If the U.K.’s Supreme Court ruling release still doesn’t satisfy your thirst for volatility, then you might want to try your hand at trading the U.K.’s preliminary GDP report.
Here are answers to common questions about the tier 1 event!
What the heck is a preliminary GDP?!
The gross domestic product (GDP) is the measure of economic activity in a country. Traders pay close attention to a country’s GDP because it acts as the report card of an economy.
The U.K. has three GDP releases for a particular quarter: its preliminary GDP, followed by the revised GDP then the final GDP.
The preliminary GDP – also called the initial GDP estimate – tends to have the strongest impact on price action because it offers the very first glimpse into the U.K. economy’s performance for the period.
Take note that data considered in preliminary estimates is less than half of the total needed to make the final estimate, but final revisions are relatively small and have no upward or downward bias.
How did the previous release turn out?
The U.K. economy grew by 0.5% in the three months to September, a bit higher than the 0.3% growth forecasted but lower than Q2 2016’s 0.7% uptick. The annualized figure also surprised to the upside, growing by 2.3% against the previous quarter’s 2.2% reading.
Since the Q3 2016 reading is the first to fully cover the post-EU referendum months, it was no surprise that all eyes were on the release. See, analysts (and maybe the BOE) were expecting all the Brexit-related jitters to have affected investment and consumer spending.
Good thing the headline figures surprised to the upside! Though jitters over Britain’s exit from the EU will continue to haunt investors and consumers alike, the better-than-expected GDP report hinted that the U.K. economy said “not today” to the expected economic slowdown.
The pound shot up across the board at the better-than-expected GDP release, but soon lost ground as analysts realized that the U.K. has yet to trigger Article 50 and that downside risks remain because of it.
Major pound pairs like GBP/USD, GBP/JPY, EUR/GBP, and GBP/CHF spiked higher at the report’s release before losing most of its gains by U.K. session lunch break and eventually ending the day lower than its open price.
Tips and Tricks: How do I trade this week’s release?
Take note of market expectations
Market players expect more evidence that the U.K. economy remains resilient despite downside risks of a Brexit.
Heck, business surveys alone hint at continued optimism from investors! However, they’re also expecting the pound’s weak currency and higher inflation to make a dent on overall output.
And why not?The pound weakening further in Q4 2016 means that imports are now more expensive than the previous quarter. This diminishes trade activity’s net contribution to the GDP.
Not only that, but it also pushes inflation higher, which could limit consumer spending. Remember that the BOE had already revised its inflation estimates higher due to the pound’s continued weakness.
This time around analysts are expecting a 0.5% growth for the quarter, a tad weaker than Q3’s 0.6% uptick. Meanwhile, the economy is expected to have risen by 2.0% in 2016 after rising by 2.2% in 2015.
Watch out for extra volatility
The U.K.’s GDP release is among the few tier 1 reports scheduled this week and the only one to be released during the London session. Watch out for possible spikes and/or strong intraday momentum!