Q3 GDP Growth Expected to Accelerate

Long-end of the curve reverses yesterday’s action. Swap rates and UST yields were little changed on the short end of the curve today, but the long end rose as much as 13bps. The 10y yield closed at 4.96% and is back near 5% after a recent dip to 4.82%, a strong climb from the monthly low of 4.57%. Meanwhile, tomorrow’s expected shifts in GDP and QoQ PCE could produce volatile market activity, while Friday PCE, personal income, and personal spending will be under the microscope as well. 

US GDP expected to grow at fastest pace since 2021. Q3 GDP figures will be released tomorrow, which are expected to show annualized growth of 4.5%, more than double last quarter’s figures and the fastest pace since the end of 2021 when the economy was recovering from the pandemic. The rapid growth is expected to be driven by summer travel and entertainment spending, a narrower trade deficit and inventory buildups. These are items that are generally expected to be temporary, as noted by the senior US economist at BNP Paribas, and 4Q growth is expected to dampen.

PCE ahead. While Friday’s PCE is expected to produce mixed output, tomorrow’s QoQ core figure is expected to plummet from 2Q 2023. The forecasted decline from 3.7% to 2.5% would be welcomed by the Fed after recent CPI and PPI were above expectations, of which concerns have been compounded by the Middle East conflict. Meanwhile, core MoM and YoY data should be mixed, while both headline MoM and YoY figures are expected to decline 0.1% from September.