3 Numbers: After a weak Q1, US to bounce back to trend growth in Q2
- EU July Business and Consumer survey at pre-crisis highs – but will it last?
- US Q2 GDP should confirm a continuation of 2% trend growth
- US consumer sentiment dipped in mid-July, so end-of-month data is interesting
- The economic surprise indices for the US and the Eurozone are still wide apart
It will be a busy day on the data front. For traders, the European Union’s Business and Consumer Survey will probably be the most important event, although the first estimate of the US gross domestic production growth during the second quarter of 2017 will capture most attention.
France and Spain are the first euro countries to report the first estimate of the GDP growth.
Stocks have been weakish all week, but no proper selloff has happened since last Monday's selling panic. Maybe the market is getting ready to make its next move after resting on its laurels after Monday?
The June reading was the highest since August 2007 – right before the great financial crisis begun. The stock markets have tended to move together with the sentiment index. As sentiment improves, so do the stock prices. This implies that longer-term, it makes sense to look at whether the sentiment index is close to historical highs, with little apparent room to improve.
This suggests that either the Markit’s PMI is not fully reflecting the current optimism, or the ESI is way too optimistic at the moment. I’d be watching out for a possible negative surprise today, which would be negative for the stock market.
The economic surprise indices of the US and the euro area are still wide apart, although the divergence has recently started to close as the European data has had trouble meeting the higher expectations. The Business and Consumer Survey data can be downloaded here.
US Q2 Gross Domestic Production (1230 GMT). The median forecast for US GDP growth during the second quarter is 2.7% (the seasonally adjusted annualised rate). The growth in the first quarter was very weak at only 1.4%, but in recent years this is very common and weakness during the first quarter is widely believed to be transitory.
The Federal Reserve Bank of Atlanta’s GDPNow-model’s final forecast is 2.8%, though only a couple of days back it had settled around 2.5%–2.6% for several weeks.
The average trend growth of the past couple of years has been just a little bit above 2%. The quarterly deviations from that have not changed this picture, though of course they are often met with the intriguing change of either accelerating trend growth or an impending recession.
Investors with a longer time horizon should try to avoid chasing the latest quarterly swings or trade against them.
US July U.Michigan Consumer Sentiment (1400 GMT). The mid-July consumer sentiment index tumbled hard, even though it was expected to remain practically unchanged. The consensus forecast is no change to the mid-month estimate.