Outlook for Friday 8217 s US Q3 GDP reading

After the better-than-expected first reading of the third quarter UK GDP, investors will now be focussing towards the US GDP announcement on Friday. In comparison to the UK, which suffered a quarter-on-quarter fall, growth is expected to have picked up in the US from the 1.7% attained in the second quarter to 2% in the third quarter. Most of the pickup is expected to come through recent bullish activity in consumer spending, which accounts for 70% of US economic activity.

The timing of the GDP reading could be crucial in giving the market its final clue as to the scale of the expected second round of quantitative easing that’s likely to follow the meeting of the Fed next week.

If US GDP rises more than the 2% expected, it could convince the Fed to inject a conservative amount of stimulus into the financial markets on the belief that growth is stronger than previously estimated. This could disappoint investors who had hoped for a large stimulus plan and force equities lower.

On the flip side however, a weaker reading could conversely be beneficial for stocks as it may force the Fed to be more flexible and announce asset purchases towards the top end of expectations to help maintain the US economic recovery.

The US dollar could also be a particularly interesting market to keep an eye out for on the back of the GDP reading. The greenback currency has been severely weak of late, with the US Dollar Index falling as much as 14% since June and hitting a new 10-month low in the process. Most of this weakness has been triggered by a market convinced that the Federal Reserve will soon announce a wide scale of further asset purchases. Therefore, expect some volatile moves in the US dollar, particularly if GDP surprises to the upside.

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