The US economy grew more strongly than estimated by markets. For the third quarter, an annual growth rate of 3.5% was posted, whereas the market had expected 3.2%. In the second quarter, economic output contracted by an annual 0.7%. However, as huge contributions to growth came from transitory factors, the strong acceleration of the US economy is no reason for euphoria, in our view. The car purchase incentive program (cash for clunkers) contributed about one percentage point. Almost the same came from inventory changes. The cash for clunkers program has already ended and the positive contribution from inventories shows that the previous downturn was exaggerated, rather than indicating a renewed surge of final demand. So, the good news is that the US has left the recession. At the same time, one should not expect that the pace of growth in 3Q will be upheld going forward. Supporting transitory factors will already have lost their impact, while burdening factors (like an increasing unemployment rate and falling home prices) will persist.
Markets reacted to today’s release with somewhat higher yields, though the fall of the yields during the last few days must also be taken into account. For the dollar, it was the other was around. The US currency fell vs. the euro, after gaining since the beginning of the week. We think that the equity market will again be the main short-term determinant for the bond market and the exchange rate soon.

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