US OUTLOOK/OPINION: GDP Revisions Seen Maintaining Strength, Core PCE Could Round Higher
Dec-19 11:26
- Today's third release of Q3 national accounts at 0830ET will see the second revision to the GDP breakdown along with the first revision to GDI.
- Real GDP growth is seen remaining at 2.8% annualized in further confirmation of a solid reading after the 3.0% in Q2.
- Last month’s first revisions broadly confirmed a strong contribution from domestic demand, with final sales to domestic purchasers adding 3.5pp after 2.8pp in Q2 and final private demand (which Powell flagged yesterday) adding 2.7pp after 2.3pp.
- Consumption is watched to see if it remained a key driving force behind this domestic demand strength. Consensus looks for 3.6% having been revised down to 3.5% from an initial 3.7% in Q3, either way still a marked acceleration from the 2.8% in Q2 for its fastest since 1Q23 (it added 2.4pp to GDP growth in Q3).
- GDI meanwhile provided the softest area of last month’s Q3 release, increasing 2.2% annualized (vs real GDP 2.8%) after a downward revised 2.0% in Q2 (initial 3.4% and vs real GDP 3.0%).
- Analysts likely give greater caution to the GDI numbers though, having printed far softer growth than GDP prior to comprehensive national account revisions back in September after which they converged notably towards prior GDP trends - something that multiple FOMC members subsequently noted.
- Looking through noisier quarterly rates, both metrics currently show solid economic growth, with GDP at 2.7% Y/Y (within which PDFP increased 3.1% Y/Y, "a really good number" in Powell's words) and GDI at 3.1% Y/Y in Q3. We watch to see how this changes.
- This strength was reflected in yesterday’s Fed forecasts in the updated SEP. Real GDP growth was revised up from 2.0% to 2.5% for 4Q24 (which if anything currently looks like it could undershoot further considering GDPNow is running above 3% annualized for Q4) along with a more modest upward revision from 2.0% to 2.1% for 4Q25.
- Finally, note that it really doesn’t take much for core PCE inflation to round higher in Q3 at what could look like a surprise to the rounded 2.1% expected. It was revised down from 2.156 to 2.146% in last month’s Q3 update.
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STIR: OI Points To Modest SOFR Futures Position Moves On Low Conviction Monday
Nov-19 11:24
OI points to a mix of net short and long setting in most contracts during yesterday’s light twist flattening of the SOFR futures strip.
- Net OI changes were generally limited, which is understandable as swings were mostly driven by the long end/oil, as opposed to any real conviction surrounding changes in the Fed outlook.
| 18-Nov-24 | 15-Nov-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,273,110 | 1,272,902 | +208 | Whites | +6,428 |
SFRZ4 | 1,307,547 | 1,309,706 | -2,159 | Reds | +3,381 |
SFRH5 | 1,072,523 | 1,071,690 | +833 | Greens | +18,296 |
SFRM5 | 973,750 | 966,204 | +7,546 | Blues | +5,241 |
SFRU5 | 738,848 | 731,354 | +7,494 |
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SFRZ5 | 939,553 | 944,276 | -4,723 |
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SFRH6 | 640,497 | 642,352 | -1,855 |
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SFRM6 | 608,370 | 605,905 | +2,465 |
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SFRU6 | 622,208 | 612,497 | +9,711 |
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SFRZ6 | 651,823 | 649,895 | +1,928 |
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SFRH7 | 423,470 | 419,700 | +3,770 |
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SFRM7 | 340,695 | 337,808 | +2,887 |
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SFRU7 | 277,480 | 275,537 | +1,943 |
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SFRZ7 | 266,548 | 264,677 | +1,871 |
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SFRH8 | 209,604 | 208,637 | +967 |
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SFRM8 | 155,443 | 154,983 | +460 |
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BOE: TSC: What have we learned about monpol today? (2/2)
Nov-19 11:20
- What does this mean for monpol overall? Taylor seems more dovish than market pricing now - there are less than 3x25bp cuts full priced in by the end of 2025 (69bp at writing). Bailey and Lombardelli don't seem to be guiding away from a quarterly path - but will probably want to see more on wage data and how much of the wage growth and employer NI increase are passed on next year.
- So based on current conditions February and May cuts seem likely (market is pricing a cumulative 43bp by May).
- But beyond then it really depends on your view on how inflation / wage growth evolves over the next 6-7 months or so.
- The market's view so far seems to be that there will be higher inflation than the central case of Bailey and Lombardelli.
- It's unclear what can really be the trigger to change that view in the near term - but surveys of wage growth as well as the DMP survey and Agents survey will be increasingly important going forward.
BOE: TSC: What have we learned about monpol today? (1/2)
Nov-19 11:17
Some really interesting parts from the testimony to the Treasury Select Committe from four MPC members this morning.
- Governor Bailey and Deputy Governor for Monpol Lombardelli both see risks to inflation as broadly balanced - but see greater consequences if inflation becomes more entrenched.
- Bailey said that a month ago he was close to Taylor's view. Reading between the lines at the MPR press conference when he said that the Budget will not have significant impacts on monpol - it seems as though it hasn't impacted his central case significantly, but has changed his view of the balance of risks.
- Lombardelli says we will get a lot more info on the labour market early next year.
- Taylor could potentially be the second most dovish member now based on today's comments (after Dhingra). He has said that 100bp over the next year is consistent with "gradual" and that he sees risks that the BOE will need to cut more. We haven't heard from Ramsden for a while - we will hear from him tomorrow - so it will be interesting to see which of the two are more dovish.
- Mann sounds as far away from a cut as ever - but that is nothing new - she has spoken multiple times recently.
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