On Thursday (October 27), the latest data released by the United States showed that GDP increased by 2.6% year-on-year in the third quarter, rebounding due to two consecutive quarters of shrinkage in the first half of the year, alleviating investors' concerns about the recession. In addition, the data also implies that inflation is weakening. After the data was released, the three major stock indexes of US stock rose and fell in unison, the short-term fluctuations of US dollar index intensified, and spot gold fluctuated narrowly within .
The U.S. Bureau of Economic Analysis reported on Thursday that the U.S. economy achieved positive growth for the first time in the third quarter of 2022, at least temporarily alleviating concerns about recession.
Specific data shows that the initial value of the US real GDP annualized quarterly rate in the third quarter was 2.6%, a record high since the fourth quarter of 2021, and had previously recorded negative growth for two consecutive quarters.
(Photo source: FX168)
This data was released after two consecutive quarters of negative growth at the beginning of this year, meeting the recognized definition of recession, but the National Bureau of Economic Research (NBER) is generally considered an arbiter of recession and expansion. This growth in
is largely due to the shrinking trade deficit in , and economists expect and believe it is a one-time phenomenon and will not appear again in the next few quarters.
GDP growth also comes from increased consumer spending, non-resident fixed investment and government spending. The report reflects that spending is shifting from commodity spending to service spending, with service industry spending growing 2.8%, while commodity spending declined 1.2%. The decline in fixed residential investment and private inventory offset the growth.
Besides showing stronger than expected economic growth, the GDP report provides at least some good news on inflation. In the third quarter, the chain weighted price index (the cost of living indicator adjusted to reflect changes in consumer behavior) rose 4.1%, well below the expected 5.3%. In addition, overall inflation rose 4.2%, much lower than the previous quarter’s 7.3%.
institutions commented that the economic downturn in the first half of the year sparked debate about whether the United States has fallen into recession. The negative GDP recorded for two consecutive quarters was in line with an ancient but informal rule of thumb for recession. But these two declines are the result of abnormal changes in trade deficits and corporate inventory. As the main engine of the economy, consumer spending has remained relatively stable this year. Spending growth rate in the third quarter was 1.4%. The official recovery of U.S. economy is on the eve of a key congressional election in the fall. However, economists warn that the good news may not last long: Most people now believe that the recession will arrive next year.
Chief North American economist Paul Ashworth of Capital Investment Macro pointed out that the rebound of the 2.6% annualized quarterly rate of the U.S. GDP in the third quarter looks impressive, but this is entirely due to a net foreign trade growth of 2.7%. Sales to domestic buyers are a better indicator of potential economic demand, but the annualized growth rate is only 0.1%, the worst performance since the outbreak in the second quarter of 2020. Overall, although GDP reversed its first half of the year in the third quarter, this strong momentum is not expected to continue. "Exports will soon fade, and domestic demand will be squeezed under the pressure of rate hikes . We expect the economy to enter a moderate recession in the first half of next year." Dean Baker, co-director of the Center for Economic and Policy Research at
, said that at the current stage of economic recovery, we should be happy to see a GDP report like this. However, given that the Fed will continue to raise interest rates, and most of the impact of past interest rate hikes has not yet appeared, this may be the last good-performing report we have seen in a while.
Pantheon Macroeconomics analyst Ian Shepherdson said in a note that export growth of 14.4% boosted U.S. GDP growth in the third quarter, but it was "unsustainable." U.S. GDP growth is expected to slow to around 1% to 2% in the fourth quarter, mainly due to the possibility of much smaller driving force in the future, and inventory drags on GDP even more. The United States relies on more consumption, increasing government spending and intellectual property investment to maintain GDP growth. Shepherdson expects strong dollar and weak global growth to curb future exports.
Other data released on Thursday showed that the number of initial unemployment claims rose slightly to 217,000 last week, but was still below the estimated 220,000. In addition, durable goods orders rose 0.4% in September from the previous month, down from the expected 0.7%.
The report comes as policy makers are fighting fiercely with inflation. Currently, U.S. inflation is hovering around its highest level in more than 40 years. The surge in prices is caused by a number of factors, many of which are related to the COVID-19 pandemic, but is also driven by unprecedented fiscal and monetary stimulus measures that are still working through the financial system. After the data of
was released, the U.S. stock market rose and fell. Dow Jones Index rose more than 400 points in early trading of Wall Street , but Nasdaq was dragged down by the plummeting Meta stock price.
