- Solid US Q3 GDP growth fueled by consumption
- Price indicators below expectations
- Equity indices gain, dollar mixed after the release
The US Q3 GDP report has been the most anticipated report this week as the US economy seems to be strong despite more obvious weakness elsewhere. The report did not disappoint – growth was at 3.5% (annualized), lower than in Q2 (4.1%) but above expectations, driven mostly by private consumption (+4%). It looks as consumers – buoyed by very low unemployment, lower taxes and high equity prices (the correction has arrived after the end of the third quarter), were willing to open up their wallets more.
US GDP growth remained buoyant in the third quarter on the back of strong consumption. However, a large inventory contribution should make us caution in terms of retaining these growth rates. Source: Bloomberg, XTB Research
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Open account Try demo Download mobile app Download mobile appThe report seems to be modestly supportive for stocks, not just because of higher growth but predominantly because of lower inflation. GDP deflator slumped from 3.2% to 1.4%, well below the consensus of 2.1% and more stable (and highly watched) PCE Core declined from 2% to 1.6%, also clearly below the consensus of 1.8%. As a consequence we see a pick-up in US500 and other indices but it remains to be seen if it’s enough to reverse otherwise gloomy market outlook.
Bulls try to make a comeback after a supportive GDP growth. However, a broader picture remains difficult. US500 crashed through the 2700 support and converted it into a resistance this week and recovering back above it might take more than this macro print. Source: xStation5
The data is far less obvious for the dollar. Higher growth (than expected) and especially higher consumption growth is positive but lower deflators mean that the Fed may use more time to deliver rate hikes in the future as inflationary pressure is contained despite high growth rates. Furthermore net exports delivered a 1.8% negative contribution showing clearly that this growth is beyond the capacity and that it will cause twin deficit to widen going forward. The US data mix as of late has not been particularly supportive for the dollar and it seems to be gaining mostly on the weakness of Asian and European currencies.
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