Today at 1:30 PM BST the US GDP report for Q2 is published, which could stop the ongoing declines on the indices 🔎
The US GDP report is probably the most important macro reading this week. It is expected that the second quarter was better than the previous one, although the change in Q2 is still expected to be significantly lower than in the last quarter of last year.
According to the Atlanta Fed, economic growth in Q2 is still largely driven by consumer spending and private investments. However, it is worth noting that retail sales have been slightly worse recently, although market expectations indicated even worse data.
It is worth recalling Powell's words from one of the Fed meetings when he mentioned that growth is still largely driven by private consumption. Consumer spending in Q1, on an annualized basis, was only 1.5%, so it will not be difficult to beat this result. What are the market expectations for today's report?
- Annualized GDP is expected to increase by 2.0% compared to the previous growth of 1.4%.
- The GDP deflator is expected to drop to 2.6% from 3.1%.
- Core PCE is expected to rise by 2.7% q/q compared to the previous level of 3.7% q/q.
- Private consumption is expected to increase by 2.0% compared to the previous level of 1.5%.
The market consensus seems to be quite conservative. Bloomberg Intelligence indicates a reading of 2.1%, Bloomberg's Nowcast quantitative model indicates a reading of 2.3%, while the GDPNow model from the Atlanta Fed suggests growth at the level of 2.6%.
Growth in the first quarter was limited by net exports and inventories. It is expected that in Q2, the negative impact will come from net exports, but it will be larger than in Q1. However, in the second half of the year, economic growth may be influenced by a weakening labor market, which could lead to reduced spending. It does not seem that today's report will significantly change expectations for the Fed meeting next week or the anticipated rate cut in September. However, it may affect expectations for further moves this year. Source: Macrobond, XTB
How will the market react?
The consensus remains relatively low, so it will be quite easy to beat it. Stronger growth should positively impact the dollar and limit the current declines in index futures. Market attention will also be focused on the Core PCE price index and the deflator. Significant declines are expected in this regard, which should reinforce the Fed's communication about the need for rate cuts. However, if there is not a substantial drop, it could further strengthen the dollar and potentially resume larger declines in US indices.
EURUSD
EURUSD is rebounding slightly this morning, despite negative data from Germany. Good data from the USA could push the pair back towards the 1.0800 level. However, if the GDP change falls below 2.0% and inflation data drops more than expected, a return to around the 1.0900 level is possible. Source: xStation5
US500
Index futures continue the declines that started last week, although the biggest drops occurred during yesterday's session. US500 is breaking through important support levels. Theoretically, strong GDP and a drop in price indexes should lead to a revival in the index, but strong GDP and a smaller decline in the deflator and Core PCE could reduce expectations for further Fed cuts and deepen the declines. In that case, the key support level will be 5430 during today's session and 5340 in the coming weeks. Source: xStation5
