US GDP and jobless claims in focus today

Good morning,

• Fed statement continues to weigh on sentiment;

• Improvement in eurozone data overlooked;

• US GDP and jobless claims in focus today.

While the Fed ending its quantitative easing program may be yesterday’s news, the prospect of a rate hike in the US is continuing to weigh on sentiment ahead of the open on Thursday.

Given some of the comments we’ve had from certain Fed officials recently, I think a lot of people were expecting the Fed’s statement to be a lot more dovish than it was and therefore, the Fed took us somewhat by surprise. Of course, the Fed maintained its commitment to keep rates low for a considerable amount of time but this is still a very subjective period.

When accompanied by comments referring to the strength of the economy, the improved economic outlook, an improving labour market and no inflation concerns, it’s only natural that investors bring forward their rate hike expectations to the near end of the range. I’d say most people were expecting the first hike to come between June and September and I imagine many of those will now be saying June, at the latest.

In reality, this is only a marginal adjustment and therefore I expect the reaction to it to be temporary. If we see some strong US data and earnings today, for example, I wouldn’t be surprised to see the indices reverse their losses and turn back into the green. The eurozone data has not quite done the job this morning, despite German unemployment falling by 22,000 and all the confidence surveys improving in October. This is a little surprising but I guess German unemployment is not a real concern in the eurozone right now and the improvement in the surveys shouldn’t be too shocking given the improvement we saw in the PMI readings last week.

From a German and eurozone perspective, of greater importance will be the preliminary inflation readings for October. The deflation threat in the eurozone is a massive concern right now and while it may be understandable to be seeing this in some of the peripheral countries because of the austerity, the fact that we’re seeing low inflation in Germany suggests there’s something to be concerned about. If we see a pickup in inflation in Germany in the coming months, it may allay some fears of deflation in the region. This should be helped by the weakness in the euro with it now down around 10% since May.

The first reading of US GDP for the third quarter will be released ahead of the US open. Everyone has been aware that it has been a good quarter for the country as it continues its strong economic recovery and the data today is expected to show this. The country is expected to have grown 3% on an annualised basis in the three months to the end of September which is very impressive growth and the kind only the UK can also boast, with the eurozone stagnating and many others slowing.

Shortly after we’ll get the latest jobless claims reading, which is expected to be in line with last week’s reading of 283,000. These figures have been getting better and better recently, falling to a 14 and a half year low a couple of weeks, while continuing claims at their lowest since the financial crisis began.

The S&P is expected to open 14 points lower, the Dow 58 points lower and the Nasdaq 35 points lower.