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Turkey Tensions Strain Otherwise Quiet Market   November 23 - November 27
Fri, 27 Nov 02:49 PM EST/07:49 PM GMT
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Trading action was subdued this week as the US Thanksgiving holiday made markets sleepy. New growth and inflation data did nothing to deter the expectation of Fed rate liftoff in December. Global tensions briefly ratcheted up after Turkey shot down a Russian warplane that strayed into its airspace, further complicating the fight against ISIS in Syria. The euro continued to weaken in anticipation of the ECB monetary policy meeting next week where the central bank could expand its QE program and further cut key rates. Chinese stocks fell hard on Friday on a new round of crackdowns on brokerage houses, but stocks outside of China did not react significantly to the news. For the week, the DJIA lost 0.1%, the S&P500 was up less than 0.1%, and the Nasdaq edged up 0.4%.

Two more key pieces of the US monetary policy puzzle dropped this week: GDP and PCE inflation. There were no big surprises in the second reading of Q3 GDP. The main components met expectations, with the q/q annualized rate revised up to 2.1% from 1.5% in the advance reading, although this rate remains well below the final second quarter annualized GDP rate of +3.9%. Analysts chalked up the revision higher to an expansion of the inventory components of the data, offset by lower revisions to domestic spending components. Growth in the November Core PCE reading would have more or less clinched a December rate hike, but Wednesday's flat/lower core reading is a more ambiguous outcome. The y/y reading didn't budge from 1.3%, while the m/m figure was 0.046%, barely missing the rounding bar that would have left it flat. Inflation remains suppressed by lower energy costs, but the Fed has repeated ad nauseam that it will look past lower inflation from lower energy prices.

In other US data, the November Markit Manufacturing PMI index slipped to 52.6 from 54.1 in the prior month, putting the index at its lowest level in two years. According to Markit, domestic demand app ...
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