US Q2 GDP meets expectations, markets take the report in stride
Matt Weller, CFA, CMT July 27, 2018 9:05 AM
In a Presidency marked by violating norms, President Trump’s comments talking up today’s US Q2 Advance GDP report were hardly surprising. During a rally at a steel plant in Illinois, the President noted that,
“Somebody actually predicted today 5.3 [percent growth]. I don’t think that’s going to happen…if it has a 4 in front of it, we’re happy. If it has like a 3, but it’s a 3.8, 3.9, 3.7, we’re OK. These are unthinkable numbers. If I would have used these numbers during the campaign, the fake news back there would’ve said he’s exaggerating.”
Based on the just-released figures, the President is “happy.” The first estimate of second quarter growth for the US economy came in at 4.1% annualized, the highest rate since 2014. Just as impressively, personal consumption grew at a 4.0% annualized rate, well above the 3.0% expected; unlike inventories or foreign trade, which tend to be volatile and inconsistent on a quarter to quarter basis, personal consumption is seen as a more sustainable, “true” measure of the underlying growth rate of the US economy.
The other aspects of the report were mixed, with exports surging +9.3% vs. only a 0.5% rise in imports as companies raced to export their products before tariffs took effect. Inventories fell, slicing a full 1.0% from the GDP reading. The personal savings rate spiked to 6.7% vs. 3.4% expected. Finally Core PCE, the Fed’s preferred inflation measure, came in at 2.0%, a tick below the 2.2% reading expected by economists. All in all, the US economy was seemingly in a “goldilocks” period in Q2, with strong growth and low inflation, though the main thrust of recent protectionist trade actions could take a bite out of the Q3 readings.
Markets generally took the report in stride. The US dollar ticked down off the day’s highs, but remains well supported near the top of the weekly range. US stock futures saw a brief dip but have bounced back slightly and are pointing toward a flat to modestly higher open. Finally, US bond yields have ticked lower, with the benchmark 10-year bond yield dipping to 2.96% from 2.98% before the release.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.