US GDP Revised Lower

Daily Analysis - 23/12/2015

Gross Domestic Product Expanded in Third Quarter Aided by Business and Consumer Spending

The Federal Reserve’s rate hike last week is evidence of policymakers’ confidence in the economic trajectory of the US economy with growth managing to climb above forecast. The second revision for the third quarter came at 2.00% on Tuesday, supported by a growth in household spending that constitutes to two-thirds of the US economy.

UK Budget Deficit

Public sector net borrowing in the United Kingdom nearly doubled the number from the prior month according to the latest data released by the ONS. November recorded £13.56 billion in borrowing versus the same month last year compared with October’s £6.75 billion. The figure was far higher than forecasts of £11.00 billion. The ONS pointed out that last year's numbers were boosted by fines of around £1.10 billion which spread over November and December after several banks were penalized by the Financial Conduct Authority for failures in their foreign currency operations. Excluding banks, borrowing rose £1.30 billion from last year to £14.20 billion in November. UK public finances still are not improving as quickly as Chancellor George Osborne expected, increasing the likelihood that he will have to introduce additional fiscal policy measures to achieve his goal of a budget surplus by 2019-20.

Turkey Leaves Rates Unchanged

The Central Bank of Turkey has left its three main interest rates unchanged in its latest meeting, keeping policy on hold since February of 2014. The one week repo rate was kept at 7.50% whereas the consensus expected the Central Bank to raise the key rate by 50 basis points to 8.00%. The overnight borrowing rate and lending rate were kept at 7.25% and 10.75% respectively. The prevailing monetary policy strategy was left unchanged as policymakers underlined concerns about the weakness of the global economy and also the continued decline of energy prices. The announced structural improvements are expected to help achieve the potential growth targets sufficiently according to estimates, necessitating little in the way of further policy adjustments. During the rate announcement the Turkish lira weakened versus the US dollar, with the pair rising towards highs of 2.9502.

US GDP Expands

The US economy has showed additional advance in the third quarter with GDP value printing at 2.00%, higher than consensus expectations of 1.90%. The growth metric corroborates Federal Reserve Chair Yellen’s statement during the last press conference that the decision to raise rates was based on the Committee’s confidence in the economy. The latest round of positive economic data including consumer spending, business investment, rising employment, the decline in energy prices and a rise in Government spending have largely managed to offset the trade deficit as evidenced by the results. Despite the offset though, most analysts predict that business inventories will remain relatively high and potentially serve as a drag on the fourth quarter growth. The dollar continued to give back ground through the end of the trading session before rebounding overnight, pushing gold prices firmly below $1080.

New Zealand’s Deficit Widens

Statistics New Zealand released the latest trade figures, showing New Zealand's deficit widened slightly in November from a year earlier, as a fall in the value of overseas shipments of dairy products weighed on exports. Exports did manage to climb in November, rising to NZ$4.08 billion, mainly attributed to increasing exports to China which added NZ$117 million while experiencing declining exports to Australia, falling by NZ$31 million. Milk powder, butter and cheese exports fell to NZ$1.20 billion in the latest reporting period. The drop of dairy products was slightly offset by aircraft sales with transport equipment adding NZ$293 million. The major determinant behind the latest trade deficit was upward trending imports which surged to NZ$4.86 billion. The overall trade balance recorded was at –NZ$779 million, beating median forecasts of –NZ$810 million. On an annual basis, the trade deficit stands at –NZ$3,680 million, weakening past the prior reading of –NZ$3,180 million.