US GDP Preview: After the Trump leak, look beyond the headline number

The United States publishes the first estimate of Gross Domestic Product for the second quarter on Friday, July 27th, at 12:30 GMT. The initial publication of GDP tends to have a broader impact on markets than the following two publications. This is especially true for the first release of Q2 GDP, which also includes comprehensive updates for the past year. The figures for Q1 2018, Q4 2017, and Q3 2017 may be altered in this all-important event. 

Trump's leak

However, US President Donald Trump already leaked the number. According to a report by Fox News, the headline number will be 4.8%. This is significantly above the "new normal" levels of 2.0-2.5% seen in recent years. Trump's tax cuts and other one-off factors led to tremendous quarter; Most economists think that this rate is unsustainable. 

Markets had expected a level of 4% before the leak that came out on Monday. This sets expectations at precisely this number. Given the reliability of the reporter, it is hard to believe that the number will be different. In the unlikely case of a surprise, a growth rate of 5% may give the US Dollar an extra boost while 4.5% would weigh on the greenback.

Consumption is good, inventories are bad

As we basically know the headline figure, the focus shifts to the components. Personal consumption is the most significant figure. A rapid expansion of consumer activity will be welcomed by markets while growth that is based on other components could dampen the party.

Another considerable component is export activity. Substantial growth in exports amid the trade wars may give the greenback a boost. A drag in exports would send a warning signal and could hurt the USD. 

On the other hand, growth in government spending will not be beneficial as markets prefer private sector expansion. Another factor that will be frowned upon is a replenishing of inventories. Quarters that see inventory buildups are typically followed by a depletion. If the US enjoys a robust rate of growth while inventories are negative, it will serve as good news.

  Positioning

The US Dollar lost some of its shine, especially as trade wars are easing. The successful Trump-Juncker meeting reduced trans-Atlantic tensions. Progress on NAFTA also helped improve the market mood and weighed on the greenback.

Nevertheless, the intentions of the Fed to raise rates while other central banks are hardly budging toward the exits balances out the picture. And of course, strong GDP, where it is 4.5% or 5% annualized, is also positive for the American currency. 

More: Trade War from the Trenches: the dogs bark but the caravan moves on (for now)