Stocks rose in early trade in Europe as they continue to mark time following a so-so session on Wall Street left the major averages barely changed. Shares in Hong Kong rose 2 per cent after reopening following the 5-day weekend, helping to lift Asian shares outside Japan to a new 7-month high. The market is still hopeful the Federal Reserve will slow and stop in the next two meetings but are geared to be disappointed too – GDP data today will help shape that opinion further.
US GDP today – expectations for fourth quarter growth have moved around a fair bit, with notable weakness in retail sales and industrial production last week suggesting the US economy rather limped over the finish line in 2022.
The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2022 is 3.5 per cent. Market estimates are for a weaker sub 2 per cent level of growth. Although the data is, by definition, backward looking, the extent to which Q4 growth holds up will be an important lens through which to look at current forecasts for the coming quarters. It’s also important to remember from a trading perspective that we appear to have moved into a bad news is bad news period. Essentially this is all about soft landing vs hard landing narrative for the market.
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Global liquidity is being helped by the Bank of Japan, which may explain something of the rally we have seen this year. Financial conditions are loosening as inflation recedes. The BBG Financial Conditions Index is now back to where it was in February 2022, when the fed funds rate was 0. Here’s the Chicago Fed financial conditions index set against CPI inflation.
Neil Wilson is the Chief Market Analyst at Finalto
