UK gilts tad higher in silent trading; investors eye Q2 GDP next week

The UK gilts traded tad higher Friday ahead of the country’s Q2 gross domestic product (GDP), scheduled for release early next week amid a silent trading session that witnessed data of little economic significance.

The yield on the benchmark 10-year gilts, slumped 1-1/2 basis points to 1.19 percent, the super-long 30-year bond yields also plunged 1-1/2 basis points to 1.83 percent and the yield on the short-term 2-year traded 1 basis point lower at 0.28 percent by 09:50 GMT.

While yesterday’s retail sales figures pointed to stronger household consumption growth in Q2, it would be premature to conclude that a full recovery in demand is underway. Indeed, there remains no shortage of signals consistent with weakness – e.g. consumer confidence fell in June to the lowest level since the EU referendum, while the level of new car sales continues to trend lower and momentum in the housing market is weakening. And with very mixed messages from recent data on a range of expenditure and production components, we see a wide range of uncertainty around the preliminary estimate of Q2 GDP, due next Wednesday, for which the consensus stands at 0.3 percent q/q, up 0.1ppt from Q1.

Today brings only public finance data for the month of June, with public sector net borrowing (excluding public sector banks) expected to have come in at about £4.9bn in June, only marginally higher than the same month a year ago. Of course, these figures are frequently volatile, and often subsequently significantly revised.

And with holes in the public-finance arithmetic left by the Chancellor’s earlier U-turn on national insurance reform, no shortage of pressures on public spending on top of the post-election concessions made by the Tories to buy the support to the DUP, and weakening economic growth performance and significantly higher RPI inflation set to weigh too, public sector net borrowing, which was already set to rise to 2.9 percent of GDP from 2.6 percent of GDP in FY2016-/17, is now likely to overshoot the OBR’s forecast in the current fiscal year.

Meanwhile, the FTSE 100 traded 0.12 percent higher at 7,496.00 by 10:10 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained slightly bearish at -82.94 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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