Daily Market Color

Robust GDP Data and Tepid Technology Earnings

 

Trump Touts GDP

The Commerce Department’s initial estimate of second-quarter GDP captured the majority of headlines during today’s trading session, reflecting a seasonally adjusted rise of 4.1% (+4.2% expected).  The quarterly pace was the fastest its been in the past four years and a strong rebound from the 2.2% Q1 growth.  “We have accomplished an economic turnaround of historic proportions,” President Trump announced in response to the figure. “These numbers are very, very sustainable.”  While robust consumer spending (+4%) accounted for the majority of the quarterly increase, rises in net exports and nonresidential fixed investment were also solid contributors.  Despite Trump’s proclamation of victory, it remains to be seen whether the economy can sustain such growth, especially when the effects of the fiscal stimulus begin to fade in the early portions of 2019.

 

 

Technology stocks continued to drag on major US indices today, as Intel (-8.6%) and Twitter (-20.5%) were shunned by Wall Street after their respective earnings releases failed to meet expectations.  The tech-heavy NASDAQ tumbled 1.45%, while the S&P 500 (-0.65%) and DJIA (-0.30%) managed to stem excess losses.  US Treasurys maintained a modest rally throughout the day, as yields swap rates declined 1-3bps across the curve.  The yield on the 10-year note finished the week near 2.96% — 6bps higher than its opening level on Monday.  The US dollar finished 0.1% worse against major currencies as the below-forecast GDP data failed to provide a boost.  In commodities, crude oil prices trended lower with the decline in equities.  WTI crude oil futures posted a 1.3% loss to $68.70/barrel, albeit a temporary shutdown at a Saudi Arabian shipping lane managed to a put a floor on the daily decline.

 

 

The Week Ahead

There will be a few key economic events and releases that participants in financial markets will have their eyes on next week-

  • Tuesday (July 31): Personal Consumption Expenditures (PCE) will be released by the Department of Commerce.  When last reported, the core PCE (the Fed’s preferred measure of inflation) was in-line with the FOMC’s target of 2% and is expected to maintain that same level when reported on Tuesday. 

  • Wednesday (August 1): The FOMC concludes its two-day meeting.  Currently, the market does not expect any change to the Fed Funds rate or overall gradual approach to policy.  Market pundits will undoubtedly look to dissect the statement and any other supporting data related to the Fed’s guidance of another two rate hikes in 2018.  This will be the second to last meeting that will not be followed by a press conference for the Chair, as beginning with the January 2019 meeting, a press conference will follow all FOMC meetings. 

  • Friday (August 3rd): The Labor Department’s comprehensive employment report for July will be released.  Current estimates call for 193k jobs to have been added to economy during the month, and the unemployment rate is expected to have ticked down from 4.0% in June to 3.9% in July. 

 

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