The American economy moved into a higher gear last quarter, as the Bureau of Economic Analysis reported that real gross domestic product increased at an annual rate of 2.9% in the third quarter of 2016 beating the market expectation by 0.4%. This was a huge improvement compared to the first and second quarter figures which came out worse than market expectation. This stronger-than-expected economic growth smooths the path for the U.S. to signal a December interest rate hike when it meets on November 2nd. Looking at the Fed Funds , they are pricing at an 85% chance of a rate hike increases the odds of an actual hike in December. However, this Friday's non-farm jobs report is going to be another key factor for the Fed to make a decision.
In the UK, Q3 prelim GDP was reported at 0.5% beating the market expectation of 0.3%. This comes as British goods are cheaper around the world than ever with the GBP/USD hit its lowest level of 1.20360 in almost half a century. This happened following the Prime Minister's comments on October 5th to invoke the article 50 in early March next year.
Eurozone experienced a relatively good month with figures coming out slightly better than market expectation. Manufacturing and Services PMI for France were reported at 51.3 and 52.1, unemployment rate in Spain fell from 19.3% to 18.9%, and German CPI came at 0.2% beating market expectation by 0.1%. However, during his speech on October 26, Mr. Draghi made it very clear that the program will continue until the ECB reaches its target of 2%.
In Japan, BOJ kept rates at -0.10% on their October 31st meeting. Japan's economy is likely to continue growing at a pace above its potential through the projection period -- that is, though fiscal 2018 -- on the back of highly accommodative financial conditions and the effects of the government's large-scale stimulus measures. Concerns about high demand for JPY through the US election still remains in place, but BOJ made it clear in their meeting that they will step in at any point they think it is necessary.
Oil prices remain vulnerable to a potential failure of OPEC implementing a plan to curb outputs in their meeting later this month. Analysts predict that a coordinated deal to limit oil production is looking increasingly unlikely as several OPEC nations are also lobbying to be exempt from the accord, including Iraq which said last week it will need to keep pumping at current levels to fund its war against Islamic State. They also expect Iran, Libya and Nigeria to be exempt from a production freeze or cut, as those countries currently are seeking to ramp up output after years of disruptions due to sanctions and militant attacks. Another threat to derail the agreement is the lack of clear commitment from Russia, which is the world’s largest non-OPEC producer.