US GDP: Big and beautiful

          “There was a wave of financial market optimism surrounding President Trump's election given what his proposals might mean for economic activity. Tax reform, infrastructure spending and the cutting of red tape led many, Trump included, to predict the US economy was about to enter a new period of more vibrant growth. 3% would be the new norm rather than the anaemic 2% that Americans had become used to in the wake of the global financial crisis.”

           “However, as Trump has subsequently found, getting promises through is not always as easy as it first seems - even if the party you represent has a majority in both Congress and the House of Representatives. Consequently, those growth expectations have since been paired back and have not been helped by the economic loss and disruption caused by hurricanes Harvey and Irma in August and September.”

           “The subsequent data has actually been better than expected so after a decent 1Q GDP outcome and a strong 3.1% reading for 2Q we are hopeful of another healthy figure for 3Q on Friday. Business surveys are strong with the ISM manufacturing and non manufacturing headline figures at 13- and 12-year highs respectively, unemployment at a 16-year low, wages picking up and confidence high. Consequently we are looking for 2.9% growth.”

           “This is a touch above the 2.5% consensus forecast and is also a little above the 2.7% "now cast" calculated by the Atlanta Federal Reserve, which mirrors key data releases used by the Bureau of Economic Analysis to calculate the official data. While we acknowledge the potential for hurricane effects to have perhaps depressed activity in Texas and Florida more than we have estimated, we think there is the potential for upside from inventories. Inventories were aggressively run down in 1H17, meaning that they subtracted from growth. We expect to see a rebound with companies keen to replenish stocks in 3Q, which should boost growth.”

            “As for 4Q, well it looks as though the economy has started the quarter strongly. We are currently forecasting growth of around 2.8% with post hurricane rebuilding and people replacing lost items due to the storms helping to add to growth for what is economy that already looks in good shape. This strong growth story should mean that spare capacity in the economy continues to shrink, which should see inflation pressures build.”

            “Wages are also rising and imported inflation is being pushed up by the dollar's decline since the start of the year while rising oil prices will also contribute to higher inflation readings. With growth looking firm, inflation likely to rise and Federal Reserve officials broadening out the reasons for why higher interest rates much be required (financial stability risks, asset valuations and loose financial conditions) we think next week's FOMC statement will underline the strong case for a December interest rate rise.”

BoE: Change in expectations

           “As recently as this summer, many forecasters were anticipating that interest rates would be on hold until 2019.  Currently the market is around 80% priced for a 25bps rate hike on November 2 and the latest Bloomberg survey suggests that more than three quarters of analysts now expect the BoE to raise rates at its November meeting, up from around one in five in September.  This sharp swing in expectations is almost entirely the result of the step up in hawkish rhetoric proffered by the MPC rather than a response to UK economic data.  Indeed, while UK CPI inflation has edged up to 3%, activity series are showing signs of weakening.”

             “The implication is that for many forecasters, the expectations of a rate rise on November 2 is not necessarily consistent with what they think the Bank should do, but rather what the MPC now looks likely to do.  To protect its credibility, we do now expect that the Bank will hike rates in November.  However, due to weakness in recent economic data, we anticipate that the Bank will not be able to follow on with another move for some time.  The dovish hike scenario suggests that upside potential for the pound on a policy move in November is likely to be limited.”

STOCK MARKET SAFE TRADING: Today NIFTY and BANKNIFTY

STOCK MARKET SAFE TRADING: Today NIFTY and BANKNIFTY: NIFTY intraday BUY at CMP 10275 SL 10247 TGT 10305 NIFTY 10100 PE NOV Buy at CMP 71 SL 39 TGT 180 ( positional )





NIFTY TGT HITS at 10305

EUR/USD Return above the 1.1848-1.1858

          “The weak daily volatility should indeed prevent the cross from rallying too much and we rather see a decline to important supports at 1.1693-1.1705 (weekly Bollinger moving average).”

           “Caution will be in order as a break below these thresholds would affect the upside parallels still in place on the weekly chart, providing fresh bearish momentum to 1.1619-1.1630 (May 16 high), to 1.1480-1.15 and even to 1.1350 (9-month moving average). The resistances are at 1.1788-1.1805, at 1.1848-1.1858, at 1.1882-1.1896, at 1.1956 and at 1.2070.”

INDIAN Economy is expected to gain traction

          “The demonetisation program and the recently-implemented GST legislation were disruptive factors. They, nevertheless, do not account for the slowdown in its entirety. The Indian economy enjoyed windfall gains through lower oil prices, the effect of which has largely been eroded. Looking ahead, the economy is expected to gain traction as the impact of disruptive factors fades away. A focus on supply-side reforms will likely yield better results than pursing aggressive policies to lift demand.”

• An improvement in activity is expected over the coming quarters.
• With the temporary factors such as demonetisation and GST implementation challenges expected to recede, the Indian economy should gain momentum. Econometric modelling by NAB Economics using a leading indicator approach suggests that industrial production activity is expected to expand by 6.2% yoy in the March quarter, 2018. In that regard, the recently released August 2017 results are encouraging. NAB Economics is forecasting a 6.8% outcome for real GDP in 2017, rising to 7.4% in 2018.
• To ensure a durable recovery, supply side factors should be the primary focus. Speeding up project clearances, simplifying the taxation (including GST) regime, improving the ease of doing business – including cutting red tape, and continued progress in addressing banking sector stress will help bolster the country’s growth potential. A focus on demandboosting policies could ignite inflationary pressures, which might have to be curbed through interest rate rises, rendering them less effective.”