Third quarter GDP revised higher than expected

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Published Date 11/29/2023

Prior to 8:30 am ET the 10 year note traded at 4.25%, -7 bps from yesterday. At 8:30 am the second look at Q3 GDP that was expected to be unchanged from the advance report at 4.9%, the growth revised higher to 5.2%. The reaction took the wind from the rate markets, by 9 am the 10 year traded -2 bps. Q3 was strong leading the argument that the economy is still robust; the Q3 PCE, Powell’s inflation preference, when food and energy are subtracted inflation in the quarter declined to 2.3%, overall PCE +2.8%.

Weekly MBA mortgage applications last week, being Thanksgiving week, was weaker than the previous week. Overall applications increased 0.3% after increasing 3.0% the week before, purchase applications +4.7% from +3.9%, refinances were the drag, declining 8.9% for the week.

Interest rates have been declining since the end of October on growing belief the Fed and other key central banks are ending the rate increases. Further, a growing belief that the Fed will begin lowering rates at a pace more aggressive than just two weeks ago. Bill Ackman, Pershing Square Capital Management, upped the time frame for the Fed’s fist cut from June to May warning that real interest rates staying high will push the US economy into a hard landing that presently isn’t expected by most analysts. “We’re betting that the Federal Reserve is going to have to cut rates more quickly than people expect,” Ackman commented. “That’s the current macro bet that we have on.” “I think there’s a real risk of a hard landing if the Fed doesn’t start cutting rates pretty soon,” said Ackman, noting that he’s seen evidence of a weakening economy.

It isn’t just Bill Ackman’s view; it is the rapidly increasing view shared by more and more traders and investors. The 10 year note has declined over 70 bps since the end of October. Where we see a big issue coming is with consumer spending, consumer confidence, more use of credit at very high rates and increasing government spending; all loom heavily over markets that so far have chosen to ignore the warnings.

At 9:30 am the DJIA opened +29, NASDAQ +40, S&P +22. 10 year 4.28% -4 bps. FNMA 6.5 30 year coupon at 9:30 am +10 bps from yesterday’s close and +47 bps from 9:30 am yesterday.

This afternoon at 2 pm the Fed’s beige Book, the details from all 12 Fed districts. Usually nothing unforeseen comes from it though.

Tomorrow October inflation with the personal consumption expenditures (PCE); the current estimate, the core month/month +0.2% from +0.3% in Sept, year/year +3.5% from +3.7%. Also tomorrow October personal income month/month +0.2% from +0.3%, personal; spending +0.2% down from +0.7% in Sept. Weekly jobless claims at 219K from 209K the previous week. November Chicago purchasing managers index expected at 45.1 from 44.0 in October. October pending home sales thought to be -2.0% after increasing 1.1% in September.

Technically the 10 year note is at levels suggesting some retracement is possible. The 9 day relative strength index at the lowest since last March.

Source: TBWS

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