Thursday, November 7, 2013
The rate cut from the European Central Bank and the positive U.S.
GDP report on the home front add to the day's much anticipated
debut of the
stock. The ECB rate cut wasn't entirely unexpected, particularly
following recent soft inflation readings and the long-held desire
in the peripheral economies for easier monetary policy. But
Germany was long opposed to the move and that's the reason why
today's announcement took many by surprise.
On this side of the pond,
) mania has overtaken everything else today, including the U.S.
GDP report. The excitement for Twitter and the overall momentum
in the IPO market is part of the all-around favorable sentiment
that has pushed stocks into record territory. The performance of
social-media stocks like
) has been even more eye-popping. The hefty valuation multiples
with which the
has been priced reflect the hopes of many that the stock will
soon be joining the social-media party. But irrespective of how
the stock eventually does, there is no doubt that the company's
backers and bankers chose an excellent time for taking it public.
In more mundane matters, the first read on Q3 GDP came in better
than expected, with the economy growing at +2.8% pace instead of
the +2% consensus estimate and the final +2.5% growth pace in
The 'headline' positive surprise notwithstanding, the report's
internals aren't that exciting, with personal consumption
expenditures or consumer spending increasing at +1.5%, lower than
Q2's +1.8% growth pace. Inventories and net exports were bigger
contributors to growth compared to Q2, while non-residential
fixed investments grew at a lower (+1.6%) pace than was the case
in Q2 (+4.7%). Residential investments increased at a healthy
+14.6% pace in Q3, modestly accelerating from Q2's +14.2% pace.
Government spending was modestly better relative to Q2, with
federal government outlays declining at a roughly equivalent pace
to Q2 and state & local governments doing better.
Estimates for GDP growth in Q4 have come down, reflecting the
transitory effects of government shutdown at the start of the
period. But many are hoping that the GDP growth pace ramps up to
+3% and higher next year. This growth outlook underpins the
'Taper' talk. As long as the economy is moving in that direction,
which it is at present, then we should expect the Fed to move
towards pulling back on the QE program.
The announcement may not come in the December meeting, but
there is little doubt that the Fed is itching to get out of the
QE business as soon as possible. But let's not dwell on boring
matters like Taper and QE and join the Twitter party, at least
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