WSJ: Behind U.S. GDP Growth Data

The Wall Street Journal reports,"Gross domestic product, the broadest measure of goods and services produced across the economy, grew at an annual rate of 2.8% in the July-through-September period, the Commerce Department said Thursday. That followed 2.5% growth in the second quarter and marked the fastest rate of growth in a year.
The report offered a snapshot of the nation's economic health in the months leading into the 16-day partial government shutdown that began Oct. 1. The higher growth mainly reflected companies' moves to replenish inventories and a pickup in spending by state and local governments".
"But those developments masked worrisome trends—namely, weaker overall spending by consumers and companies' cutting back on equipment purchases. Those could be signs Americans and businesses lost confidence as mortgage rates rose and the prospect of a shutdown and debt-ceiling crisis loomed.

Consumer spending, which accounts for more than two-thirds of GDP, grew at a paltry 1.5%, matching the slowest pace of growth in more than 3½ years. While consumers stepped up spending on long-lasting items such as cars, they slowed spending on services.

Overall investment across the economy grew 9.5% after rising 9.2% in the second quarter, largely reflecting strength in the housing sector. However, business spending on nonresidential equipment—a key measure of companies' willingness to invest—fell for only the second time since the recovery began more than four years ago. The 3.7% drop is a sign companies may have become skittish as political battles over the federal budget and debt ceiling loomed.

Meantime, exports grew 4.5%, after rising 8.0% in the second quarter.

The latest data point to an economy growing at roughly the same subpar pace that has plagued the recovery, now in its fifth year. Many economists had predicted growth would accelerate in the second half of the year as the effects of tax increases and federal spending cuts eased. That now appears increasingly unlikely".

BANK OF ENGLAND LEAVES QE AND INTEREST RATES UNCHANGED

The Bank of England's (BoE) Monetary Policy Committee (MPC) has announced it will keep its monetary policy unchanged after its meeting Thursday. 

The central bank held interest rates at 0.50% and its quantitative easing programme at £375bn.

The decision was widely expected by economists including IHS Global Insight's Chief UK & European Economist Howard Archer who said it seems a "stone dead-certainty" that the BoE will maintain its policy.

"Indeed, the markets and analysts will be most likely looking beyond the November MPC meeting and focusing much more on the November Bank of England Quarterly Inflation Report which is released on Wednesday 13th."

That will help to shape markets' expectations ahead of the release of the minutes of today's meeting, on November 20th.

Expectations have built up recently that the monetary authority might be looking to modify its economic forecasts so as to incorporate incoming data, which might imply bringing forward the date for the first hike in the main policy rate from the second half of 2016, as currently envisaged by the BoE.

Also, a minority of observers are watching developments in currency markets, particularly given the possibility that the European Central Bank might soon be forced to modify its own policy guidance, which could lead to a further strengthening in sterling. 

"With the economic recovery proceeding more quickly than the MPC expected, but little pressure on forward guidance's knockouts, today's decision to leave policy unchanged was probably a unanimous one. But next week's Inflation Report could have a material effect on expectations for the future path of interest rates", Capital Economics told clients this morning. 

U.K. Expectations for inflation registered a sharp rise during the month.

The Lloyds Bank consumer confidence barometer improved in October. 

Expectations for both inflation and interest rates in the coming year registered a sharp rise during the month. 

The net balance for expected prices rose by nine points to 76, a seven-month high, while the balance of expected interest rates rose eight points to 46, its highest level since April 2012. 

The index of job prospects edged upwards by two points to -11, its highest level since July 2005, while the job security balance remained steady at -7, which is its highest score since April 2008.

LiveCharts

UK economy grew 0.7% in Q3

UK economic output grew by 0.7 per cent in the three months to the end of October following an expansion of 0.8 per cent in the three months ending in September 2013, according to the latest monthly estimates from the National Institute of Economic and Social Research (NIESR). 

By the think tank's estimates the current level of gross domestic product (GDP) is now 5.6% above the trough of the 2008-9 recession (established in April 2009), but is still 2.3% below its pre-recession peak (reached in January 2008).

