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Weekly Economic & Financial Commentary: Taper the Paper

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Fundamental analysis of Forex market

Summary

United States: Supply and Demand Tug of War Is at the Forefront After a Mixed Week of Data

  • Lingering supply chain issues, rising prices and still-strong consumer demand continues to make its way into economic data. The week began on a positive note, including strong new home sales growth, the first gain in consumer confidence in three months, and robust personal spending data. On Thursday, however, third quarter GDP growth was only 2.0%, as the growing trade deficit proved to be a drag on growth. Goods spending fell 9.2% in the third quarter as the PCE deflator rose to its 4.4% year-over-year, its highest rate in over 30 years.
  • Next week: ISM Manufacturing (Monday), ISM Services (Wednesday), Employment (Friday)

International: Hawkish Undertones for BoC, BCB and ECB

  • The Bank of Canada (BoC) struck a more hawkish tone than expected at its October meeting, ending its quantitative easing program and signaling rate hikes could come sooner than previously expected. The Central Bank of Brazil (BCB) raised its Selic rate 150 bps to 7.75%. The European Central Bank (ECB) kept monetary policy unchanged at its October meeting, with comments from President Lagarde reasonably balanced, but with a mildly hawkish bent.
  • Next week: China PMIs (Sunday), Bank of England (Thursday), Canada Employment (Friday)

Interest Rate Watch: Taper the Paper

  • Next Wednesday, the FOMC will conclude its regularly scheduled two-day meeting, and we expect the central bank to use this opportunity to announce a tapering of its asset purchases. More specifically, we think the Fed will begin reducing its Treasury security and mortgage-backed security (MBS) purchases by $10B and $5B per month, respectively, starting in December.

Topic of the Week: World Series: Atlanta vs. Houston

  • The 117th edition of Major League Baseball’s World Series got under way this week. The best-of-seven annual championship series between the Atlanta Braves and Houston Astros began on October 26. Both Atlanta and Houston have rapidly expanding metro areas. While Atlanta is a key logistics hub for the Southeast as well as a vital node in the global supply chain, Houston is a global hub of the energy sector.

Full report here.