Prelim US Q2 GDP Beats Expectations, Clinches Equity Rally

Economic Data

- (ZA) South Africa July PPI M/M: 0.3% v 0.6%e; Y/Y: 3.3% v 3.8%e
- (BR) Brazil Aug FGV Construction Costs M/M: % v 0.8%e
- (RU) Russia Gold and Forex Reserve w/e Aug 21st: $364.6B v $362.9B prior
- (US) Q2 Preliminary GDP Annualized Q/Q: 3.7% v 3.2%e; Personal Consumption: 3.1% v 3.1%e
- (US) Q2 Preliminary GDP Price Index: 2.1% v 2.0%e; Core PCE Q/Q: 1.8% v 1.8%e
- (US) Initial Jobless Claims: 271K v 274Ke; Continuing Claims: 2.269M v 2.25Me
- (MX) Mexico July Trade Balance: -$2.3B v -$1.3Be
- (US) July Pending Home Sales M/M: 0.5% v 1.0%e; Y/Y: 7.2% v 8.3%e
- (US) Weekly EIA Natural Gas Inventories: 69 bcf vs. +60 to +62 bcf expected

The Shanghai Composite bounced 5.3% higher in today's session, priming global markets for a big equity recovery. The stronger-than-expected preliminary US Q2 GDP data bolstered sentiment, further strengthening risk appetite. The CAC closed up 3.6% and the DAX ended up 3.4%, while the DJIA is currently up 1.59% and the S&P500 has added 1.90%. The 10-year yield is up six basis points from its session lows, just shy of 2.20%.

The second reading of US annualized Q2 GDP was very strong, rising to +3.7% from the advanced reading of 3.2%. The surprise gains were concentrated in private domestic spending, which was revised up from 2.5% to 3.3%, as well as slightly lower inventory levels. Note that import and export growth rates were both revised slightly lower from the first reading. The dollar continues its big reversal, with EUR/USD falling to 1.1217 from 1.1350 earlier today, while USD/JPY is around 120.68 after dipping below 120 earlier. The stronger dollar has pushed WTI crude back above $40, with the front-month contract trading around $41.22 as of writing.

The Fed's annual Jackson Hole conference kicked off today, as speculation heats up about whether the recent market volatility was bad enough to delay Fed rate increases. Kansas City Fed President Esther George told CNBC in an interview that the Fed would have sufficient time before the September meeting to assess the impact of volatile markets, but also reiterated that it has been her view for a while that the US is ready for rate hikes. Plenty of voices have suggested the Fed should hold off, including the PBoC, which this morning called on the Fed to delay interest rate hikes.

Coal names are seeing very strong gains after several firms reorganization plans. Today Walter Energy filed plans for reorganization under Chapter 11 bankruptcy. Yesterday Peabody Energy hired Lazard to help advise in the restructuring of its $6.3 billion debt load. Note also that just a week ago, Arch Coal began a debt exchange with its creditors in order to avoid filing for bankruptcy. At its best levels, BTU was up 50% on the day, but has come off those levels. ACI is up 25% on the day.

Deal chatter is moving big heath care names again this morning. Before the US open, there were press reports that medical device name Abbott was preparing to make a $25B bid for St. Jude. Abbott quickly rebutted the report, stating that was not planning an offer for St. Jude. There was another round of chatter that Gilead was reportedly looking to acquire Bristol-Myers Squibb (which has a market cap north of $100 billion)

Looking Ahead

- 13:00 (BR) Brazil July Central Govt Budget Balance (BRL): -6.8Be v -8.2B prior
- 13:00 (US) Treasury to sell 7-Year Notes
- 19:05 (UK) Aug GfK Consumer Confidence: 4e v 4 prior
- 19:30 (JP) Japan July Jobless Rate: 3.4%e v 3.4% prior; Job-To-Applicant Ratio: 1.19e v 1.19% prior
- 19:30 (JP) Japan July National CPI Y/Y: 0.2%e v 0.4% prior ; CPI Ex Fresh Food Y/Y: -0.2%e v +0.1% prior; CPI Ex Food, Energy Y/Y: 0.6%e v 0.6% prior
- 19:30 (JP) Japan Aug Tokyo CPI Y/Y: 0.1%e v 0.2% prior ; CPI Ex Fresh Food Y/Y: -0.2%e v -0.1% prior; CPI Ex Food, Energy Y/Y: 0.3%e v 0.3% prior
- 19:50 (JP) Japan July Retail Sales M/M: +0.6%e v -0.8% prior; Retail Trade Y/Y: 1.1%e v 0.9% prior; Large Retailers' Sales: 2.1%e v -0.3% prior
- 21:30 (CN) China July Industrial Profits Y/Y: No est v -0.3% prior