UK Stagflation Worsens (Cold Blamed) After GDP Revised Even Lower, LSE Promptly Halts Trading
Following a surprising confirmation of a double dip in the UK a few weeks ago, after GDP was reported to have dropped by 0.5%, today the economic growth number was revised even lower, coming in at -0.6%. Per Bloomberg: "Gross domestic product fell 0.6 percent from the previous three months, compared with an initial estimate for a 0.5 percent drop, the Office for National Statistics said today in London." Yet how pathetic would a country be seen if it didn't blame a weak winter data point on the snow: "The statistics office said its “best estimate” for the
impact of cold weather on the data remains 0.5 percent. The
slump was led by construction and investment. The coldest December in a century hampered the recovery,
dragging the economy to its worst performance in more than a
year. The Bank of England kept its key interest rate on hold
this month as inflation at twice the 2 percent target led to a
four-way split among officials. Recent surveys suggest the
contraction may have been a temporary setback, with services
resuming growth in January and manufacturing strengthening." Of course, with no additional money printing (for now) it may well have been permanent. We will need to wait until spring showers are blamed for another 1% or so drop. And it wasn't even half an hour later that the entire London Stock Exchange crashed. "Investors were left in limbo as the London Stock Exchange halted
trading due to a technical glitch, dealing an embarrassing blow to its
new systems. The LSE, which launched its new trading system last
week, suspended dealings before the opening bell on Friday morning in
the latest in a string of technical problems." Snow was not blamed: "It blamed issues with the market data technology and said it was investigating the problem." So once again, just like in the case of the Italian market a week ago, the second there is the potential for massive market volatility following disappointing data, a market wide "circuit breaker" comes in preventing anyone from selling. Truly an effective solution to retain asset price stability.
More on the LSE's travails:
The LSE's woes come at a bad time for traders, with major economic news in the UK after the latest gross domestic product figures and ongoing volatility amid the Libyan political crisis.
Joshua Raymond, market strategist at City Index, said: "It's yet another glitch to trading and traders, who still remember the same issues that halted trading for some three hours in 2009, and they will undoubtedly be venting fury this morning at the LSE.
"At a time of uncertainty in the markets, where traders are having to keep on their toes with the situation in Libya, the last thing they need is an unexpected halt to trading."
The technical troubles came in the same week that Borsa Italiana - the LSE's Milan platform - suffered a five-hour outage.
The LSE's new Millennium Exchange trading system has got off to a rocky start since being rolled out on the group's smaller Turquoise platform last October. Trading was suspended for two hours on Turquoise in November, after teething problems led to glitches on the second day of operation. It is also thought the LSE is facing claims that technical problems meant prices were not correctly displayed for some traders last week.
The difficulties present a headache for the LSE as it comes under increasing competition. Xavier Rolet, chief executive of the LSE, has led the push for new technology to improve the exchange in the face of rivalry from the likes of Chi-X Europe.
Meanwhile, the LSE has been joining forces globally in a bid to increase its scale and might. It unveiled a deal to merge with Canada's TMX, which operates the Toronto Stock Exchange, earlier this month.
In light of the ongoing exchange consolidation, perhaps it is time for Sigma X to finally come out of the closet and buy all these money losing enterprises, thereby giving REDI 100% control of the market.
And speaking of Goldman, did anyone believe the suddenly biggest spinmaster could allow a bad data point to come out without attempting to present it in some gloriously silver lining:
There were small downward revisions to output in both services and manufacturing, only partly offset by a small upward revision to construction. The latter two we knew about ahead of the release, the first we did not.
Most of the weakness was concentrated in December. There was no sector that saw any growth that month and, at least according to these estimates, output collasped in sectors most vulnerable to the weather collapsed: activity in consumer services (leisure, transport) fell by 4%mom and the construction sector shrunk 16%mom (nsa). It seems likely, therefore, that a good part of the weakness can be blamed on the snow.
Whether the impact on whole-economy growth is exactly 0.5%pts, as the ONS claims, is quite another question. These early estimates are innacurate enough to begin with. The ONS's opinion about the impact of the weather - and it is just that (an opinion) - can only be more uncertain. What we do know is (i) business surveys are uniformly stronger - they all point to positive growth in Q4 and an acceleration in activity in January (see the three graphs below, covering consumer services, business services and private-sector output in aggregate) (ii) whatever the true impact of the weather, it got a lot better in the New Year. We are confident, therefore, of seeing a material bounce in the preliminary estimate of GDP in 2011Q1 (published at the end of April), enough to ensure reasonable, if below-trend, growth across Q4 and Q1 together. Our current expectation is +1.2%qoq.
And when that number disappoints, Goldman can just blame it all on lack of money printing. Just like they will soon do with the US itself.
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