European markets are set to open lower as it seems like that the momentum which took the markets to all time high is losing its steam and perhaps we need a new catalyst or more conviction from the traders if we are going to continue this trend of making all time highs. Generally speaking, when a major resistance is broken, it is a sign that investors are bullish and they will continue buying the market regardless how high the price is, as we have seen in the US.
The UK economy has been the best performing economy without any doubt when it comes to G7 but if that is reflected in its stock market? There are certainly many views on that and most of them inclined towards the fact that its stock market has failed to reflect the performance of the economy. Nevertheless, earlier this week, we have broken the highs of 1999, which means that investors are ready to take this market higher.
Today we are going to get the latest data on the UK GDP for the final quarter of 2014 and the expectations are that it could print the number of 0.5% while the annualised rate could be 2.7%. What will be important to monitor will be the revision of the import and export figures and they should get some boost given that the oil price have fallen and we have tide of QE coming in Europe. Given that we have the UK elections coming very soon, it will also be important from political perspective how the government will play these numbers in their favour.
Back in Europe, Germany will once again beat the drums of its success as the unemployment data is set to show a further drop of 10K. The unemployment rate on the other hand may remain steady at 6.5%. The GDP data released for the country earlier this week has confirmed that falling oil prices has stimulated domestic demand.
In terms of stocks, RBS has made big headlines this morning by announcing that the company has further narrowed its losses. If you compare the performance of the bank with its result for the same quarter one year ago, the results have massively improved. The losses have been reduced by more than third, thanks to management strategies which heavily focused on cost cutting and restructuring. Massive damage for the balance sheet was seen by the bank writhing off the goodwill of 3.9 billion pounds on its American unit which is citizen bank.
So overall their UK and Irish business has performed significantly better- thanks to improving economies in both these countries but still we believe the headwinds remain strong for the bank. Restructuring is still making an impact on the bank’s balance sheet as the bank is making exit from Central Eastern Europe, Middle East, Africa and reducing their operations in Asia and the U.S. due to poor performance and lack of understanding the market needs.