US GDP and Talk of Chinese Stimulus Boost Risk Sentiment

Stocks advanced while Treasury yields and swap rates traded marginally higher off the back of a bounce in oil and a stronger-than-expected reading of Q3 GDP.  The Commerce Department’s third estimate of Q3 GDP showed consumer and business spending helped the US economy grow 2.0% QoQ, down from the 2.1% prior reading, but ahead of the 1.9% economists were expecting.  Weak net exports due to slow growth overseas and a strong dollar continued to weigh on US growth.  While the headline 2.0% growth number is a sharp decline from the 3.9% pace in the second quarter, the number is steady and consistent with the Fed’s long-run targets.  The first estimate of Q4 GDP is due January 29th.

Other US data showed existing home sales experienced a 10.5% decline in November, the largest drop in five years.  An economist from the National Association of Realtors placed blame for the decline on new regulations that came into effect in October.  The change is supposed to simplify the paperwork for purchasing a home, but lenders and closing companies may have been cautious about using the new forms.  A rise in home prices and less inventory may have also added to the decline.

Emerging markets and oil prices received a boost after China’s leaders expressed a willingness to do more to help support growth for the world’s second largest economy.  Chinese officials signaled they will widen the deficit and stimulate the housing market in order to boost growth.  They also pledged to be more “flexible” with regard to monetary policy and structural reforms.