|

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

EUR/USD remains below 1.1850 after US data

EUR/USD struggles to gain traction and trades in a narrow range below 1.1850 on Wednesday. The US Dollar stays resilient against its rivals following the better-than-expected Durable Goods Orders and housing data, limiting the pair's upside ahead of FOMC Minutes. 

GBP/USD stays in narrow channel above 1.3550 ahead of FOMC Minutes

GBP/USD holds its ground following Tuesday's slide and moves sideways above 1.3550 midweek. Although the data from the UK confirmed that inflation cooled in January, the positive shift seen in market mood helps the pair keep its footing as investors wait for the Fed to publish the minnutes of the January policy meeting.

Gold regains some shine, retargets $5,000 ahead of FOMC Minutes

Gold gathers fresh upside traction on Wednesday, leaving part of the weakness seen at the beginning of the week and refocusing its attention to the key $5,000 mark per troy ounce, all ahead of the release of the FOMC Minutes and despite the modest uptick in the US Dollar.

Pi Network rally defies market pressure ahead of its first anniversary

Pi Network is trading above $0.1900 at press time on Wednesday, extending the weekly gains by nearly 8% so far. The steady recovery is supported by a short-term pause in mainnet migration, which reduces pressure on the PI token supply for Centralized Exchanges. The technical outlook focuses on the $0.1919 resistance as bullish momentum increases.

Mixed UK inflation data no gamechanger for the Bank of England

Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.

Top 3 Price Prediction: Bitcoin, Ethereum, and Ripple face downside risk as bears regain control

Bitcoin, Ethereum, and Ripple remain under pressure on Wednesday, with the broader trend still sideways. BTC is edging below $68,000, nearing the lower consolidating boundary, while ETH and XRP also declined slightly, approaching their key supports.