US GDP Eyed as Fed Remains Firm on December

Many European indices are expected to open around half a percentage point higher on Thursday following what was a mixed reaction to the Federal Reserve’s statement yesterday evening. The statement was undoubtedly more hawkish than before and put December well and truly back on the table and investors didn’t really know how to take this.

U.S. indices initially fell into negative territory for the day having traded almost 1% higher prior to the release, but it wasn’t long before they erased these losses and ended the day more than 1% in the green. The problem is that unlike the European Central Bank, the Fed doesn’t appear to be even trying to send a clear message to the markets. It’s afraid to commit either way but saw that the markets has priced out a hike far too much and wanted to balance things up again in case it does decide to move in December.

I think when it comes to it, the markets will be able to cope just fine with a rate hike as it will suggest that the economy is recovering well and showing strong resilience at a time when other countries are really struggling. The problem for now is that in balancing things up again, the Fed has just created more uncertainty in the markets and that would suggest why the markets dipped into the red shortly after the statement was released.

This leaves U.S. in a position once again where the markets are going to be very sensitive to U.S. data, the first of which comes today with the advanced reading of third quarter GDP being released. Growth is widely expected to have cooled in the third quarter to 1.6%, with the growing trade deficit weighing on the number. If the Fed raises at the same time as other central banks ease, as they are expected to, this could make that problem even worse next year and make life even harder for U.S. exporters.

This morning we’ll get a bunch of data from the eurozone such as unemployment and preliminary CPI data from Germany, consumer credit data from the U.K. and flash CPI data from Spain. The euro has come under intense pressure over the last week after the ECB strongly hinted at further easing in December and weak data from the region, particularly inflation data, should weigh heavily on it again in the weeks ahead as it only increases the likelihood that the central bank will act in December.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam