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Investors Eagerly Await Powell's Speech

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Ahead of a crucial global economic summit with the Group of 20 (G-20) countries in Buenos Aires, Argentina this Friday and Saturday, we see a key revision to domestic growth, or shall I say a “non”-revision: 3.5% U.S. Gross Domestic Product (GDP) for Q3 was in line with the initial read. Personal Consumption Expenditures (PCE) dipped a bit, 3.6% from the 3.9% consensus estimate, but this was offset with upwardly revised business investment.

The GDP Price Index was also in-line at 1.7%, while the Core Index quarter over quarter reached 1.5%. While we see non-residential fixed investment (business) revised higher, these numbers are still trending down over the past several quarters. Still, a 3.5% headline is nothing to sneeze at, especially seeing we are on pace for the biggest year of GDP growth since 2014, and potentially the first time we see three consecutive quarters of 3%+ growth since before the Great Recession a decade ago.

In order to get to 3% overall for 2018 — which we won’t know until early next year — we’ll need Q4 GDP growth to come in at at least +3.1%. At first glance this would look easy, following 4.2% and 3.5% in the past two quarters, respectively, but worries about tariffs and a trade war between the U.S. and China may have pulled some of this Q3 GDP growth from Q4. Even still, it would be very hard to argue the domestic economy is not performing well historically.

Getting back to the G-20 a moment, the most highly anticipated meeting will be between President Trump and China’s President Xi. While it should not be expected the two men will be able to put to rest their myriad beefs on the trade and Intellectual Property over a short weekend, any positive sentiment that may emerge could well be taken as a green light to start buying stocks again, after two months of struggling market indexes.

At noon Eastern today, Fed Chair Jerome Powell will be speaking in New York regarding the state of the U.S. economy. This comes prior to not only the G-20 in South America but next months Federal Reserve meeting, where odds are still very good the committee will raise interest rates another 25 basis points, to a range of 2.25-2.50%. Parsing through Powell’s language today will resemble analysts reading tea leaves about what’s to come regarding interest rate policy in December and into 2019.

Trump, for his part, has seemingly wasted no opportunity to bash his hand-picked successor to Fed Chair Janet Yellen, who served over much of the Obama administration. Yesterday, the president said he’s “not even a little bit happy” with his appointment of Powell, suggesting the Fed is “way off base with what they’re doing.” Presumably, the continuation of ratcheting up interest rates is what’s gotten under his skin, and that is not expected to abide with the next Fed meeting.

Yet index futures are up in today’s pre-market. One may conclude investors are expecting positive words coming from Powell’s speech today. What analysts will be listening for is a dovish stance on future interest rate hikes post-December. Formerly, two or three new quarter-point hikes for 2019 was considered likely; today, any suggestions Powell makes toward lowering that total will likely be applauded by the market, if not the president.

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