The major indexes are on track to for a weak open, with heightened geopolitical tension superceding the positive revision to the Q3 GDP growth pace.
The Middle East is a complicated region in the best of the times and it has become even more so with the rise of ISIS and the entry of Russia in the Syrian civil war on the side of the Syrian regime opposed by the US and its allies. The downing of a Russian fighter plane by Turkey, a NATO member, on that country’s border with Syria is guaranteed to further complicate the situation.
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Alliances and relationships in the region were already in flux following the Paris attacks, with France cozying up to Russia to offer a credible response to the attacks. With the Russian president calling the jet downing as ‘a stab in the back,’ it will take some serious diplomacy to keep a united anti-ISIS coalition cobbled together. The rise in oil and gold prices today are reflecting this spike in geopolitical risks.
The Q3 GDP read was revised higher in the second look to +2.1% from the original +1.5% growth pace, which follows the +3.9% growth rate in the second quarter of the year. A big part of the deceleration from the second quarter was a result of lower inventory spending, though the pace of growth in other measures like consumer and business spending and net exports also decelerated.
This morning’s positive revision primarily reflects less drag from inventories as originally estimated, with most of the other measures largely remaining unchanged. Consumer spending was a tad bit lower relative to the original estimate, but still remains decent at +3% in Q3 vs. +3.6% in Q2.
All in all, what this report reconfirms is that the going pace for the US economy is about +2%, which many have started calling as the economy’s new norm. With the Fed widely expected to go for lift-off at next month’s meeting, some will justifiably wonder if even this lower growth pace will remain in the face of a Fed tightening cycle.
In corporate news, we saw positive earnings reports from Campbell Soup (CPB) and weak results from Tiffany (TIF). Xerox (XRX) shares are getting a boost from Carl Icahn’s stake in the company, with the activist investor calling the stock undervalued.