S&P 500: The hold above the bullish trend line from March on Wednesday and Thursday white engulfing pattern suggests that underlying support could now be returning to the index. With momentum having corrected back from overbought levels this tentatively sets the foundations for another rally coming through in the near term.

Despite the quick return of risk appetite yesterday the concerns the markets expressed over the past few days should not be so quickly ignored. The key word going forward is “sustainability”. One of the reasons that the market’s response was so positive to US Q3 GDP is the likelihood that robust growth can be sustained going forward. As we have highlighted many times before inventories remain a key component to monitor. Within the GDP data inventories only contributed 0.9% points to growth with inventories overall falling a further $131bn during Q3. However, as long as private demand can be moderately maintained then over the coming quarter’s inventories are likely to make a greater contribution to growth as the destocking reverses. It would seem that the downgrade to US growth forecast announced by Goldman Sachs on Wednesday to 2.7% versus their previous outlook of 3% arguably was somewhat pre-mature. Indeed, other institutional houses have announced upgrades to their US growth forecast for the next four quarters, after yesterday’s figures.

The US growth data places the poor state of the UK economy in context. Less than a week ago the UK reported that within Q3 its economy contracted 0.4%. As it currently stands the UK is the only major economy that remains in recession, apart from Italy who has not yet announced their Q3 GDP data. Looking forward to next week MPC meeting the expectations continue to rise that further quantitative easing will be announced and in some quarters the amount being talked about is £50bn.

Today market activity could be impacted by the end of the month rebalancing. On the economic data front there will be considerable interest in Chicago PMI given the release on Monday of the ISM report.

Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:

Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.