Market 12/21: Q3/2023 GDP revised down while government spending increases

Market recovers after strong sell-off at the end of yesterday's session

In the afternoon trading session on 12/20, S&P 500 erased the past 5 days of gains in less than 2 hours.

• ~$600 billion market cap evaporates from the market

S&P also just ended its 10-day rally as investor sentiment reached extreme greed.

Morning trading session on 12/21 shows broad recovery across stock groups

Q3 GDP and personal consumption sharply revised down as core PCE falls to 2% - while government spending increases.

• Q3 GDP officially revised down from +5.2% to +4.9% QoQ.

• Core PCE falls from +2.3% to +2.0% QoQ:

The increase in Q3 GDP mainly reflects increases in consumer spending and investment in inventories.

• Imports, which are a subtraction in GDP calculation, also increased

Value added by industries:

• Private goods-producing industries up +10.2%,

• Private services-producing industries up +4.1%,

• Government spending up +2.0%.

• Consumption still accounts for the highest proportion in GDP components: 68.7%

  

• However, government consumption increased more than previously estimated, while actual personal consumption increased less than previous data.

  • Government spending has increased faster than consumer spending over the past 5 quarters — the fastest growth rate since the surge in Q2/2020.

Price data much weaker than previously reported:

• GDP Price Deflator +3.3% Q/Q, down from 3.6% Q/Q previously

• PCE Price Index +2.6% Q/Q, down from 2.8% Q/Q previously

• Core PCE Deflator +2.0% Q/Q, down from 2.3% Q/Q previously

Initial jobless claims continue at low levels while continued claims at 2-year high

Initial jobless claims rise from +203,000 last week to +205,000 this week — still around the lowest level of the year.

California and Georgia saw the sharpest drops in initial claims while claims in Ohio surged.

Continuing claims unchanged: steady at 1.865 million - the highest since 2021.

• However, after seasonal adjustment, the latest 4-week average also fell significantly.

Philly Fed Survey: New orders plummet as prices paid surge

The latest Philly Fed survey shows regional manufacturing activity continued to decline in December to the level of -10.5 (down from -5.9 in November).

• This is the 17th monthly decline in the past 19 months.

• New orders fell sharply (down from +1.3 to -25.6)

• Prices paid rose rapidly (over 33% of businesses reported higher input prices, while 8% reported decreases)

• Employment also fell into contraction territory

Conference Board's Leading Economic Index fell 0.5% M/M in November, equivalent to -7.6% Y/Y.

Other news

1. Chinese warship in Red Sea refuses to assist Israeli cargo ship at Bab Al-Mandab and ignores their distress call

2. China's renminbi has surpassed the Japanese yen to take 4th place in global payments.

   • In November, China's currency overtook the euro, becoming the 2nd most used currency in trade payments.

3. Angola's oil minister announces the country's exit from OPEC.

   

   • Oil prices — which had surged in recent days due to concerns over prolonged congestion in the Red Sea — fell sharply and returned to Tuesday's levels.

4. UK and Switzerland sign agreement on mutual recognition of laws and regulations in financial services, facilitating businesses.

5. Warner Bros. and Paramount in talks over a merger deal

• David Zaslav, CEO of Warner Bros. Discovery Inc., met Bob Bakish, his counterpart at Paramount Global, for preliminary discussions

• No formal discussions or decisions have been made yet.

• Market cap: $WBD $28 billion, $PARA $10 billion.

6. China bans export of certain rare earth processing technologies, intensifying competition with the US and other Western countries for global strategic raw material supplies.