Better than Expected GDP Could Support Demand for Higher Risk Assets
stock indices may see fresh buying today if GDP exceeds todayâ€™s consensus
estimate of 4.5%. What this market needs right now is a shot of confidence, and
news that the economy is improving at a better rate than forecast could be
exacting what investors have been waiting for. The problem is whether investors
will be paying more attention to past data such as the GDP or current reports
regarding sovereign debt issues in Greece
If the situation in the Euro Zone continues to escalate and
capture the bulk of the headlines, then look for investors to turn more risk
averse.This would trigger a rally in
the Dollar and pressure stock indices and gold. Overnight, the March E-mini
S&P 500 traded down to .618 support before mounting a short-covering rally.
This level at 1069.50 is now being read as major support. Regaining the 50%
level at 1084.50 will be a sign of strength and could help form of a closing
price reversal bottom.
March Treasury Bonds rallied overnight but found resistance
at a major 50% price at 118â€™24.Bearish
traders want to see this price hold in order to attract more sellers who could
eventually drive this market to the down side objective at 116â€™06.A weaker than expected GDP figure today will
likely trigger a rally as this would indicate the economy was not growing as
fast as expected.A bullish GDP number
is bearish because it gives the Fed another reason to begin raising interest
February Gold continues to trade both sides of major support
at 1075.20. This market seems to be on life support while waiting for the
Dollar to make its next move. A stronger Dollar could help plunge this market
$50 to $100 over the near term.A weaker
Dollar is likely to trigger a short-covering rally to $1119.10.
The March Crude Oil contract is trying to establish support
near the December bottom at 72.53. Bullish oil traders want to see a better
than expected GDP figure. This would be an indication of expansion in the
economy and an increase in future demand for petroleum products.A stronger Dollar could put pressure on this
The U.S. Dollar is slightly better against a basket of
currencies this morning after trading in a tight and narrow range overnight.
Trading action was subdued as investors await this morningâ€™s key U.S. GDP
data.The Dollar is trading higher
versus the Euro, Yen and Aussie Dollar while weakening against the British
Pound, Swiss Franc, Canadian and New Zealand Dollars. In addition to the GDP
report, traders will also get the chance to react to the Employment Cost Index,
Chicago PMI and Consumer Sentiment.
The Employment Cost Index is a measure of total employee
compensation costs, including wages and salaries as well as benefits. Since the
economy has become so sensitive to jobs related data, this report may carry
some additional weight today. Last monthâ€™s report showed a rise in the index of
0.4%.This month, the range of this
report is projected at 0.4% to 1.5% with the consensus at 0.4. Traders expect
to see that continued high employment and salary freezes have kept employment
The Chicago PMI is usually a market mover. This report is a
survey of business conditions in the Chicago
area.It contains data on both
manufacturing and non-manufacturing companies. This index rose sharply in
December indicating a pick-up in activity.In fact, the survey showed that Chicago
business activity has been very robust; accelerating for three consecutive
months. Last monthâ€™s report showed the index at 60, but the consensus is
calling for 57 this time inside the range of 55 to 60.Traders will want to see if the momentum of
the past three months continues or weakens.
The Michigan Consumer Sentiment number generally receives a
lot of attention.This monthâ€™s report
should be no exception, as the consumer has become a key indicator as to how
the economy has been performing and is expected to perform. Trader confidence
has been a key indicator during the recession and the current recovery because
it reflects consumer feelings about home values and employment which could be
key indicators as to future spending habits. The last report was pegged at
72.8.Todayâ€™s report is expected to
range between 72.0 and 73.9 with the consensus at 73.0.The recent drawback in the stock market could
have had a negative effect on this monthâ€™s report.
The most important report of the day is the U.S. GDP figure.
This report is expected to show the economy grew between 3.5% and 5.7% during
the 4th quarter with the consensus at 4.5%. The markets want to see a second
consecutive quarter of growth following an annualized gain of 2.2% in the third
quarter. This would indicate that the economy is gaining momentum after pulling
out of the recession.Momentum could be
a gauge of future hiring by businesses. The weaker Dollar during the last
quarter should lead to better net exports in this report.In addition, this report should show that
businesses increased spending and are building their inventories in
anticipation of further expansion. While todayâ€™s GDP will most likely show
strong contributions to the economy from businesses, the key will be whether
the consumer responded by spending during the last quarter of 2009 and if
housing is projected to continue to improve.
After todayâ€™s reports, traders will reassess risk appetite.
The Dollar may feel pressure if demand grows for higher risk. Fear that the
economy is faltering could generate upside pressure on the Dollar while
pressuring stocks and commodities.
Also on the table for investors today is the continuing dire
news coming out of the Euro Zone. Lingering concerns over sovereign debt issues
in Greece and Portugal
could pressure higher yielding currencies while supporting the Dollar and the
Japanese Yen. The direction of the USD JPY will be a good indicator as to how
the market feels about risk today.
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Mon 27 May 2019 AAGB/US- Holiday Tue 28 May 2019 A 14:00 US- Consumer Confidence C 13:00 US- Case-Shiller Wed 29 May 2019 A 08:55 DE- Employment AA 18:00 US- BOC Decision A 18:30 US- EIA Crude Thu 30 Mar 2019 AAEZ/CH- Holiday A 12:30 US- Weekly Jobless Fri 31 Mar 2019 AA 10:00 EZ- Flash HICP A 12:30 US- Personal Income, Spending, Deflator AA 14:00 US- Final Univ of Michigan
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