Today is the first estimate of third quarter GDP. Analysts are expecting growth to rise by 1.5% versus a 3.9% pace of the second quarter. In quarter’s past, equities have dropped if the data surprised on the upside given rising odds of a change in monetary policy and vice versa if the data disappointed.
With the above written, I believe equities would prefer Q3 growth to beat expectations as the markets would welcome any sings that the US and global economies are on sounder footing.
However if the data is shockingly strong potentially generating wage and price pressures which would force the FOMC to raise rates more aggressively than many expect, then equities could fall. What are the odds of such a print?
Yesterday the FOMC stated the economy is still expanding at a “moderate” pace and they will consider tightening policy at their next meeting in December without making a commitment to act this year based upon the “realized and expected progress” in reaching its goals. Additionally the Committee changed its verbiage about global economic financial developments to “monitoring the international situation” from “may restrain economic activity somewhat.”
Regarding consumption, the Federal stated consumption is “solid” from moderate but the pace of job creation has “slowed” and the unemployment rate has held “steady.”
Equities initially traded lower on the statement but rebounded and closed considerably higher led by the financials and energy.
The bond market is now suggesting a 46% chance of a change in monetary policy at the December meeting, the highest since eve of the September meeting.
How will the 8:30 data be interpreted?
Last night the foreign markets were mixed. London was down 0.98%, Paris down 0.72% and Frankfurt down 0.27%. China was up 0.36%, Japan up 0.17% was and Hang Sang down 0.60%
The Dow should open moderately lower ahead of the GDP data, perhaps on fears the statistics will surprise considerably on the upside given yesterday’s Fed statement. The 10-year is unchanged at 2.09% yield.
THE FED MEETING AND THIRD QUARTER GDP
Ken Engelke
Chief Economic Strategist Managing Director
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.
