Market Update

• Markets react little to Q2 GDP revision, await Yellen comments. Equities opened slightly higher this morning after the first revision to Q2 U.S. GDP was in line with estimates and as market participants awaited Federal Reserve Bank (Fed) Chair Yellen’s speech at 10am ET. TheS&P 500, Dow and Nasdaq all posted modest losses Thursday; the healthcare sector led to the downside for the second day in a row. Overseas, the Nikkei Index fell 1.2% after Japan reported its fifth straight monthly decline in its core Consumer Price Index (CPI). Other Asian markets finished little changed, and stocks in Europe are near flat in afternoon trade. WTI crude oil is up modestly to $47.50/barrel, COMEX gold has gained over half a percent to $1334/oz., and the 10-year Treasury yield has inched lower to 1.55%.

Macro View

• Very busy last week of August. The August data on employment, Institute for Supply Management ISMmanufacturing release and vehicle sales highlight a very busy week for data and events next week ahead of the Labor Day weeend. There are a handful of Fed speakers as well, but aside from Brazil, there are no major central bank meetings next week. China will release its August manufacturing ISM, and there are a few key reports in Europe as well, notably, the August CPI reading for theEurozone. In addition, Japan will release most of its key economic data for August.
• Q2 GDP revised modestly lower. Based on new and updated data collected since the initial release of Q2 gross domestic product (GDP) in late July, Q2 GDP is now reported at 1.1%, down from the initially reported 1.2%. The modest downward revision came despite an upward revision to consumer spending-which accounts for 2/3 of GDP (from 4.2% to 4.4%).  There were significant downward revisions to Q2 readings on business capital spending, net exports, housing construction and government spending. Q3 GDP is due out in late October. We continue to expect a pickup in GDP growth in 2H 2016 after the tepid 1.0% reading in 1H 2016.
• July merchandise trade deficit narrower than expected; Q3 GDP estimates likely to move higher. The nation imported $59 billion more goods than it imported in July. The reading was better than expected (-$63 billion) and an improvement from the $65 billion deficit in June and the $61 billion monthly deficit recorded , on average in Q2. The better than expected trade data in July, along with the downward revisions to inventory investment noted in the bullet above, suggest that Q3 GDP is tracking to between 3.5 and 4.0%. Q3 GDP is due out at the end of October 2016.
• U.K. Economic Growth strong pre-Brexit. U.K. GDP came in as expected, growing .6% for Q2 and 2.2% year over year. While not outstanding, those are solid numbers, especially compared to most of the rest of Europe. Looking through the numbers, exports only increased .1%, much worse than expected, while imports grew 1%, better than expected. This data confirms that the U.K. itself seems to be doing better than the rest of the region. As this data is all pre-Brexit, there is not a lot of market impact on this data. However, it should be noted that there has been some strength in the British pound since the middle of the month as data has generally been better than expected.
• Calm before the Yellen storm? The S&P 500 had another small daily range yesterday ahead of Yellen’s speech in Jackson Hole, WY. In fact, the S&P 500 has now gone 34 straight days without closing higher or lower by 1%, the longest streak since 62 straight days during the summer of 2014. On an intraday basis, the S&P 500 hasn’t moved more than 0.75% for an incredible 17 straight days. That is the longest streak in 45 years. Lastly, the S&P 500 is currently down two days in a row and hasn’t been down three straight days for 50 days in a row, the longest streak in two years.

Monitoring the Week Ahead

Friday

• Goods Trade Balance (Jul)
• GDP (Q2 – Revised)
• Fed Chair Yellen speaks at Jackson Hole Policy Symposium

Click Here for our detailed Weekly Economic Calendar

 

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