US Q2 revised GDP number due today

The second estimate for the US quarterly GDP data is due today and marks an important data release on a rather quiet trading day. The median forecasts expect to see the US second quarter GDP to rise to 3.2% from the initial estimates of 2.3%. A beat on the estimates could potentially help cement the view for a US fed rate hike this year, if not in September.

However, the expectations for the revised GDP data could seem to be a bit on the optimistic end of the scale. The Atlanta Fed’s GDPNow Forecast for the second quarter was shown to be at 2.4% and the initial estimates for the GDP came in close at 2.3%. A strong rise to 3.2% although possible could potentially see the Greenback surge across the board and could as well keep the Fed’s rate hike speculation alive. Currently, the markets have been scaling down on hope for a September rate hike and looking for October as the most likely candidate.

After the market rout last week, it was Fed’s William Dudley who in his speech earlier ruled out the possibility of QE4 but acknowledged that the possibility for a rate hike next month was starting to turn less compelling given that inflation has failed to show any signs of increasing. After the September meeting, the Federal Reserve will have two more meetings, October and December respectively and in this view, the October FOMC meeting could potentially see the Fed take a decision to hike rates, all else being equal.

While the GDP doesn’t directly impact the Fed’s rate setting decision, it does provide an insight into how the US economy has been faring and more importantly the GDP can be used to gauge if the markets would be able to sustain a rate hike in the current circumstances. To make things complicated, China’s recent devaluation of the Yuan to boost its exports sector and the stock market plunge which started with the Shanghai Index and saw a global market sentiment turn sour earlier this week was a stark reminder that the global economic growth is still not up to the mark. With various economies in a bid to devalue their currencies, a rate hike from the US could possibly leave the world’s largest economy the ‘last man standing’ and one which could potentially upset US exporters while also taking a toll on the economy’s balance of payments and current account deficit.

Besides the GDP revised estimates, the PCE price index will also be released today. The Core PCE which strips out the volatile components such as food and energy has been stuck at 1.8% and heading into today’s event, the median expectations show the core PCE to remain unchanged at 1.8%. Expect to see a strong market reaction in either direction depending on how the actual data will turn out to be.

The US Dollar Index has been gaining ground for a third straight day after the index hit a 3-month low earlier this week at 93.2 and has been in a steady uptrend since then, trading at 95.5 at the time of writing. Resistance in the US Dollar comes in at 96.35 and support levels at 94.35 and 93.2