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Wednesday 25 April 2018

Daily Market Update: The October FOMC meeting is in focus today

David O'Reilly

Economic growth in the UK slowed at a faster than expected rate in the third quarter.

The Office for National Statistics said GDP expanded 0.5% in the three months to September, slowing from 0.7% in the second quarter and worse than forecasts of 0.6% growth. The service sector continued to be the fastest growing part of the UK economy, with an expansion of 0.7%, but both the building and manufacturing sectors suffered contractions. Construction sector output contracted by 2.2%, the biggest fall in three years, while manufacturing output contracted by 0.3% the ONS said. Governor Carney previously said a growth pace of 0.6% would be needed to reduce spare capacity. A growth pace below potential, risks from abroad, FX strength v the EUR and a likely expansion of ECB easing in December could all contribute to a dovish shift from the MPC in the November inflation report.

The rate of growth in the Eurozone's money supply was slower than expected in September, as the pace at which credit was extended to the private sector cooled. The ECB said that Money Supply, as measured by the M3 monetary aggregate, was unchanged from the month before at 4.9% versus 5% expected.

In the US, Durable goods orders decreased by 1.2% last month as expected. Orders for durable goods in August were revised to a drop of 3% from a previously recorded decline of 2.3%. Core durable goods orders, which exclude volatile transportation, items fell 0.4% in September versus expectations of a 0.1% increase. Also released yesterday afternoon was the Conference Board’s consumer confidence index. The index fell to 97.6 in October missing estimates of a reading of 103 and down from September’s reading of 102.6.

The data mentioned above resulted in marginal FX movements on Tuesday. We saw the EUR up very slightly against the pound but down a touch versus the US dollar, while the US dollar was also slightly stronger against the pound.

Overnight ECB executive board member Coeure spoke in Mexico City and said that the ECB may need to take additional measures to help lift inflation, which continues to undershoot the central bank’s expectations.

US Treasury Secretary Lew said the budget and debt‐limit pact announced yesterday is "good for the country" but he reminded Congress there is still a deadline to meet on November 3rd, when the House is expected to vote on the suspension of the debt limit until March 2017.

To the day ahead, the FOMC releases its interest rate decision this evening at 6pm and market consensus is that there will be no change. There is no press conference scheduled and no update to the Fed’s projection for growth or inflation. Market participants currently see the first hike in June 2016 and less than a 50% chance of a rate hike in December. Following the People’s Bank of China (PBOC) lowering rates and clear signals regarding expanding policy easing from the ECB, expectations may be for a dovish FOMC meeting. However with just a post decision FOMC statement released, market participants will need to wait until commentary from FOMC officials or the minutes, which are released on November 18th, for further insight.

In Europe, Germany specifically, the GfK consumer confidence survey was released at 7am and came in at 9.4 as expected but down from the previous 9.6. Closer to home, the CSO release the Irish retail sales index and residential property price index at 11am

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