Dow Jones rose more than 400 points or 1.3%, S&P 500 hovered near the flat market, and Nasdaq fell 1%.
(Dow Jones 30-minute chart, source: FX168)
Chief investment officer Cliff Hodge, Cornerstone Wealth, said the chain weighted price index has brought hope to market observers looking for data on inflation falling, which could lead to the Fed relaxing rate hikes after its November meeting. Affected by the data, bond yields have also fallen.
"The GDP data released this morning is a good data for risky assets," said Hodge, who specifically mentioned the price index data. "This is another sign that the worst period of inflation may have passed." The
technology sector has continued its recent decline, which in turn has dragged down the Nasdaq index. Shares of Facebook parent company Meta plunged 24% on Wednesday as the company reported weak fourth-quarter expectations and disappointing third-quarter earnings. The company also said it will lose more money next year in building the metaverse. The report caused several analysts to downgrade the stock.
Traders also looked at other companies' earnings reports, some of which outperformed tech companies this week. McDonald's shares rose 3.4%, and the fast food giant's financial report released before the opening exceeded expectations. But tobacco company Altria Group fell 0.4%, after it reported lower-than-expected earnings per share and revenue. "U.S. stock markets are struggling to find direction, with mixed financial reports, and economic data support the view that the economy is weakening," said Edward Moya, senior market analyst at
OANDA. "It looks like the economy is still in recession, but this may strengthen the Fed's call for turning, which seems to be pushing some funds into the stock market." In terms of the foreign exchange market, euro /dollar fell below par on Thursday as traders bet on ECB will slow down the pace of rate hikes after another 75 basis points on Thursday.
Thursday's focus was on the European Central Bank's policy statement. Although the ECB said it expected interest rates to rise further, it noted that with the "third consecutive sharp hike in policy rates, the governing committee made substantial progress in exiting loose monetary policy ."
In addition, the ECB removed a sentence from its September statement that policy makers are expected to raise interest rates at the "next few meetings." Instead, the statement said that the Management Committee made the decision on Thursday, "and expected further interest rates to ensure that inflation rate returns to the medium-term inflation target of 2% in a timely manner." Before the release of
GDP data, the US dollar index once quickly climbed to a high of 110.54. After the data was released, the fluctuated and fell back to 109.83, and now rebounded to the 110.34 front-line trading.
(30-minute chart of the US dollar index, source: FX168)
Convera senior market analyst Joe Manimbo said that data shows that the US economy rebounded beyond expectations after experiencing a downturn in the first half of the year. At the same time, the European Central Bank emphasized that the economic outlook for the euro zone is bleak. Under this circumstance, the US dollar rebounded, which reminds us that the fundamentals of the euro have not undergone fundamental changes, and the negative fundamentals have brought new pressure to the euro.
At present, the market generally expects the Fed to raise interest rates by 75 basis points for the third consecutive time at next week's interest rate meeting, but the market speculates that policymakers may choose to raise interest rates at a smaller rate in December. On Wednesday, the Bank of Canada announced a 50 basis point rate hike, a smaller-than-expected margin, strengthening expectations that global central banks may begin to slow down their pace of rate hikes.
precious metals , as the US dollar rose, spot gold fell slightly above the daily low of $1654.70, and now rebounded above $1660, and was still trading below the flat trading during the day.
(spot gold 30-minute chart, source: FX168)
Kitco Metals senior analyst Jim Wyckoff said in a report that the strong rebound of the US dollar index and some optimistic U.S. economic data put pressure on gold prices.
Gold and other commodities received support on Wednesday as the dollar rebounded sharply against its major competitors in 2022, and U.S. Treasury yields continued to fall from its highest level in more than a decade.
USD strengthening could put pressure on dollar-denominated commodities, making them more expensive for users of other currencies. Rising bond yields increase the opportunity cost of holding non-infringe assets. "There are preliminary signs that both the U.S. dollar and interest rates are starting to roll, but before we have more solid evidence that both are actually peaking, it's too early to say gold prices bottom out," analysts at Sevens Report Research wrote in a report on Thursday.
