14 August 2023
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UK economy beats expectations in Q2

By Edward Bell

The UK’s economy expanded by more than expected in Q2 2023, rising by 0.2% q/q compared with market expectations of no growth. The Q2 performance was also a modest acceleration from growth of 0.1% in Q1. Household consumption improved substantially, rising by 0.7% q/q from flat in Q1 while government spending also rose strongly, up 3.1% from a drop of 1.8% recorded in Q1. Investment seems to be holding up relatively well amid still high inflation and steady rate hikes from the Bank of England: business investment rose by more than 3% for the second consecutive quarter. Inflation data from the UK is out later in the week and is expected to show a sharp drop to 6.7% y/y in July from almost 8% recorded in June.

Consumer sentiment in the US dipped in August according to a metric from the University of Michigan. The consumer sentiment index fell to 71.2, marginally lower than the 71.6 a month earlier, as respondents expect a deterioration in future conditions. Assessments of current conditions in the US actually improved. Inflation expectations edged lower in August to 3.3% for one year ahead while the longer-run inflation expectation held steady at 2.9%

Turkey recorded a current account surplus of USD 674m in June thanks to a sharp drop in the trade deficit to USD 3.7bn from USD 10.5bn in May. The services account recorded a surplus of USD 5bn thanks to an upswing in tourism receipts. Changes in the country’s economic leadership appear to be attracting international investors to Turkey with net portfolio inflows of USD 1.8bn.

Today’s Economic Data and Events

  • 16:00 IN CPI y/y July: forecast 6.43%
  • 16:00 IN exports y/y July

Fixed Income

  • US Treasuries sold off at the end of the week thanks to stronger than expected GDP data out of the UK, which brought gilts lower, and an upside surprise on PPI. Yields on the 2yr UST rose 5bps to 4.8947% while the 10yr added about 5bps to 4.1522%.
  • Gilt yields surged by 16bps to 4.521% as markets responded to an improvement in UK GDP indicators. European bonds also sold off with bund yields up 10bps to 2.62%.
  • Minutes from the July FOMC will be the central banking highlight of the week while New Zealand and Norway hold policy meetings.


  • The dollar picked up on Friday even as the move in bund and gilt yields outweighed the move in USTs. EURUSD dropped 0.3% at the end of the week to 1.0949 while USDJPY added 0.2% to 144.96. GBPUSD held up better, adding 0.2% to 1.2696.
  • In commodity currencies, CAD held up best with a modest move in favour of the loonie, taking USDCAD down 0.1% to 1.344. Elsewhere, AUDUSD sold off by 0.3% to 0.6496 while NZDUSD closed below 0.60, down 0.6% on the day.


  • Lacklustre stimulus measures by the government weighed on Chinese indices at the close of last week, with heavy losses by the Hang Seng and the Shanghai Composite on Friday. This led to w/w losses of 2.1% AND 2.2% respectively by the close of the day. In Japan, the Nikkei ended the week 1.0% higher w/w, bolstered by a weakening yen.
  • A lack of meaningful measures from Beijing, alongside some hawkish talk from San Francisco Reserve Bank President Mary Daly weighed on European stocks on the last day of the trading week with losses on the day.
  • In the US, the S&P 500 closed lower for the week, down 0.3% while the Dow Jones managed a weekly gain of 0.6%.
  • Locally, the DFM ended Friday down 0.1% w/w while the ADX secured a w/w gain of 1.2%. Saudi Arabia’s Tadawul ended Thursday 0.4% higher than the previous week.


  • Oil prices managed to record another weekly gain, their seventh consecutive rise. Brent futures closed on Friday up 0.5% at USD 86.81/b while WTI added 0.5% to USD 83.19/b.
  • The IEA estimates that global oil consumption hit a record level of 103m b/d in June and they maintained their demand growth forecast of 2.2m b/d for 2023. For next year, the IEA projects demand growth of just 1m b/d. Global oil production is also set to record a record level of 101.5m b/d but leave the market undersupplied as OPEC+ countries hold output off markets.

Written By

Edward Bell Head of Market Economics

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