Wakeup Call: US GDP Taking Everybody By Surprise... But Will It Be Revised Down?

Daily Forex Fundamentals | Written by Saxo Bank | Aug 29 08 06:41 GMT |

Stocks went higher on the GDP figures, but FX and Fixed Income didn't react too much. Overnight News Bullets UK ILO Unemployment Rate (Jul) out at 7.3% as expected. UK Nat'wide House Prices MoM/YoY (Aug) out at -1.9%/-10.5% vs. -1.5%/-9.6% expected. SZ Employment Level (2Q) out at 3.924M vs. 3.911M expected. SW Retail Sales MoM/YoY (Jul) out at -0.5%/1.3% vs. -0.5%/1.4% expected. GE Unemployment Change (Aug) out at -40K vs. -10K expected. GE Unemployment Rate (Aug) out at 7.6% vs. 7.8% expected. NO Unemployment Rate (Aug) out at 1.8% as expected. CA Current Account (2Q) out at $6.8B vs. $8.0B expected. US GDP QoQ Annualized (2Q P) out at 3.3% vs. 2.7% expected. US Personal Consumption (2Q P) out at 1.7% vs. 1.6% expected. US GDP Price Index (2Q P) out at 1.2% vs. 1.1% expected. US Core PCE QoQ (2Q P) out at 2.1% as expected. US Initial Jobless Claims out at 425K as expected. US Continuing Claims 3423K vs. 3400K expected. US EIA Natural Gas Storage out at 102 vs. 84 expected. NZ Building Permits MoM (Jul) out at 4.7% vs. -20.1% prior. UK GfK Consumer Confidence (Aug) out at -36 vs. -41 expected. JN Jobless Rate (Jul) out at 4.0% vs. 4.1% expected. JN Job-To-Applicant Ratio (Jul) out at 4.0% vs. 4.1% expected. JN Household Spending YoY (Jul) out at -0.5% vs. -1.8% expected. JN National CPI YoY (Jul) out at 2.3% vs. 2.2% expected. JN Industrial Production MoM/YoY (Jul P) out at 0.9%/2.0% vs. -0.3%/0.6% expected. JN Large Retailers' Sales (Jul) out at -0.7% vs. -1.4% expected. JN Retail Trade MoM/YoY (Jul) out at 0.0%/1.9% vs. -0.1%/1.3% expected. AU Private Sector Credit MoM/YoY (Jul) out at 0.5%/11.2% vs. 0.5%/11% expected. JN Small Business Confidence (Aug) out at 41.4 vs. 38.0 expected. Markets FX: USD-crosses ranging despite the positive US GDP figures yesterday. Fixed Income: 10-year contracts not reacting to the GDP figures. JGB's up despite strong Japanese figures. Stocks: Good sized gains (1-2%) in all regions and sectors. Commodities: Precious metals edging higher. Crude Oil also higher, supported by Hurricane Gustav. O/N Data Heat map: EU US JP UK SZ AU CA NZ NO SE FR + + - + - Calendar Today's Highlights: Time (GMT) Region Release Consensus 07:30 SW Current Account (2Q) 81.1B 08:00 NO Retail Sales MoM/YoY (Jul) 0.1%/2.6% 09:00 EC Euro-Zone Unemployment Rate (Jul) 7.3% 09:00 EC Euro-Zone CPI Estimate YoY (Aug) 4.0% 09:00 EC Business Climate Indicator (Aug) -0.30 09:00 EC Euro-Zone Consumer Confidence (Aug) -20 09:00 EC Euro-Zone Economic Confidence (Aug) 89.3 09:00 EC Euro-Zone Indust. Confidence (Aug) -9 09:00 EC Euro-Zone Services Confidence (Aug) 1 09:30 SZ KOF Swiss Leading Indicator (Aug) 0.83 12:30 CA Industrial Product Price MoM(Jul) 0.7% 12:30 CA Raw Materials Price Index MoM (Jul) 0.2% 12:30 CA Quarterly GDP Annualized (2Q) 0.6% 12:30 CA Gross Domestic Product MoM (Jun) 0.1% 12:30 US Personal Income (Jul) -0.2% 12:30 US Personal Spending (Jul) 0.2% 12:30 US PCE Deflator YoY (Jul) 4.5% 12:30 US PCE Core MoM/YoY (Jul) 0.3%/2.4% 13:00 US RPX Composite 28dy Index / YoY (Jun) 233.37/-15.60% prior 13:45 US Chicago Purchasing Manager (Aug) 50.0 14:00 US U. of Michigan Confidence (Aug F) 62.0 14:00 US NAPM-Milwaukee (Aug) 44.0 This