Friday Spotlight on US GDP

Daily Analysis - 28/10/2016

Markets Looking For Positive Hints about the Trajectory of US Growth and Interest Rates


The United States Commerce Department is scheduled to release advance third quarter gross domestic product numbers at 12:30 GMT.  Forecasts are currently estimating that growth accelerated during the period, buoyed by increased spending from consumers.

The Resurgent US Consumer

With key data due later in the session, a survey of economists conducted by Reuters forecasts US GDP to have grown at a 2.50% annualised pace after expanding at a 1.40% rate during the second quarter. If the sharp drop in Wednesday’s goods trade deficit is considered, an upside surprise is entirely possible, potentially adding to bullish sentiment among Central Bank officials. If the data comes in line with projections, it would dispel ongoing fears that the economy close to stalling.  Apart from consumer spending strength and robust exports, the economy should also likely receive a boost from a rebound in inventory investment and mining activity heading into the fourth quarter.  US equity futures are trending slightly lower heading into the decision, led lower by the Nasdaq Composite, with any strong reading of GDP likely to put additional pressure on valuations.


French Consumer Spending Records Surprise Drop

Consumer spending in France unexpectedly fell last month from August as households spent less on energy according to earlier data from statistics agency Insee. Consumer spending decreased -0.20% month over month in September. Economists surveyed by the Wall Street Journal had projected a 0.40% increase.  The lower than expected consumer spending in September was responsible for the weak third quarter.  GDP data released earlier in the session showed that the French economy grew only 0.20% during the third quarter, missing expectations of 0.30%. Aside from the GDP disappointments, inflation figures also missed estimates with headline monthly and annualized consumer prices rising less than expected.  In reaction to the news, the benchmark French CAC 40 index is weaker on the session, falling as low as 4496 before rebounding modestly.


Oil Under Pressure as Deal Doubts Linger

Crude oil prices fell in Friday trade, weighed down by growing market doubts about the ability of OPEC to coordinate an output freeze. Investors and analysts are concerned that OPEC might not have the power to convince both its members and Russia to implement significant production cuts. With both Iran and Iraq indicating that they would like to be excluded from any production deal, the onus will be on Saudi Arabia to rally all the member behind the September accord.  Between now and its November 30th meeting in Vienna, OPEC needs to cover a lot of ground if it is going to find a consensus amongst members.  However, recent comments and remarks from key producers indicate that the gathering will likely be acrimonious.  Brent crude futures were trading at $50.35 a barrel, down 12 cents from the previous close.


Japan Still Experiencing Deflation

Consumer prices in Japan fell for the seventh consecutive month in September, reflecting the growing reluctance of consumers to spend. The core consumer price index dropped -0.50% from the same period last year according to data released by the Ministry of Internal Affairs and Communications on Friday. The figure came in line with the consensus forecast of economists polled by Nikkei.  Companies ranging from restaurants to apparel makers have been slashing prices in recent months in a bid to lure increasingly thrifty consumers. Analysts warn that if the downward trend continues, Prime Minister Shinzo Abe's resolve to decisively end deflation may be severely undermined. Japanese consumers' increasing reluctance to open their wallets was further confirmed by household expenditure data, which dipped -2.10% in September, the seventh straight month of contraction.  Traders ignored the disappointing data after USDJPY breached the key psychological mark of 105.00, last trading at 105.23.


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