US consumer powering GDP growth

The US economy expanded by 2.8% q/q on an annualised rate in the third quarter, slightly weaker than the forecast 2.9% and compared with 3.0% in Q2. Personal consumption surprised to the upside at 3.7%, up from 2.8% in Q2 and beating the predicted 3.3%, while the core price index rose 2.2% q/q, down from 2.8% the previous quarter. Meanwhile, GDP growth in the Eurozone surprised to the upside at 0.4%, compared with the prediction that growth would match the previous quarter’s 0.2%. On an annual basis, GDP was 0.9% higher than it was a year ago. The upside surprise was driven by a number of member states, with Germany avoiding a predicted technical recession by expanding 0.2% q/q rather than the anticipated 0.1% contraction, while France saw growth of 0.4% compared with the predicted 0.2% growth.

CPI inflation in Germany surprised to the upside in October according to the preliminary figures, at 0.4% m/m compared with the predicted 0.2%. On an annual basis, price growth was 2.4%, up from 1.8% the previous month. The stronger than expected GDP growth alongside the upside surprise in price growth may complicate the ECB’s rate-cutting, and the bank has stressed that it is not following a pre-decided schedule on monetary policy easing.

China's manufacturing PMI was at 50.1 in October, the first positive reading for the index since April and beating the predicted 49.9. The services index was at 50.2 marginally weaker than the predicted 50.3 but was nevertheless up on September’s flat 50.0 reading. The composite reading was 50.8, up from 50.4, with the data suggesting that the stimulus measures announced over the past month have already started to boost activity in China, albeit gradually.

The US ADP employment measure posted a gain of 233,000 in October, up from an upwardly revised 159,000 the previous month and far higher than the predicted 111,000. The reading followed mixed indicators about job availability given by the JOLTS figures and the Conference Board index released the previous day, and all eyes will now be on the NFP report due on Friday, when a net gain of 110,000 jobs is predicted. The ADP figure has tended to be a poor indicator for the NFP report.

UK Chancellor of the Exchequer Rachel Reeves announced the new budget yesterday, the first by a Labour government in 14 years. Major policy announcements included tax hikes to the tune of around GBP 40bn, with GBP 25bn of that coming from a hike to employers’ national insurance payments. On the other hand, around GBP 70bn in increased spending was announced, with the remainder set to come from increased borrowing. The National Health Service will be the major beneficiary of the increased expenditure. GBP 100bn was pledged to capital projects over the next five years, but the Office for Budget Responsibility cautioned that economic growth would be slower under the plans than previously projected.

The Bank of Japan kept its target rate on hold at 0.25% this morning, as had been anticipated given the uncertainty around domestic and international politics at present. According to the bank's statement, the decision was a unanimous one. It followed retail sales data released earlier that day showing that sales contracted 2.3% m/m, far weaker than the predicted 0.3% contraction. Industrial production surprised to the upside with 1.4% m/m growth, beating the predicted 0.8%. The pick-up was driven by an improvement in the autos sector.

Today’s Economic Data and Events

10:00 Saudi Arabia Q3 GDP, % y/y, preliminary

14:00 Eurozone CPI inflation, October preliminary, % y/y. Forecast: 1.9%

16:30 US initial jobless claims, week to October 26. Forecast: 230,000

16:30 US core PCE price index, September, % y/y. Forecast: 2.6%

Fixed Income

• UK gilts sold off further following the Chancellor’s announcement of the budget yesterday, with yields on the 10yr closing up 4bps at 4.352%, while the 2yr added 6bps to 4.319%.
• In the US, yields rose at an even faster clip as more strong data led to paring bets on easing from the Fed. The 2yr closed up 9bps at 4.1826%, while the 10yr added 5bps to 4.3004%.

FX

• The dollar index closed down 0.3% yesterday, closing lower against most of the majors. Sterling was an exception with GBP ending the day 0.4% down against the greenback at 1.2962 as markets parsed the budget. JPY also closed down, albeit marginally, dropping by less than 0.1% to 153.42.
• The notable gainer of the day was the Euro which closed up 0.3% at 1.0856 on the back of strong GDP data and improving inflation in Germany.

Equities

• US equity markets closed lower yesterday, with the Dow Jones, the S&P 500, and the NASDAQ falling 0.2%, 0.3%, and 0.6% respectively.
• Locally, the ADX added 0.2% and the DFM closed 0.5% higher.

Commodities

• Oil prices closed higher for the first time this week on Wednesday, with Brent futures ending the day up 2.0% at USD 72.6/b and WTI up 2.1% at USD 68.6/b. Both benchmarks are heading higher still in early morning trading today.
• Weekly stockpiles data from the EIA gave prices a boost as it showed a two-year low in gasoline stockpiles as they fell by 2.7mn bbl in the week to October 25.