Date: October 26, 2018
United States:
U.S. GDP Grows Above-Forecast 3.5% on Consumption, Inventories
The U.S. economy expanded at a 3.5 percent pace in the third quarter as consumers opened their wallets, businesses restocked inventories and governments boosted spending, marking the strongest back-to-back quarters of growth since 2014. The annualized rate of gains in gross domestic product compared with the 3.3 percent median estimate in a Bloomberg survey and followed a 4.2 percent advance in the prior three months, according to Friday’s report from the Commerce Department. Consumer spending, which accounts for about 70 percent of the economy, unexpectedly accelerated to a 4 percent increase — the best since 2014 — while the 0.8 percent gain in non residential business investment was the weakest in almost two years. In two volatile categories, inventories provided the biggest contribution since early 2015, while the drag from trade was the largest in 33 years. Government spending rose by the most since 2016. The data indicate a robust job market and lower taxes continued to propel demand among consumers and companies, giving President Donald Trump an opportunity to showcase his policies heading into the midterm congressional elections. At the same time, tariff-related bottlenecks and the trade war with China are headwinds for the nation’s second-longest economic expansion on record. Investors have become less sanguine on the outlook amid the latest run of U.S. company earnings reports, though stocks regained some ground on Thursday. Shares of Caterpillar Inc., an economic bellwether, tumbled this week after the maker of mining and construction equipment said manufacturing costs were higher due to rising material and freight costs. More broadly, the International Monetary Fund earlier this month cut its global growth forecast for the first time in two years, blaming escalating trade tensions and stresses in emerging markets. World GDP would fall further should Trump follow through on all his trade threats, including global duties on cars, the IMF said.
Europe:
Bets on Next BOE Hike Move to 2020 on Brexit Woes, Market Swings
Investors are rewriting their outlook for the Bank of England after a week that saw Brexit talks hit another hurdle and turmoil in global markets. Markets are no longer fully pricing in another rate increase in 2019, and bets on a May move — previously seen as almost certain — have been more than cut in half since early October. The move gathered pace on Friday as bonds rallied on speculation that the European Central Bank will also delay rate rises. BOE policy makers, who have hiked rates twice in the past year, are due to announce their next decision and updated forecasts on Nov. 1. The market-implied chance of a move in November 2019 has dropped to around 80 percent, while bets on a hike in May — the first meeting after the U.K.’s Brexit deadline — have slid to 42 percent from almost 90 percent earlier this month.
Asia:
Here Are the Reasons China’s Equity Rout Is Getting Even Worse
Chinese equities have already lost $3 trillion in market value since January, and hopes for better days ahead are fading. Anyone counting on a breather in this year’s final stretch got slapped with another 7.9 percent drop for the Shanghai Composite Index so far in October. That sets the gauge up for one of its worst annual performances ever, behind a 65 percent meltdown at the height of the global financial crisis in 2008, and nearing the 22 percent slumps seen in 2011 and 1994. China ranks among the world’s worst places to own shares in 2018. Reasons to flee the nation’s stocks have piled up this year, starting with a liquidity squeeze spurred by China’s deleveraging campaign that’s led to record bonds defaults and hurt economic growth. Add to that a worsening trade war, rising interest rates and the strong U.S. dollar souring the outlook for emerging-market assets, and Chinese stocks are now facing a downward spiral made worse by the billions of dollars of shares at risk of forced selling. Chinese equities have already lost $3 trillion in market value since January, and hopes for better days ahead are fading. Anyone counting on a breather in this year’s final stretch got slapped with another 7.9 percent drop for the Shanghai Composite Index so far in October. That sets the gauge up for one of its worst annual performances ever, behind a 65 percent meltdown at the height of the global financial crisis in 2008, and nearing the 22 percent slumps seen in 2011 and 1994. China ranks among the world’s worst places to own shares in 2018. Reasons to flee the nation’s stocks have piled up this year, starting with a liquidity squeeze spurred by China’s deleveraging campaign that’s led to record bonds defaults and hurt economic growth. Add to that a worsening trade war, rising interest rates and the strong U.S. dollar souring the outlook for emerging-market assets, and Chinese stocks are now facing a downward spiral made worse by the billions of dollars of shares at risk of forced selling. Shadow financing, which includes entrusted loans, trust loans and bank acceptances, is getting worse.
