quarter was revised higher by a minimal 0.1 per cent to 1.2 per cent, while US second quarter GDP was revised down to 1.6 per cent. However, this slightly beat consensus, which was expecting a more drastic fall to 1.4 per cent in the three months to June. Both revisions were welcomed by the market, but I would not go as far as to suggest that they have dramatically changed sentiment, for now at least. The downward revision in US GDP from 2.4 per cent to 1.6 per cent is huge and is a cause for concern for those investors who fear that there is the potential for a double-dip recession. Let us not forget that US GDP grew by 3.7 per cent in the first quarter of the year so the slowdown has been quite excessive. Much of this fall was down to trade – net exports were lower, which poses a clear warning sign that US growth is being hampered by struggling economies outside of its borders, particularly in Europe. On Friday, Federal Reserve chairman Ben Bernanke admitted that the recovery has softened more than expected and that he was prepared to take further steps to stimulate the economy.
Q.Dear Josh, I focus on technical analysis strategies. Should I pay any attention to market-moving data like last week’s GDP?
A.Our chief technical analyst Sandy Jadeja would say if you are purely focusing on technical indicators to make your trading decisions, then no. For me, I would agree with him. In truth, the answer lies in terms of what kind of trader you are.
There are some traders, including me, who look at both technical and fundamental aspects to pick out trading opportunities, while there are also those who pay absolutely no attention to technical indicators.
Important pieces of economic data, like last week’s GDP, move the market and are therefore important. This week, we have US non-farm payrolls data released on Friday, which is historically a major announcement that tends to move the markets. If you are a short-term trader – perhaps only leaving your trades for a matter of hours – then you should have a greater awareness of economic data releases and keep up-to-date with what is scheduled for release a couple of weeks in advance. For longer-term traders this can be of less importance.
You can learn more about the markets and spread betting with Josh at his free City Index seminars