US GDP Revised Higher

Daily Analysis - 25/11/2015

US Economy Expanded at a 2.10% Quarterly Pace According to Revised GDP Figures

Despite an upwardly revised quarterly GDP figure, the US Dollar nevertheless faced a selloff with risk assets and commodities posting some modest gains. Gold futures gained 0.62% for the day while WTI crude oil added 1.50% for the session, capping a three-day winning streak.

German Quarterly GDP Unchanged

Quarterly GDP data from Germany, Europe's largest economy, showed expansion at a pace of 0.30% in the third quarter, while staying unchanged at 1.80% on an annualized basis. In comparison to the previous quarter, where the German economy expanded at a pace of 0.40%, the third quarter economic performance weakened from numerous angles, including the hit by the VW emission scandals and continued global trade shrinkage. Besides the GDP release, German Ifo Business Sentiment data showed a modest improvement in the month of November. The headline Ifo Business Climate Index increased to 109.0 from 108.2 in October, indicating that the economy was slowly overcoming the VW scandal which has weighed on sentiment. The Euro managed to close on a modestly bullish note yesterday, printing a higher low at 1.0619, indicating a potential correction to the upside over the near-term.

BoE Inflation Report Strikes Dovish Tone

Bank of England Governor Mark Carney, along with Kristin Forbes, Gertjan Vlieghe, and BoE Chief Economist Andrew Haldane testified to the UK Treasury Select Committee yesterday, covering monetary policy and related issues. During the inflation report hearing, Carney said that the next policy decision would probably include a rate hike and put to rest any questions on negative interest rates. While noting that the BoE was looking for an appropriate time to hike rates, Carney expects the BoE's lending rates to remain low for 'some time'. While acknowledging that the current labor market conditions in the UK were improving, the BoE felt that the wage growth was insufficient to reach the 2.00% inflation target rate in the near-term. The GBPUSD currency pair fell on the comments as the Cable tested daily lows near 1.5053, closing at 1.5081, after slipping -0.31% for the session.

Third Quarter US GDP Rises

The US economy expanded more than the initial estimates of 1.50% during the third quarter, rising to 2.10% growth. However, when compared beside the second quarter's GDP expansion of 3.90%, the third quarter numbers marked a substantial downshift in economic activity. The second estimate showed that spending in the services sector was weaker, marked by downward revisions of the retail sales data. However, business fixed investment managed to come out stronger, rising 3.40%, up from 2.90% previously. Falling oil prices also took their toll in the US with drilling and mining related activities showing a decline of -47.10% during the last quarter. Despite GDP numbers revised modestly higher, financial markets were clearly unimpressed as the US Dollar softened towards the end of the session with the commodities and major currency peers posting a late rally. AUDUSD was the biggest gainer of the day, rising 0.86% to close at a 4-week high.

Data Heavy Day for US Dollar

The Asian and European trading sessions today are likely to remain quiet with the lack of any major market moving events. Focus shifts to the US trading session however, where a host of economic figures are due for release. Durable goods numbers are the first off the list, with expectations that core durable goods orders increased 0.50% for the month while the headline durable goods is forecast to have increased 1.60%, up from -1.20% last month. The most important data for the day will be the core PCE price index which is expected to print at a 1.30% annualized pace while the headline PCE price index is expected to increase 0.30% for the month. Other data during the US session includes the housing price index and services PMI numbers followed by new home sales data. S&P 500 futures closed at 2083.75 yesterday, trading near this level for the past three sessions.