26 Nov 2014
Real GDP strength provides little for the dollar – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, notes that the real GDP report released yesterday in the US offered evidence that the US economy is strengthening, but the dollar didn’t move significantly as it had already priced in the good news.
Key Quotes
“The US consumer looks set to play a bigger role in GDP expansion and with the consumer accounting for just under 70% of GDP –that’s good news and offers hope for sustainable growth north of 3.0%. Remember, the annual real GDP growth rate of 2.4% is very skewed by that bizarre -2.1% Q/Q print from Q1 2014. The four quarters around that contraction read; 4.5%, 3.5%, 4.6% and 3.9% after yesterday’s upward revision.”
“The 25% drop in gasoline prices equates to around an extra USD 60-70bn of spending power on an annualised basis, effectively a tax cut of around 0.5% of GDP. Add to that the record high for the S&P, which has rallied 11% since mid-October and consumers should be feeling upbeat heading into the key holiday spending season.”
“The drop in consumer confidence in yesterday’s report is unlikely an accurate picture and might in fact be more a product of the equity price drop in the first half of October. A rebound in confidence next month is very likely.”
“But the good news has failed to lift the dollar and it certainly looks like the positive dollar momentum may be starting to fade.”
“The Citi Economic Surprise Indices show that the relative change taking place is that the very negative flow of data from the euro-zone is getting less negative while the flow of US economic news is stable.”
“Less negative news from the euro-zone may well be enough to trigger a shift in the very extreme euro negative sentiment and positioning that exists at present”
Key Quotes
“The US consumer looks set to play a bigger role in GDP expansion and with the consumer accounting for just under 70% of GDP –that’s good news and offers hope for sustainable growth north of 3.0%. Remember, the annual real GDP growth rate of 2.4% is very skewed by that bizarre -2.1% Q/Q print from Q1 2014. The four quarters around that contraction read; 4.5%, 3.5%, 4.6% and 3.9% after yesterday’s upward revision.”
“The 25% drop in gasoline prices equates to around an extra USD 60-70bn of spending power on an annualised basis, effectively a tax cut of around 0.5% of GDP. Add to that the record high for the S&P, which has rallied 11% since mid-October and consumers should be feeling upbeat heading into the key holiday spending season.”
“The drop in consumer confidence in yesterday’s report is unlikely an accurate picture and might in fact be more a product of the equity price drop in the first half of October. A rebound in confidence next month is very likely.”
“But the good news has failed to lift the dollar and it certainly looks like the positive dollar momentum may be starting to fade.”
“The Citi Economic Surprise Indices show that the relative change taking place is that the very negative flow of data from the euro-zone is getting less negative while the flow of US economic news is stable.”
“Less negative news from the euro-zone may well be enough to trigger a shift in the very extreme euro negative sentiment and positioning that exists at present”