US GDP growth revised higher to 5.2% in Q3

The US economy grew faster than initially estimated in the third quarter, with growth revised up to 5.2% annualized from 4.9% in the first estimate. Growth was sharply higher than the 2.1% recorded in Q2, and also above market forecasts. While consumer spending growth was revised lower to 3.6% from 4.0% in the first reading, this was offset by upward revisions to business investment, housing investment and government spending in Q3. The core PCE price index, the Fed’s preferred measure of inflation, was revised lower to 2.3% y/y in Q3 from 2.4% previously.

However, the Fed’s Beige Book showed a slowing in economic in activity in November, suggesting a slowing in growth momentum in Q4. Consumers “showed more price sensitivity” while firms reported softening demand for labour as their outlook over the next 6-12 months weakened. Wage pressures also appeared to be easing, as firms reported that more applicants were available, although attracting and retaining highly skilled workers remains difficult, according to the survey.

Inflation in Germany came in lower than forecast in November, according to flash estimates. CPI fell -0.7% m/m and rose 2.3% y/y, slower than October's inflation of 3.0% y/y. The main driver of the monthly decline in prices was energy and travel costs, but this may not be sustained in 2024 as base effects come into play. Nevertheless, the November data will be encouraging for policy makers, particularly if it is repeated across the other major European economies which will report flash inflation figures today.   

Today’s Economic Data and Events

14:00 Eurozone CPI (Nov) forecast -0.2% m/m and 2.7% y/y

14:00 Eurozone unemployment rate (Oct) forecast 6.5%

17:30 US personal income (Oct) forecast 0.2% m/m

17:30 US personal spending (Oct) forecast 0.2% m/m

Fixed Income

• US 2y yields fell another -9bp yesterday to 4.64%, the lowest level since July, while 10y treasury yields also declined -6bp yesterday to 4.26%. The main driver appears to be a repricing of expectations about when the Fed will start to cut rates after Fed governor Waller’s comments on Tuesday, with markets seemingly ignoring more hawkish commentary from other Fed officials such as Tom Barkin, as well as yesterday’s stronger than expected GDP data.
• Weaker than forecast flash inflation data for Germany helped push 10y bunds lower to 2.43%. 10y gilt yields fell almost -8bp to 4.09%.   

FX

• The major currencies all gained against the dollar yesterday, as treasury yields declined, with GBP up 0.4% to USD 1.2685 and EUR up 0.2% to USD 1.0977.
• Commodity currencies were also largely firmer against USD, although CAD was a shade weaker at 1.3587/USD.     

Equities

• US equities were mixed yesterday with the DJIA up fractionally while Nasdaq Composite and S&P500 closed slightly lower on the day. The UK’s FTSE100 fell 0.4% but the Dax Index rose 1.1% and other European indices also closed higher.
• Locally, DFMGI closed -0.2% lower while ADXGI and Tadawul ASI both closed slightly higher yesterday.   

Commodities

• WTI and Brent rallied again yesterday, up 1.9% and 1.7% respectively ahead of today’s OPEC+ meeting. Saudi Arabia is reportedly pushing for deeper collective cuts from the group, in addition to its own voluntary production cuts.