US GDP growth revised higher

Third quarter growth in the US was revised up to 3.1% q/q annualised, from 2.8% on the previous reading. This is up from 3.0% in Q2 and 1.6% in the first quarter. Personal consumption has been especially resilient throughout the extended period of high inflation and high interest rates, and this was revised up to 3.7% from 3.5% initially, making it the fastest pace of growth since early 2023. Growth is expected to slow to around 2.0% next year, in part on greater political uncertainty. Yesterday a temporary funding plan supported by President-elect Donald Trump was rejected by the House of Representatives. In another indication of ongoing strength in the US economy presently, the weekly initial jobless claims measure fell to 220,000 in the week to December 14, down from 242,000 the previous week and lower than the predicted 230,000.  

The Bank of England held the benchmark steady at 4.75% at its final MPC meeting of 2024 yesterday, as had been widely anticipated. It was a relatively dovish, with three policy makers voting to reduce rates while six voted against, and the expectation remains that there will be a number of cuts in 2025. The future path is increasingly uncertain, however, with inflationary pressures coming to the fore once more, if not to the same degree as a year or more ago, and growth stagnating. Governor Andrew Bailey signposted further easing but caveated ‘with the heightened uncertainty in the economy, we can’t commit to when or by how much we will cut rates in the coming year.’

China’s commercial banks also made their rate decision this morning, electing to make no change to the 1-year and 5-year loan prime rates, leaving them at 3.1% and 3.6% respectively. The 1-year is the benchmark rate for the majority of household and corporate loans in China and is expected to come down next year as the authorities have pledged increase stimulus to boost economic growth in the country.

Today’s Economic Data and Events

17:30 US core PCE price index, % y/y, November. Forecast: 2.9%

17:30 US personal income, % m/m, November. Forecast: 0.4%

19:00 US University of Michigan sentiment index, December final. Forecast: 74.2

Fixed Income

• US treasuries were mixed yesterday, with political uncertainty around budgeting adding to the pressure at the longer end. Yields on the 10yr were up 5bps to close at 4.5621%, a level last seen in May, but the 2yr fell 4bps to 4.3165%, following the 11bps rise the previous day.

FX

• The dollar continued to gain ground yesterday, with the dollar index closing up 0.4% against its peers.
• Almost all of this gain came against JPY, however, which closed down 1.7% against the greenback at 157.44 after the BoJ’s commentary was found to not be sufficiently hawkish. A dovish hold by the BoE made GBP the other notable loser, dropping 0.6% to 1.2502.

Equities

• European equities followed the post-FOMC selloff in the US yesterday, with all major indices ceding ground. The FTSE 100, the CAC, and the DAX dropped 1.1%, 1.2%, and 1.4% respectively.

• In the US the situation was calmer yesterday, and all three major benchmark indices were changed by just 0.1% or less, with the S&P 500 and the NASDAQ down slightly and the Dow Jones notching a marginal gain.

• Locally, the DFM added 0.2% and the ADX lost 0.2%.

Commodities

• Oil prices resumed their slide yesterday as dollar strength persisted. Brent futures closed down 0.7% at USD 72.5/b, while WTI fell 1.0% to USD 69.9/b. A broader plan to sanction Russian oil could give some support for prices but the outlook for next year remains that prices will average lower than in 2024.