Source: LiveChart

UK Financial Conduct Autority Minority Shareholders in large companies will be protected

Minority shareholders in large companies are to be given more powers as the City regulator tightens listing rules in London.

In a move which it hopes will "protect" small investors, the Financial Conduct Authority (FCA) has strengthened its listing rules to give shareholders "additional voting rights and greater influence" over key decisions.

However, the new guidelines have drawn criticism: according to the Financial Times, lawyers in New York have warned that the amendments could hinder new initial public offerings in London.

The FCA is responding to concerns from the investment community over the governance of premium-listed companies with a controlling shareholder. It assured that the voice of minority shareholders will strengthen "without turning minority protection into minority control".

The new rules say that these companies must be run independently of their controlling shareholders, and the appointment of independent directors would have to be voted on by independent shareholders and also minority investors.

The guidelines are aimed at preventing such corporate governance scandals as those seen at mining groups ENRC and Bumi which caused disputes between owners and other stakeholders after controversial transactions.

The new rules will affect listed companies on the main market in London with a market capitalisation of over £700m and a controlling shareholder of 30% or more. It is thought that this will apply to around half of the FTSE 100 index, such as Sports Direct in which founder Mike Ashley controls 61.7%, and AB Foods in which Wittington Properties owns 54%.

David Lawton, the FCA's Director of Markets said that "active engagement" by all shareholders is necessary to ensure markets work well. "By safeguarding minority interests from abuse by controlling shareholders, these changes will promote market integrity and empower minority shareholders to hold the companies they invest in to account," he said.

Source: LiveCharts

UK Industrial Output rose 0.9% M/M during September

UK industrial production rose at a 0.9% month-on-month pace during September, according to data from the Office for National Statistics (ONS). 

The consensus estimate was for an increase of 0.6%. 

Manufacturing output increased at a 1.2% clip over the month (Consensus: 1.1%).

U.S. JOBLESS CLAIMS DOWN TO 336K IN LATEST WEEK

In the week ending November 2, the advance figure for seasonally adjusted initial claims was 336,000, a decrease of 9,000 from the previous week's revised figure of 345,000. The 4-week moving average was 348,250, a decrease of 9,250 from the previous week's revised average of 357,500.

The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending October 26, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 26 was 2,868,000, an increase of 4,000 from the preceding week's revised level of 2,864,000. The 4-week moving average was 2,866,000, a decrease of 8,500 from the preceding week's revised average of 2,874,500.

Source: Trading Economics

US Economy Grew 2.8% in third Quarter, above consensus forecast

US Real GDP Q/Q Growth in Q3 was 2.8%,the consensus estimate was 2.0%

ECB cuts key interest rate to 0.25%, shocking Financial Markets

"The European Central Bank shocked financial markets by cutting its main interest rate to a new record low of 0.25 percent on Thursday, responding aggressively to a slump in inflation way below its target".

"The 23-man Governing Council had faced intense market scrutiny in the run-up to Thursday's decision after a surprise slump in euro zone inflation to 0.7 percent in October - far below the ECB target of just under 2 percent.

But market pricing had largely shown investors backing off bets of an actual cut in rates this early.

"Deflationary risks and the stronger euro seem to have motivated the ECB's move. It is obvious that the ECB under president Draghi has become much more pro-active than under any of his predecessors,said CARSTEN BRZESKI, of ING.

Fed Officials dovish comments propels US markets

The Wall Street Journal reports,"the market was looking pretty dicey on Tuesday morning. But by Wednesday’s closing bell, just about everything had turned around. What changed? Do you really need to ask? It was a double-barreled blast of jawboning from everybody’s favorite central bank, the Federal Reserve.

First, San Francisco Fed president John Williams suggested he wasn’t convinced the jobs market could maintain its position without Fed support. Then a paper from two key Fed economists suggested the bank should extend its commitment to low rates for even longer in order to bring down unemployment. The two dovish messages were definitely received by the market.

The other big thing happening is Twitter’s IPO. The offering is expected to priceWednesday night somewhere between $25-$28 a share, and start trading Thursday".