28 October 2022
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US GDP grew by more than expected in Q3

By Daniel Richards

  • US GDP grew faster than expected at 2.6% q/q annualized in the third quarter, following two quarters of contraction in H1 2022. Personal consumption growth surprised on the upside at 1.4% in Q3 although this was a slowdown from the 2% growth in Q2. Consumer spending of services was the main driver, as consumption of goods declined for the third consecutive quarter. Business investment in equipment also appeared relatively resilient despite higher US rates, and government spending also rose in Q3. While the slowing housing sector and inventories were a drag on growth last quarter, net trade contributed positively to GDP. The core PCE deflator slowed to 4.5% in Q3 from 4.7% in Q2. Separately, initial jobless claims for the week ending 22 October remained low despite headlines of firms reducing staff levels and survey data showing some softness in the labour market.  Overall, the data provides room for the Fed to deliver another 75bp rate hike next month.
  • The ECB raised their benchmark interest rates by 75bp as expected but the decision was not unanimous, with three policy makers wanting a smaller 50bp increase according to Bloomberg. The ECB signalled that the pace of tightening would be slower going forward, despite high inflation, as they weighed the downward risks to growth in the Eurozone. The ECB did not discuss QT at yesterday’s meeting but is expected to provide “key principles” on this in December.
  • Japan’s inflation rose by more than expected in October, up 3.5% y/y from 2.8% in September and the highest inflation since the late 1980s. Core inflation (ex food and energy) remains lower but has also accelerated to 2.2% from 1.7% in October. Japan’s unemployment rate also ticked up to 2.6% in September from 2.5% previously. The BoJ kept the policy rate unchanged as expected this morning but raised its forecasts for inflation in 2022 to 2.9% (2.3% previously) and for next year to 1.6% (1.4% previously). GDP forecasts for this year and next were revised slightly lower. Meanwhile PM Kishida announced a JPY 71.6bn (USD 490bn) stimulus package to boost growth and mitigate some of the impact of higher prices in Japan.
  • The IMF announced yesterday that it had reached staff-level agreement with Egypt around the terms of a new extended fund facility (EFF) arrangement. This followed an out-of-schedule announcement from the Central Bank of Egypt’s MPC several hours earlier that it had hiked its benchmark interest rates by 200bps and committed to a ‘more durably flexible exchange rate regime’ – the EGP subsequently depreciated by around 16% against the USD. Issues around the exchange rate had been a key sticking point in negotiations between Egypt and the IMF since a new deal was requested in March, and the IMF welcomed the commitment to FX flexibility from the CBE in its statement. The EFF will provide Egypt with USD 3bn over 46 months, and is also expected to ‘catalyze a large multi-year financing package, including about USD 5bn in FY2022/23’ from regional and international partners. A further USD 1bn is expected to come from the new Resilience and Sustainability Facility, and the funds together will help plug Egypt’s sizeable external financing requirements. An uptick in FDI and a return of some of the portfolio flows which have left Egypt this year will likely also be required but the greater clarity around the direction of the EGP and interest rates, and the finalisation of the long-awaited IMF deal, should support this. Separately, Egyptian and UAE officials said that UAE investment into Egypt would amount to USD 15bn over the next five years.
  • Iraq’s CPI inflation was 5.3% y/y in September, down marginally from the 5.4% recorded in August. Price growth has averaged 5.3% ytd, slower than the 6.0% averaged over 2021 (driven by a December 2020 currency devaluation) but higher than the long-run average as Iraq contends with the global price pressures seen elsewhere.

Today’s Economic Data and Events

  • 16:00 Germany CPI (Oct prelim) forecast 0.5% m/m and 10.9% y/y
  • 16:30 US employment cost index (Q3) forecast 1.2%
  • 16:30 US personal income (Sep) forecast 0.4% m/m
  • 16:30 US personal spending (Sep) forecast 0.4% m/m
  • 18:00 University of Michigan consumer sentiment index forecast 59.6

Fixed Income

  • US Treasuries rallied for a third day, sparked by the somewhat less hawkish than expected move by the ECB to cut out any reference to a future path of rate hikes and Q3 GDP from the US. Yields on the 2yr UST fell 13bps to close out at 4.2741% while the 10yr yield dropped 8bps to 3.9187%. Markets will focus now on next week’s FOMC meeting where a 75bps hike is still expected followed by a 50bps hike in December.
  • European bond rallied sharply following the ECB’s decision, particularly as it dropped wording around hiking steadily and there was no apparent discussion yet of running down the balance sheet. Christine Lagarde, president of the ECB, said that a decision on reducing the APP would begin in December. The 10yr bund yield dropped 15bps overnight to 1.956% while the 10yr Italian bond yield fell 32bps to 3.985%.
  • Emerging market bonds settled mixed overnight with South African 10yr bonds extending their rally as yields fell by 10bps to 11.154%. Turkish 10yr bonds fell with yields adding 18bps to 10.85%. The Egyptian Eurobond curve tightened considerable from the start of the week as the country has secured a USD 3bn programme with the IMF as well as funding from other lenders.  


  • The dollar bounced back after a few days of losses with the DXY index up 0.8%. EURUSD dropped by 1.2% to 0.9964 as the ECB’s decision left hawks in the market wanting, particularly a further delay on how the ECB will run down its balance sheet. GBPUSD also dropped, down by 0.5% to 1.1565. USDJPY will be in focus today for the Bank of Japan decision. Currently the pair is trading at 146.50.
  • Commodity currencies were weaker across the board with USDCAD managing to show the smallest movement, up less than 0.1% at 13565. AUDUSD fell 0.69% to 0.6452 while NZDUSD dropped 0.12% to 0.5828.


  • Earnings season prompted a volatile session in the US. With the tech sector in particular under pressure, the NASDAQ slipped -1.6% and the S&P ended the day down -0.6%. By contrast, the blue chip Dow Jones managed to secure gains of 0.6%.
  • In Europe, the session was mixed as the ECB hiked rates. The composite STOXX 600 closed flat, with the CAC losing -0.5% but the DAX adding 0.1%. The UK’s FTSE 100 ended the day up 0.3% as the pound weakened against the dollar.
  • Locally, the DFM added 0.6% and the ADX 2.0%. The Tadawul lost -0.8% while in Egypt the EGX 30 gained 4.9% as the currency depreciated and a new IMF deal was secured.


  • Oil prices rallied for a third day overnight with Brent futures settling up 1.3% at USD 96.96/b and WTI added the same to USD 89.08/b. A hike in fuel export quotas for Chinese refineries will mean additional buying in the final months of the year, helping to keep oil markets tight even as focus remains on downside risks related to a global recession.

Click here for charts and tables




Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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