European markets edged higher at Thursday’s open after Federal Reserve Bank of Richmond President Jeffrey Lacker’s pro-stimulus comments more than offset concerns about a US political stalemate which might cause the Government to breach the 1 October 2013 fiscal deadline and risk a government shutdown. However, an hour into trade, an stock markets are giving up tentative gains to trade in the red zone as investors continue to weigh up the fiscal and monetary situation in the US ahead of final Q2 GDP data out of the world’s largest country later this afternoon. Growth in the US was revised higher to 2.5% from 1.7% in the second estimate of GDP; showing a solid upswing in the US with exports climbing during the period at their fastest pace in more than 2 years. We could see a reading of 2.6%, up from 2.5% but since the last release, we have seen a shortfall in certain data like the poor transportation element in durable goods orders and weakness in consumer spending. If, we get a downward revision, the market may end up ruling out tapering for the remainder of 2013 and if we get a stronger revision, it will raise optimism over the US recovery, kicking borrowing rates up which was a cause of concern for the Fed and one of the reasons behind holding back from tapering. As such, investors are now giving up on second guessing the Fed’s next move. We know tapering will happen but we are no wiser of when and neither is the Fed. FOMC may be more unified on policies than before but messages from members are still mixed and contradictory. Closer home, investors await the final reading of the UK second-quarter GDP data that is expected to be revised to show a 0.7% QoQ expansion, from a previous estimate of 0.6% QoQ expansion and compared to a 0.3% QoQ contraction in the previous quarter. These growth figures will remind us of the encouraging progress made by the UK this year but at the same time, undermine the BOE’s forward guidance measure as the market is pricing in a rate hike before the central bank itself. Other data to look out for today include US weekly jobless claims and pending home sales. ________________________________________ Ishaq Siddiqi Market Strategist
Posted on: Thu, 26 Sep 2013 08:10:45 +0000
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