The focus of many investors was on the share market gyrations which were taking place in US, Europe and Asia and, as ANZ put it, not on the upcoming GDP data. The US Commerce Department has now released third quarter (Q3) 2018 “advance” GDP estimates on Friday night Australian time and they indicate the US economy grew at an annualised growth rate of 3.5%. This estimate is the first of four estimates and subject to three more revisions over the next two months.
The growth figure was above the 3.3% median of market estimates but below the revised second quarter figure of 4.2%. ANZ senior economist Cherelle Murphy was sceptical of the sustainability of the growth rate past the short-term. “Overall, the numbers indicate the economy continues to be supported by the sugar hit from the tax cuts and fiscal stimulus, but the effects from this may be short-lived, given the easing in investment.”
Reactions in various financial markets was clouded by a preference for low risk assets as equity markets were sold off. 2-year and 10-year bond yields each fell 5bps to 2.80% and 3.07% respectively while 30 year bond yields lost 3bps to 3.31%. The USD was a little weaker against the euro and sterling but 0.55 lower against the yen. In cash futures markets, the likelihood of a fourth rise of the federal funds rate for the year dropped back from 77% to 70%, the minimum-required level historically consistent with action from the US central bank.
