US GDP Beats Forecasts As Powell Signals Smaller Hikes From Next Meeting (Potentially)

It was a busy day for markets yesterday with a slew of key US data alongside comments from Fed’s Powell. Adv Q3 US GDP was seen coming in above forecasts at 2.9%, up from 2.6% prior and above the 2.8% the market was looking for. On the back of the prior quarter’s positive results, the US has avoided recession for now. The ADP employment figure was seen falling sharply below estimates at 127k vs 196k forecast, while the JOLTS job openings number was higher at 10.3 million vs 10.2 million expected.

However, it was Powell’s speech which stole the spotlight for the day. USD fell sharply, sending risk assets soaring, as Powell confirmed that smaller rate hikes could be appropriate as early as next month. Pricing for a smaller hike the December FOMC jumped back up to around 80% from sub-70% prior to the comments.

Key Factors for Today

- USD fell on the back of Fed chairman Powell signalling smaller hikes might start as soon as next meeting
- ADP employment missed targets – Adv GDP came in 2.9% vs 2.8% expected, 2.6% prior – US out of technical recession
- JPY leads in FX as residual safe-haven demand remains – markets still watching China news
- EZ inflation cools – still well above target – hawkish ECB expectations remain
- Oil and metals strongly bid on fresh USD weakness

Coming Up

- USD – Core PCE
- USD – ISM Manufacturing
- GBP – Final manufacturing PMI

US Stocks Soar As Powell Signals Smaller December Hike

Equities prices took off yesterday as Powell gave the green light for a smaller hike in December. Better-than-expected US GDP data was also cheered by investors, confirming that the US is out of recession. The S&P broke out to its highest level since September while the Nasdaq is currently testing the October highs. The FTSE continues its recent run also, pushing to its highest levels since June. However, the Nikkei and the Dax failed to see the same upside. Fears around ongoing China uncertainty and hawkish ECB expectations hindered the indexes respectively.

JPY Remains The Frontrunner in FX

In FX, JPY is seeing the strongest gains over the European open on Thursday. The pull back in the US Dollar as well as some ongoing caution in some parts of the market is keeping safe-haven demand well stocked in JPY. In China, covid restrictions have been lifted in some areas with the government announcing that it is entering a new phase of its fight against covid. While some are hopeful this means an adjustment to its zero-covid policy is coming, tensions remain high on the back of several days of protests and violent clashes between protestors and police.

EZ Inflation Cools Slightly – Still Well Above Target

Yesterday’s flash eurozone CPI print keeps the pressure on the ECB. Headline CPI was seen at 10%, down from 10.6% prior while core CPI remained unchanged at 5%. The cooling in headline prices is encouraging but with CPI still well above target, hawkish ECB expectations remain.

Metals & Oil Rally As USD Slides

In the metals and commodities space, both gold and silver turned sharply higher yesterday. Silver prices broke out to their highest levels since June while gold prices are currently testing the local highs, poised to break higher also. Crude oil prices continued their recovery yesterday with futures rallying amidst the drop in USD. The EIA reported its largest inventories drawdown this year at -12.6 million barrels, as refiners ramped up output.