Morning Commentary: As Good as it Gets?

Foreign Exchange - Morning Commentary

As Good as it Gets?

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
U.S. Q3 GDP came in at 3.5% this morning (at consensus expectations) and that, combined with Q2’s outstanding performance of 4.2%, provided the best back-to-back quarters since 2014. As good as these two quarters of growth have been, markets and equities in particular have become increasingly dour about the prospects for future growth as a combination of rising borrowing costs, cooling global demand, trade friction, and the boost from the U.S. tax cuts begins to fade.
 
The numbers within the numbers give reason for concern about future growth.  Household spending, which accounts for about 70% of GDP, was revised lower from 4% to 3.6%. Net exports subtracted 1.91% (the most since 1985) from growth as a strong dollar combined with weak global demand for U.S. exports is taking its toll. Housing appears to have entered a broad slowdown as residential investment fell by 2.5% as rising interest rates begin to bite.
 
Q4 is currently projected to grow at nearly 2.5%. Keys to future growth will be the future course of Federal Reserve monetary policy of which we will gain key insights this morning at 9:00 a.m. PST when Chairman Powell will be speaking before the Economic Club of NY and will be taking questions. Markets are still anticipating the Fed to raise interest rates again on December 19 with the probability sitting at 77%.
 
The other key component for future growth will hinge on global trade and key to that will be our trading relationship with China and the ripple effect the two largest economies have on the rest of the G20 and emerging market world.  President Trump and President Xi will be meeting at the G20 meeting in Argentina this weekend and it will be important to see a positive outcome of this meeting.
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