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US Session: US Q3 GDP Beats Forecasts, Boosts Risk Appetite

The day’s trading has been dominated by the US Q3 GDP release which convincingly beat expectations with a 3.5% annualized pace of growth vs. expectations for 3.2% (-0.7% last). At first, FX markets seemed tentative in pushing EURUSD higher, but European indices quickly turned positive on the day and US stock markets opened higher, which gave the green light for risk-correlated assets to rally. Commodity currencies (the hardest hit over the last couple of days) and EURUSD were initially the main beneficiaries of the uptick in risk sentiment, but GBPUSD then burst through stops above 1.6484 resistance, flying from 1.6490 to 1.6580 in a matter of seconds, going on to touch a high of 1.6604. EURGBP was whip-lashed from 0.8940 to 0.8985 immediately after the release then down to 0.8910 as GBP surged. In unison with the move in EURUSD and improved global outlook, commodities have recovered broadly, with gold rallying back ABOVE $1045 and crude oil managing to regain $80 levels.

The growth in Q3 does indeed look encouraging, but should of course be viewed with the disclaimer that gains have been made under the glow of the fiscal stimulus package, and many of these measures cannot be relied upon going forward. Nevertheless, the number should be viewed as a positive step for the global recovery and we believe will sustain risk appetite in the coming weeks. Although overshadowed by the GDP number, we also saw the latest US jobless claims data which highlighted a greater than expected drop in continuing claims, and a modest downtick in initial claims from last week. With unemployment standing at 9.8% these numbers will have done little to change the market view of the labour market, but next week we can look forward to the more significant ADP Report and Non-Farm Payrolls.

The earlier events of the day included Norway Retail Sales (Sep) which posted a dreadful -1.1% figure MoM against expectations for a 0.4% rise. The 0.3% figure from the prior month was also revised down to 0.1%, but NOK managed to hold its ground well around 5.7000 levels and has been one of the biggest beneficiaries of risk appetite this afternoon; USDNOK currently 5.6300. The other major release of the morning, Eurozone Consumer Confidence (Oct), was exactly in line with forecasts at -18 (slightly better than last month’s -19), but had no effect on the FX markets.

Coming up on Friday we will have a slew of data out of Japan including CPI, Unemployment Rate and the BoJ Rate Meeting, but as usual it seems unlikely that the Japanese data will affect JPY significantly. More influential will be the statement and rhetoric following the BoJ meeting that could refer to the currency’s strength; however given that JPY has weakened from its levels earlier in the month we feel the chances of strong verbal intervention are lower. In the European session, focus will be on Eurozone CPI and Unemployment, whilst the US session highlights include Canadian GDP, US PCE, Chicago PMI and U.Mich. Consumer Confidence.

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