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Q3 GDP for US, Euro Zone

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After the controversy over whether or not the US was technically in a recession during the first half of the year, we’ll now get another round of data to potentially clear that up. There are some other data points coming out at the same time that could move the markets, but GDP is likely to be the one that defines the trajectory of the dollar. There has been increasing doubts that the Fed will hike as aggressively as initially expected.

Yesterday, Mexico’s central bank’s head said it was getting near the time to slow down hikes. What also shook expectations was the BOC unexpectedly raising rates only 50bps instead of the 75bps expected. This led to a drop in the forecasts among economists, with 90% expecting 75bps instead of the near-unanimous 97% just two days ago.

Where things are going

The consensus around the Fed is still pretty strong, but if GDP were to miss expectations, it could shift enough analysts to start affecting markets. In the unlikely event that GDP were to exceed forecasts, then there is relatively little upside in Fed expectations.

Yesterday, the ten year bond yield dropped below the 3-month bond, a sign of an impending recession. It was seen as an indicator that long-term liquidity is starting to come under strain. Meanwhile, mortgage rates moved up to the highest level since 2001. Both indicators suggest the Fed might be getting close to the end of the aggressive part of the hiking cycle.

What to look out for

US quarterly GDP is expected to grow at an annualized rate of 2.4% compared to -0.6% in the second quarter. That would end the technical recession talk, but could open the possibility of a “double dip” recession. Meanwhile, September durable goods orders also comes out at the same time and is expected to rise to 0.6% compared to -0.2% in August.

Across the Atlantic, France and Germany give the first look at GDP figures from the shared economy. As the two largest countries in the Eurozone, typically they set the tone for what might be expected from the whole area. Of course, coming right after the ECB meeting, the figures aren’t as likely to affect monetary policy outlook as much. But given the increasing growth worries due to escalating prices in the shared economy, it could have implications for the medium-term trajectory in the Euro.

The components of note

French preliminary Q3 GDP growth rate is expected to slow to 0.2% quarterly from 0.5%. That implies an annual change of 1% compared to 4.2% in the last measure.

Spain is also expected to report a significant slowdown in growth to 0.3% quarterly compared to 1.5% in the second quarter. Annual GDP is expected at 3.9%, well below the 6.8% prior

German prelim Q3 GDP is expected to show its first negative growth rate since the omicron variant, with quarterly growth at -0.2% compared to 0.1% prior. Annual growth is expected to effectively half to 0.8% compared to 1.7% prior.

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