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November 2016

Strong US consumer spending

Published: Wednesday 30 November 2016

  • Strong US consumer spending
  • GfK survey recorded a decline in UK consumer confidence
  • German unemployment remains at record low 

Happy St Andrew’s day to all our Scottish friends today!

Yesterday saw strong consumer spending help the US economy to grow faster than previously estimated in the third quarter of 2016. The world's largest economy grew at an annualised rate of 3.2% in the three months to September. There were some caveats but it was still the best quarter in two years. The figure outstrips the second quarter growth rate of 1.4%, and was above economists' estimates of 3% growth.

The US Commerce Department said, "The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures, exports, private inventory investment, and Federal Government spending that were partly offset by negative contributions from residential fixed investment and state and local government spending".

It said consumer spending, which accounts for more than two-thirds of the US economy increased at a rate of 2.8%, compared with the initial estimate of 2.1%. However there were falls in US business spending on equipment.

The strong growth bolsters expectations that the Federal Reserve will raise US interest rates when it meets in mid-December. It’s worth noting that last December’s US rate rise was the first in nearly a decade.  Despite these positive numbers, the US Dollar slipped a little.

Overnight, a GfK survey recorded a decline in UK Consumer Confidence and this morning the Bank of England released their latest UK Financial Stability report stating that stability is dependent on an orderly exit from the European Union, and the likelihood of risks to financial stability "remains elevated" as a result of the vote.  They went on to say that it will take time to clarify the United Kingdom's new relationships with the European Union and "The orderliness of the adjustment will influence the risk to financial stability".

The Bank of England has also released the results of a series of stress tests run on the UK banking system, which has seen one major bank fail. The tests were rigorous and the scenarios included testing the bank’s ability to manage a fall of 30% in the UK residential housing market.  

Germany has just released their latest unemployment data showing a slight fall in numbers, with the rate remaining at 6%.  We are also keeping an eye out for any commentary surrounding Sunday’s Italian reform referendum, with Prime Minister Matteo Renzi having stated that he will resign if his reforms are rejected.

Boot Camp

The squaddies are all assembled on the parade ground for their first day of army boot camp. They hear him before they see him. The Sergeant Major is marching briskly towards them and they are called to attention. Some are very neat and others have no real idea what that means, so the group looks shabby.

As he stands to attention himself at the front of the group the Sergeant Major clears his throat before saying, “Right. You bunch of waters are my property now and I will make you into soldiers or kick you out of my army. Now, does anyone here think they could beat me in a fight?”

A hand is raised by a 6’6” 18 stone mountain of a man. He says, “Yes Sir, I think I could do that”.

“Come here then and stand there,” says the Sergeant Major, as he points to the spot next to him.

As the huge squaddie takes his place at the front of the group., the Major says, “Ok, so this man is my new assistant. Does anyone think they can beat us both?”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 10:00 EU: Consumer Price Index Flash Estimate 0.5% 0.6%
EUR 10:00 EU: Core Consumer Price Index Flash Estimate 0.8% 0.8%
EUR 12:30 European Central Bank President Draghi speaks    
USD 13:15 US: Automatic Data Processing Non-Farm Employment Change  147k 161k
CAD 13:30 Canada: Gross Domestic Product  0.2% 0.1%
CAD 13:30 Canada:Raw Materials Price Index -0.1% 3.2%
USD 13:30 US: Core Personal Consumption Expenditures Price Index 0.1% 0.1%
USD 13:30 US: Personal Spending 0.5% 0.5%
USD 15:00 US: Pending Home Sales 1.5% 0.3%
USD 19:00 US: Beige Book    
Daily Currency Analysis by Chris Verdet

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