GDP data in the US today
While yesterday’s sharp sell-off in equity markets might have been expected to be accompanied by a strengthening of the dollar, a firming of Fed rate cut expectations was pulling the currency in the opposite direction. In any case, the upshot is that the dollar is only marginally firmer from yesterday morning vis-a-vis the euro and sterling, trading at around $1.0830 and $1.2880 respectively this morning ahead of the release of second quarter GDP data in the US later today. Meanwhile, EURGBP is not much changed either, as it continues to hover in and around the £0.84 level.
The US led a decline in equity markets with the Nasdaq shedding more than 3.5% and the S&P 500 off almost 2.5% (amid notable declines in Alphabet and Telsa, two of the so-called Magnificent Seven stocks), while European stocks closed more than 1% lower. In government bond markets, a firming of Fed rate cut expectations (prompted by a former Fed member, who said the central bank should cut rates as soon as next week’s meeting) saw US 2-year yields decline by around 6bps, though 10-year yields reversed course during the session to end slightly higher on the day.
The Euro area economy essentially stagnated in July according to the flash PMI data published yesterday, with the composite index falling for a second consecutive month to 50.1 (just marginally above the expansion-contraction of 50). This adds to signs that growth is undershooting the ECB’s expectations, which strengthens the case for it to cut interest rates at its next meeting in September. Meanwhile, the equivalent PMI data for the UK suggests the economy continued to grow at a modest pace in July (with the composite index rising slightly to 52.7).
The key economic release today is the GDP report in the US. According to the consensus forecast, this is expected to show the economy grew by 2% (annualised rate) in the second quarter of this year. While this would be slightly stronger than in Q1 (1.4%), it would still leave growth over the first two quarters of this year well down from the average rate of circa 4% a quarter recorded over the final two quarters of last year.
Other data due today include weekly jobless claims and durable goods orders in the US and money supply & credit growth in the Euro area.