|

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

  • US Q2 GDP is shine and near 5% annualized growth.
  • Trump's leak of the data takes the sting out of the headline figure.
  • The components may play a more significant role than usual.

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)

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Editor's Picks

GBP/USD drops below 1.3550 on geopolitical tensions, hawkish Fed bets

GBP/USD trades with mild losses below 1.3550 in the second half of the day on Tuesday. The US Dollar recovers some ground amid ongoing Middle East tensions and hawkish expectations around the Fed's interest rate outlook, weighing on the pair ahead of US data releases.

EUR/USD stays below 1.1600 ahead of US data

EUR/USD struggles to capitalize on the overnight bounce and trades below 1.1600 on Tuesday. The data from the Eurozone showed that the annual HICP inflation rose to 3.3% in August from 2.9% in July, matching the market expectation, while the core HICP inflation edged lower to 2.4% from 2.5% in this period. In the second half of the day, JOLTS Job Openings and ISM Manufacturing PMI data will be featured in the US economic calendar.

Gold extends reversal below $4,400 on hawkish Fed repricing

XAU/USD extends its reversal below $4,400, posting a nearly 7% decline from last week's highs. Precious metals struggle this week as markets reprice a Fed rate hike in September.

Crypto Today: Bitcoin, Ethereum, XRP struggle to extend gains despite ETF inflows

Bitcoin stalls while holding above $78,000 support as ETF inflows return. Ethereum takes a breather around $2,450 amid sustained institutional support. XRP remains pressured as the 200-day EMA provides immediate support.

US JOLTS Job Openings set to show a steady labor market

The US Bureau of Labor Statistics has a busy week, releasing relevant employment data. It will start on Tuesday with the publication of the July Job Openings and Labor Turnover Survey (JOLTS) at 14:00 GMT. The JOLTS report is expected to show job openings stood at 7.3 million in July.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.