US GDP Growth Reaches Two Year High

Daily Analysis - 23/12/2016

Surprising Revision Higher of Third Quarter Economic Activity Propels Dollar Momentum

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The final reading of US third quarter gross domestic product came in stronger than earlier estimates, reaching the fastest pace of growth in two years.  The figures were boosted by stronger investment and exports despite the stronger US dollar and prospect of additional tightening over monetary policy over the next 12-months.

US Economic Activity Upgraded


In a sign that the US economy is rebounding from the slowest growth in years, third quarter gross domestic product signaled that a recovery was hastening, potentially beckoning further rate hikes from the Federal Reserve if momentum persists. 

The final reading of third quarter GDP came in at 3.50%, beating the second estimate of 3.20% as soybean exports and personal consumption expenditures increased at a faster pace than anticipated. 

Exports in particular rose by 10.00% during the period in spite of the recent strengthening of the US dollar which traditionally would make US goods more expensive on a relative basis.  The figure was also bolstered by stronger private investment and heightened government spending.  The dollar managed to snap back from earlier losses on the back of the strengthening outlook, pushing gold as low as $1127.64 before rebounding overnight.


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Canadian Inflation Tapers


Due to the considerable volatility throughout 2016, the Canadian dollar has significantly impacted consumer price inflation in Canada.  In the latest report from Statistics Canada, consumer price growth ebbed to its lowest point since August, with headline inflation printing at 1.20%, missing expectations of 1.40%. 


The predominant driver of positivity was rising electricity costs while food and clothing dragged the results lower.  The data could greatly shift the outlook for the Bank of Canada as the economy slows heading into the end of the year. 


After citing how close they were to cutting rates during the last meeting, BoC Governor Stephen Poloz and the board may opt to keep rates lower for longer despite proposed interest rate hikes in the United States over the next 12-months.  After rallying on Thursday, USDCAD is continuing to trend higher early in the session as upside momentum in the US dollar accelerates.


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French GDP Growth Confirmed


After contracting during the second quarter, French economic activity was confirmed at 0.20% growth during the third quarter according to the final reading of GDP from INSEE.  When combined with rising inflation which most recently touched a 25-month high, the outlook is brightening modestly for the economy. 

However, despite managing to avoid a recession, the economy faces significant headwinds amid unemployment which surprisingly rose back to 10.00% during the third quarter and recording the biggest trade deficit in over 2-years. 


More concerning to makes however is the upcoming election as Europe’s political sentiment turns more hawkish and right wing amid a spate of terrorism incidents across the Euro Area.  In the meantime, the French CAC 40 is pushing back towards the most elevated level since 2015 after reaching multi-month highs earlier in the week.


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Bitcoin Climbs to Multi-Year High Amid Surging Chinese Demand


Alongside reports of rising premiums to buy physical gold in mainland China, digital currency Bitcoin has been rising tremendously over the past week as demand for the alternative soars.  Most of the trading is currently conducted in China, with the total amount of the digital currency in circulation reaching a staggering $14 billion as people look for alternatives to the Yuan. 


The Chinese currency continues to fall against its US counterpart as the People’s Bank of China struggles to contain pressure on the currency and capital flight from the economy.  The digital alternative to fiat currencies has already gained over 100.00% since the outset of 2016, adding over $100.00 since the weekly reopening last Sunday night.  Despite the continued momentum higher, the sharp acceleration could face a technical correction after a significant climb.


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