Advance Q2 GDP Faintly Disappointing, Three-Year Revisions Weaker

Economic data

- (ZA) South Africa Jun PPI M/M: 0.3% v 0.6%e; Y/Y: 3.7% v 3.9%e
- (IE) Ireland Q1 GDP Q/Q: 1.4% v 1.9%e; Y/Y: 6.5% v 3.7%e
- (IE) Ireland Q1 Current Account Balance: €1.6Bv €2.4B
- (PT) Portugal Jun Retail Sales M/M: -0.1 v 0.0% prior; Y/Y: 2.4% v 1.8% prior
- (PT) Portugal Jun Industrial Production M/M: -1.3 v +1.7% prior; Y/Y: 2.7 v 3.5% prior
- (IL) Israel Jun Unemployment Rate: 5.2 v 5.0% prior
- (BR) Brazil July FGV Inflation IGPM M/M: 0.7% v 0.7%e; Y/Y: 7.0% v 7.0%e
- (ZA) South Africa Jun Budget Balance (ZAR): 24.2B v 23.0Be
- (DE) Germany July Preliminary CPI M/M: 0.2% v 0.2%e; Y/Y: 0.2% v 0.3%e
- (CL) Chile Jun Industrial Production Y/Y: +1.6% v -0.4%e; Manufacturing Index Y/Y:+1.7 % v -1.9%e
- (CL) Chile Jun Total Copper Production: 513.8K v 508.3K tons prior
- (US) Q2 Advance GDP Annualized Q/Q: 2.3% v 2.5%e; Personal Consumption: 2.9% v 2.7%e
- (US) Q2 Advance GDP Price Index: 2.0% v 1.5%e; Core PCE Q/Q: 1.8% v 1.6%e
- (US) Initial Jobless Claims: 267K v 270Ke; Continuing Claims: 2.262M v 2.21Me
- (US) Weekly EIA Natural Gas Inventories: +52 bcf vs. +52 to +56 bcf expected range

Neither yesterday's FOMC statement nor today's initial look at second quarter US GDP have changed the impression that the Fed is on track to raise interest rates as soon as September. Global equity trading has been choppy, with the Shanghai Composite down 2% earlier today, European markets closing with modest gains after some decent Q2 GDP figures, and US markets in the red. As of writing, the DJIA is down 0.12%, the S&P500 is down 0.21% and the Nasdaq is flat.

The first reading of Q2 GDP was just fine, with the headline figure of +2.3% a hair below expectations, but much better than the revised final Q1 figure of +0.6% (up sharply from the -0.2% final figure reported late last month). Personal consumption beat expectations at +2.9%, while the export figure grew to +5.3% from -5.9% in the final Q1 report. Note that today's GDP report was the first to include new methodology meant to correct the tendency to slightly underestimate growth in Q1 and overestimate growth in Q3, due to issues in measuring military spending and consumer services. Under the new approach, the government has found that the US economy grew somewhat slower in 2012-14, at an average of +2.0% a year instead of +2.3%. The slowest recovery since the end of World War II is now even weaker than previously believed.

Last night, Brazil's central bank hiked its Selic rate 50 basis points to 14.25%, as expected. The interest-rate hike comes despite the country's economy teetering on the brink of recession as the central bank looks to strengthen the currency. This was the seventh consecutive meeting to produce a rate hike and that the 50 bps increase was the largest in nine years.

WTI has extended its bounced off of recent lows this morning, however its seems that $50 is providing strong resistance. This morning, OPEC Secretary General Al-Badri seemed to refute reports from yesterday that said Saudi Arabia might taper production after summer. On a trip to Moscow, Al Badri said OPEC was not ready to start cutting production.

ConocoPhillips's profits evaporated in its second quarter as the company realized only $39.09/boe, compared to $70.17 last year. Conoco continues to boost production, raising output 4% y/y to 1.6M boe/day. Occidental Petroleum missed revenue expectations as total sales fell more than 30% y/y. Oxy's production grew even more than Conoco's, up 13% y/y. Refiner Marathon Petroleum missed earnings expectations despite solid revenue growth. Valero roundly beat both earnings and revenue targets, with solid gains seen in operating income as cheaper crude doubled the firm's refining margins, however VLO is giving up gains, down 2.9% on the session. MPC is off 4.5%, while OXY and COP are down just about one percent each.

Facebook modestly beat top and bottom lines as revenue surged nearly 40% y/y. Daily active users climbed 17% y/y, slightly less than expected, echoing results from Twitter earlier in the week. Shares of FB have been volatile, although they are off their worst levels, down 3.5% presently after losing as much as 5% in the early going.

In other major earnings, Procter & Gamble's revenue tumbled y/y even as the firm continues to see margin gains on cost cutting and efficiency gains. FX continues to be a major headwind, and executives said the firm has made significant price increases in some markets to offset the impact. Fiat-Chrysler had a very strong quarter, with solid growth seen across the board. Teva also beat expectations. PG is down 3.5%, FCAU is up 5% and TEVA is off 1.8%.

Looking Ahead

- 13:00 (US) Treasury to sell $29.0B in 7-Year Notes
- 14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: expected to leave Overnight Rate unchanged at 3.00%
- 15:30 (BR) Brazil Jun Central Govt Budget Balance (BRL): -3.5Be v -8.1B prior
- 17:00 (KR) South Korea Aug Business Manufacturing Survey: No est v 67 prior; Non-Manufacturing Survey: No est v 66 prior
- 19:00 (KR) South Korea Jun Industrial Production M/M: +1.5%e v -1.3% prior; Y/Y: -2.0%e v -2.8% prior
- 19:05 (UK) July GfK Consumer Confidence: No est v 7 prior
- 19:30 (JP) Japan Jun Jobless Rate: 3.3%e v 3.3% prior; Job-To-Applicant Ratio: 1.20e v 1.19 prior
- 19:30 (JP) Japan Jun Overall Household Spending Y/Y: 1.9%e v 4.8% prior
- 19:30 (JP) Japan Jun National CPI Y/Y: 0.3%e v 0.5% prior; CPI Ex Fresh Food Y/Y: 0.0%e v 0.1% prior; CPI Ex Food, Energy Y/Y: 0.4%e v 0.4% prior
- 19:30 (JP) Japan July Tokyo CPI Y/Y: 0.2%e v 0.3% prior; CPI Ex Fresh Food Y/Y: 0.0%e v 0.1% prior; CPI Ex Food, Energy Y/Y: 0.2%e v 0.2% prior
- 20:30 (TW) Taiwan Q2 Preliminary GDP Y/Y: 2.6%e v 3.4% prior
- 21:30 (AU) Australia Q2 PPI Q/Q: No est v 0.5% prior; Y/Y: No est v 0.7% prior
- 23:00 (MX) Mexico Jun YTD Budget Balance (MXN): No est v -180.7B prior