Markets Look to a Bullish GDP Reading

Daily Analysis - 24/11/2015

Second Reading of US GDP Expected to Strengthen on Inventories and Shrinking Trade Deficit


The US Dollar looks to be well poised for another day of solid gains as the second estimate of the third quarter GDP data is set to be released at 13:30 GMT today. Economists expect quarterly GDP to have increased from the initial estimates of 1.50% to 2.10%. The upcoming Bank of England inflation report hearing could keep the British Pound subdued as Governor Carney testifies to UK lawmakers later.

EUR Unimpressed by PMI Data

The Euro posted a new low during yesterday's trading session touching down to 1.0600 despite a positive flash manufacturing and services PMI numbers across Germany, France and the Eurozone on the whole. Yesterday's market price action revealed that investors favor holding the Euro short against the Dollar in what could very well be a decisive month ahead where both the ECB and the Fed are likely to announce big policy shifts. In terms of Central Bank speeches, yesterday it was the turn of Erkki Liikanen, Finnish Central Bank chief and a member of the ECB's Governing council. Considered to be a hawk, his dovish comments yesterday kept the pressure on. According to Liikanen, “the deflation risks remain persistent in the Euro area calling for the ECB to do more”. With the Central Bank likely to spring into action, pressure on the Euro is set to persist.


Saudi Arabia Springs a Surprise on Oil

The Saudi Arabian cabinet released a press note yesterday stating that the Kingdom was ready to work out the differences with both the OPEC and non-OPEC countries in regards to crude oil production and exports in a bid to stabilize energy prices. West Texas Intermediate crude oil futures jumped on the news and managed to briefly pull the Canadian Dollar and the Norwegian Krone higher. However, prices eased back after the news was digested. It is not yet clear whether Saudi Arabia, the largest OPEC oil producing nation wants to cut oil output. Crude oil prices remain bearish as US commercial stockpiles and inventories continue to build up steadily, keeping prices pinned to the downside. When combined with price competition amongst Iraq, Russia, and Saudi Arabia, the pressure on energy prices remains. WTI futures for January 2016 delivery rallied by over 1.08% closing the session at $41.98 a barrel.


Pound Sterling Cautious

Mark Carney, the Governor of the Bank of England will give his assessment of the UK economy today. Testifying to the lawmakers in London, Carney's inflation outlook report is likely to gain market attention in light of US plans to hike rates in December. His comments will be of particular importance after BoE MPC Member, Ben Broadbent came out with hawkish comments last week noting that the markets were taking the BoE's previous inflation forecasts a bit too seriously. The British Pound fell sharply earliy in November on the dovish inflation expectations but managed to recover off the lows of 1.5052. Besides the inflation report, the markets will also be looking ahead to the second estimate of the UK’s third quarter GDP, with estimates for an unchanged print of 0.50%. GBPUSD posted a second day of strong declines yesterday, losing -0.38% for the session.


Second Revision of Third Quarter GDP

The second estimate of third quarter US GDP is due out later today during the start of the US trading session. The median consensus estimates point to a revision from 1.50% to 2.10%. The bullish expectations come on the backdrop of a better-than-expected wholesale inventories figure which increased 0.50% in the month of September, more than the 0.10% increase that was initially estimated. The US trade deficit also contracted unexpectedly in the month of September, which erased a previous month's slump in exports helping to boost the GDP numbers. Overall, the hawkish expectations surrounding third quarter GDP are well based and could potentially see a substantial increase from the initial estimates of 1.50% growth. The US Dollar remained strong in yesterday’s trading while commodities continued to trade weaker. Gold fell to previous week’s lows trading at $1066.71 before rebounding to $1069.03 an ounce by the end of the session.


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