Stocks Rally in Response to GDP Data, Trade Negotiation Progress

 

GDP Sees Upward Revision

This morning the Commerce Department reported its second and penultimate estimate of Q2 GDP growth at 4.2% — a 0.1% increase from the initial reading.  Much of the strength was attributed to nonresidential fixed investment, which rose 6.2% vs. the 5.4% observed in the prior estimate.  The consumer spending component remained robust at an annualized 3.8% gain, albeit revised slightly lower from the +4.0% initial level.  The personal consumption expenditure recorded a 3.8% rise, down from the +4.0% posted in the first estimate.  

 

 

There were also upward revisions to investment in equipment and intellectual property products alongside the increase in government spending.  Pertaining to the trade balance, exports were up 9.1%, while imports declined 0.4%.  The impact of trade on the bottom line GDP figure was +1.17%, increasing from the first estimate and registering the strongest contribution from trade in almost 5 years.  Overall, today’s level portrays another strong quarter of GDP expansion, exceeding the lofty expectations of the administration where President Trump has set 3% as the target growth for the US economy.

 

 

Things Are Looking Up!

Despite Canadian trade officials only joining the US-Mexico negotiation table yesterday, a sense of optimism has been conveyed by all parties with regard to the Friday deadline following “an intense period in the discussions.”
 
“They (Canada) want to be part of the deal, and we gave until Friday and I think we’re probably on track. We’ll see what happens, but in any event, things are working out very well,” President Trump stated earlier today.
 
Canadian President Justin Trudeau expressed a bit more caution when speaking this afternoon – “We recognize that there is a possibility of getting there by Friday, but it is only a possibility, because it will hinge on whether or not there is ultimately a good deal for Canada.  No NAFTA deal is better than a bad NAFTA deal.”
 
The reasoning for Friday as the deadline circles back to the US law which states that the standing president must wait 90 days after Congressional notification before signing a trade pact.  In this particular scenario, Mexican President Enrique Pena Nieto will be leaving office at the end of the November, hence a delay to the notification would place the signing of the pact beyond such time.

 

 

Risk Assets Maintain Momentum

US stocks rallied for a third consecutive trading session as financial markets reacted to the robust economic data and progress in trade talks.  All three major equity indices finished in the black, with the tech-heavy Nasdaq climbing nearly 1% on strong gains in Apple and Google, while the S&P 500 (+0.6%) and DJIA (+0.2%) posted more subdued increases.  US Treasurys held within a tight range again today, with the 10-year yield note finishing near unchanged at 2.88%.  In commodity markets, WTI crude oil futures surged 1.4% to $69.50/barrel after it was reported that US crude stockpiles dropped by 2.6 million barrels last week (686k drawdown expected).