US Open – Fed, US GDP, South Africa Budget, BOC, Oil, Gold

US stocks are little changed despite stronger than expected private payroll and GDP data, as markets await a pivotal Fed rate decision this afternoon.  This morning’s data likely confirms Fed Chair Powell’s belief that the economy is in a good place and expectations should grow for the Fed to deliver a hawkish cut this afternoon.  While both the ADP private payroll number and headline third quarter GDP reading beat expectations, the trend is still weakening.

GDP

One of the biggest components to the bull market thesis for the US stocks is the consumer and today’s reading of personal consumption and residential investment highlight a big chunk of the economy remains strong.  If the trade war gets resolved, we will likely see a bump with business investment and that should help the economy exit from stall-speed. 

South Africa

The South African rand got crushed after the medium-term budget expanded more than expected while the government seems set on delivering a hardline to state companies and labor unions. South Africa is unfortunately locked into a period of very poor economic growth that will likely see an eventual downgrade by Moody’s.  The struggling power utility will get more money, but not much was addressed in how they will pay back their mounting debt. 

BOC

The Bank of Canada rate decision will be a non-event today.  The central bank will hold rates at 1.75%, while the Fed reduces their target range to 1.50% to 1.75%, a key turning point for the interest rate differential.  The loonie seems set to rip higher, but the outlook will ultimately be determined if we see broad US dollar weakness if we see some relief in the global outlook. 

Oil

Energy traders are not holding any strong convictions as markets remain unsure if we will see a global relief rally that will see a bump in demand for crude.  Oil remains fixated on whether we will see deeper cuts from OPEC + in December and if we will see a rebound in global growth as central banks and governments stimulate their respective economies.  US stockpiles are expected to see a small draw, a contrast to the American Petroleum Institute report that showed a build of 1.22 million barrels. 

Gold

Gold gave up earlier gains after better than expected US data dented some investors forecasts that we will see further stimulus from the Fed in 2020.  Gold has held up nicely as US stocks have marched to all-time highs, but the uncertainty that two world’s largest economies will be able to agree on structural changes should see safe-havens well supported in the coming months.

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