All eyes look toward US GDP - Foreign Exchange
Posted by Darren Hutchinson on Fri, Aug 27, 2010 @ 03:42 AM
Finally some respite. The economic picture in the US has been horrific of late with figures missing analysts estimates by anywhere from a shade to a country mile, and with increasing certainty. Jobless claims came as some relief however, if I may continue the boxing analogy from yesterday’s update, this was a punch that didn’t land as opposed to anything beneficial. Continuing claims have risen to the highest level since November of last year and the fear is that the slowdown that the US is going through at the moment will only generate more unemployment.
As a result of this equity markets slumped with the Dow finally closing below the 10,000 mark and the dollar slightly stronger on risk aversion. No large movements were expected yesterday given the large amount of tier 1 data due today.
It will be the tale of 2 GDPs today with growth data from the US and the UK. We’ll start with the UK measure and for once it is likely that the measure will be brushed off by the market as they focus on bigger fish. Today’s announcement is the 2nd estimate of Q2 GDP and is expected at 1.1%.
The market’s focus will however be on the US today. Growth has been sliding in the US over the past few months and GDP slipped from 5.0% in December to an estimated 1.4% today. The Federal reserve stepped into the breach in a bid to get spending going again two weeks ago with its QE-lite measure but as yet this has been unsuccessful with the S&P down 4% since the announcement. The question is will we see the Fed extend into QE full-bore? I think no, and today will be a very red day.
Ben Bernanke or ‘Helicopter Ben’ as he has come to be known is due to speak at 15.00 from the Fed symposium in Jackson Hole. We will be looking for clues as to whether the factions within the Fed committee have come together to decide on a meaningful response. In the meantime , risk will firmly be ‘off’ and we would expect markets to be skewed to the downside. That said, we doubt we will see much movement before the US announcement as traders will be keeping a very tight leash on things until the fog is lifted.
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