US Second Quarter GDP Preview: Profit taking on optimistic numbers

Second-quarter GDP is forecast to contract 34.1% annualized while Atlanta Fed GDPNow estimate for Q2 is -34.3%. To the equity markets, second-quarter GDP is old news as the dollar has factored in the GDP result and the likely Fed defensive lower rates. Joseph Trevisani, an analyst at FXStreet, expects some profit-taking in currencies such as the euro and the yen in case figures beat estimations. 

Key quotes

“The widest measure of economic activity is forecast to drop 34.1% in the second quarter with range of consensus estimates in the Reuters survey running from -22.6% to 40.0%. The Atlanta Fed GDPNow model predicted a 34.3% decrease on July 17 with one more update to its estimate on July 29 before the Bureau of Economic Analysis release on July 30.” 

“There is the possibility that the expectation for a disastrous figure may be overstated. The issue is not that economists are natural pessimists, though economics is sometimes called the dismal science, but that there are no modeling parameters for analyzing these events. In such a situation projections and assumptions operate in a linear fashion, there is no term in the equation that can calculate the desire and willingness of individual and business to rebuild and restart their lives.” 

“For the dollar a historic decline in GDP and further Fed actions are priced. In the last two weeks the euro has gained 3.3% versus the dollar, the yen has risen 2%. If the GDP figures are better than expected some profit taking might be in order.”