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US Open Preview – Stocks remain in the eye of risk-off storm; US GDP on tap
October 26, 2018 11:26 amVideo
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Here are the latest developments in global markets:
Day ahead: US GDP data in the limelight as risk sentiment remains fragile
Preliminary US GDP figures for Q3 will be the highlight during the remainder of Friday’s session in terms of data releases. Beyond those, currencies will remain sensitive to stock market movements and how risk sentiment develops, in light of the recent volatility.
Kicking off with the data, the first estimate of US GDP for Q3 is due out at 1230 GMT, and expectations are for economic growth to clock in at an annualized pace of 3.3%. While this would mark a slowdown from the robust 4.2% recorded in Q2, it’s still a very healthy print overall, with the Trump administration’s tax cuts seemingly keeping growth above potential. For context, the Atlanta Fed GDPNow model estimates the GDP print at 3.9%, while the New York Fed’s own gauge places it at a mere 2.1%.
Alongside the GDP number, the US will also release the preliminary core PCE price index for Q3. Forecasts point to inflationary pressures having lost some steam, with the core PCE rate expected to cool to 1.8% in annualized terms, from 2.1% in the previous quarter. The dollar will likely take its cue from these prints, coming under renewed buying interest in case of an overall beat, or giving back some of its latest gains on a disappointment. The final University of Michigan consumer sentiment index for October is also due out, at 1400 GMT.
More broadly, the mood in equity markets will likely prove critical in setting the tempo for currencies as well. Following disappointing earnings reports from the likes of Amazon and Google parent Alphabet after Wall Street’s closing bell yesterday, futures tracking the major US indices are flashing red, pointing to a notably lower open today. This has spilled over into broader risk aversion, evident by the defensive yen advancing across the board today, and commodity-linked currencies such as the aussie, kiwi, and loonie all recording sizeable losses.
In euro-related news, Standards and Poor’s is anticipated to announce its decision on Italy’s sovereign credit rating today. A potential downgrade of the nation’s debt, against the backdrop of Italian politicians remaining adamant about their elevated budget deficits, could spell more bad news for Italian assets and by extent, for the single currency.
As for the speakers, ECB President Mario Draghi will deliver remarks at 1400 GMT, but bearing in mind investors already heard from him at yesterday’s ECB meeting, any fresh signals that trigger a reaction in the euro appear unlikely.
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