27 October 2023
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US GDP growth surges to 4.9% in Q3

By Khatija Haque

US GDP accelerated to 4.9% in Q3 according to the first estimate. This marks a sharp acceleration from the 2.1% recorded in Q2 and was also higher than the median forecast of 4.5%. The main driver was robust personal consumption growth, which accelerated to 4.0% annualized last quarter – the fastest growth since 2021 - from 0.8% in Q2. Most analysts expect consumption growth to slow in Q4 as student loan repayments re-start and as higher borrowing costs are deterring big purchases. Private investment also grew solidly in Q3, contributing 1.5pp of the 4.9% headline growth, although most of this was in inventories, which could prove a drag on growth in Q4.

4.9% annualized GDP growth is well above trend and is particularly surprising given the scale and speed of rate hikes in the US since March 2022. However, core PCE inflation slowed to 2.4% q/q in Q3 from 3.7% q/q in Q2, which should provide some comfort to policy makers. The Fed is expected to keep rates on hold at next week’s FOMC meeting.

The ECB left its main refinancing rate unchanged as expected yesterday, at 4.5%. President Lagarde said that any discussion about rate cuts was “totally, totally premature” and that a pause this month did not mean that the ECB would not hike again if needed. The market is pricing in the first 25bp cut from the ECB in June 2024. Economic conditions in the Eurozone remain weak, with Germany likely already in recession. The ECB committed to reinvesting the proceeds of maturing bonds in the PEPP programme, and this may continue through 2024 to avoid pushing bond yields even higher.

The central bank of Turkey hiked its one-week repo rate by 500bps at its October meeting yesterday, taking the benchmark rate to 35.00%. The move was in line with consensus projections and marked the fifth consecutive interest rate rise since Hafize Gaye Erkan was appointed as central bank governor in June, with a cumulative 2,650bps of hikes over the period. The central bank’s communique acknowledged that inflation (61.5% y/y in September) remained above expectations in the third quarter, in part due to ‘the stickiness of services inflation’, and also recognized the risk posed by rising oil prices. The bank pledged to ‘continue to decisively use all the tools at its disposal in line with its main objective of price stability.’

Inflation in Japan came in higher than forecast at 3.3% y/y in October, up from 2.8% in September. Core CPI (excluding food and energy) was fractionally slower than in September at 3.8% y/y.

Today’s key economic data and events

  • 16:30 US personal income (Sep) forecast 0.4% m/m
  • 16:30 US personal spending (Sep) forecast 0.5% m/m
  • 18:00 University of Michigan consumer sentiment (Oct, final) forecast 63.0

Fixed Income

  • Treasuries rallied yesterday despite the strong Q3 GDP reading. 2y Treasury yields fell 8bp to 5.04% while 10y yields fell 11bp to 4.84%. Treasury secretary Janet Yellen pushed back against the idea that a wider federal budget was the main driver of the recent rise in treasury yields, saying the rise in bond yields reflected a strong economy.
  • Sovereign yields across the major EMEA economies also declined yesterday, with Italy and Portugal seeing 10y yields decline -4.5bp and -4.4bp respectively as the ECB remains committed to reinvesting in PEPP bonds.


  • The USD index gained for the third consecutive day yesterday, with EUR and GBP losing -0.35% and -0.4% against the greenback respectively. JPY and CHF also weakened against the dollar.
  • Commodity currencies closed lower too with AUD losing more than -0.5% against the dollar, while NZD and CAD down -0.3% and -0.2% respectively.    


  • The “magnificent seven” tech companies lost a total of USD 200bn in value yesterday following a round of disappointing earnings reports, triggering a decline in the broader US equities market. The Nasdaq Composite fell by -1.8%, and the S&P 500 closed down -1.2%. However, Amazon and Intel rallied in after-market trading. European stocks also had a challenging day, as the UK's FTSE 100 closed -0.8% lower, with Standard Chartered leading the decline after a -12% drop. The Euro Stoxx 50 lost -0.6%.
  • Yesterday, the DFMGI closed -1.5% lower, with Emirates NBD, Emaar Properties, and Dubai Investments declining by -3.3%, -2.9%, and -3.5%, respectively. ADXGI also experienced a -0.9% decline. In Saudi Arabia, the Tadawul ASI lost -0.9% during yesterday's trading session.


  • Both oil and WTI closed more than 2% down yesterday, with Brent fixing at USD 87.93/b and WTI at USD 83.1/b.

Written By

Khatija Haque Head of Research & Chief Economist

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