and Next Week's Highlights: Date Region Release Sep 1 AU Current Account Balance, Aig Performance of Mfg Index, TD Securities Inflation Sep 1 JN Vehicle Sales Sep 1 GE PMI Manufacturing Sep 1 UK M4 Sterling Lending, Net Consumer Credit, Net Lending Sec. On Dwellings, PMI Manufacturing, Mortagage Approvals Sep 2 AU Building Approvals, RBA Cash Target Sep 2 SZ CPI, GDP Sep 2 NO PMI Sep 2 UK PMI Construction Sep 2 EC Euro-Zone PPI Sep 2 US ISM Manufacturing, ISM Prices Paid What's going on? According to yesterday's release of Q2 GDP figures, the U.S. economy has grown at an annualized rate of 3.3%, or triple the first quarter's pace. Room, however, must be left for a downward revision in these figures, as at the same time the growth indicators followed by the National Bureau of Economic Research have all peaked at the end of 2007. Yesterday, a significantly higher-than-expected build in natural gas storage sent the entire energy complex lower, with crude trading violently within 7 USD range. Regardless of how accurate a picture they may or may have not drawn, the US GDP release has inspired a stock rally in the US session that was followed by an Asian rally, with the regional benchmark index gaining the most in 4 month period. FX USDJPY to break lower... despite strong GDP figures yesterday. EUR USD JPY GBP CHF AUD CAD NZD NOK SEK PLN - + - + + FX Trading Strategies Pair Supp. Resis. Comments USDJPY 108.12 110.65 We are still looking for a break and close below trend support from July 16th. Strong figures from Japan and a potential reduction in risk appetite due to hurricane fears and upcoming US holiday Monday should keep the pair offered. We sell ½ position at 108.79 offer, stop if bid at 108.97, targeting 108.15. Equities The positive sentiment continues led by better than expected GDP and export numbers from the U.S. Equities We expect the European markets to open 0.3% higher Friday. The U.S. stock markets gained 0.6% after the close in Europe and the S&P 500 future is down by 0.3%. Main gainers were again the material sector and financials on the back of better than expected Q2 GDP growth driven by the exports. We believe that the financials in Europe will benefit from this and U.S. consumer debt gets a little bit less risky. Our house view for the banks is still very cautious in the medium term, but for today we are buyers of Royal Bank of Scotland, Bank of Ireland and UBS Trading Strategy: Trade Idea [Equities - Fundamental Call - Buy Royal Bank of Scotland (RBS:xlon]: We are looking to buy within the entry range of 233-237, targeting 257. Keep a stop-loss at 225. Currently banks are trading higher on renewed optimism. We will following the trend, but due to the volatility in banks we will keep tight stops. DAX UKX CAC OMX KFX OBX SMI NDX DJI SPX NKY + + + + + + + + + + + Equity Trading Strategies Instrument Entry Stop Target Comments Equity Index Levels Futures We believe yesterday's rally will fade around 6500. We Sell Dax (fdxu8) @ $6478/6513 with a stop below 6527 targeting 6400 & 6340. Despite yesterday's positive economic release from the US and Germany (Unemployment) and the technical break above 6380 for Dax, we do not believe this rally has much legs and should fade around the 6500 area. We continue to Sell rallies. Bunds US 10-Yr Crude Oil Silver Gold Gilts JGBs Euribor + + + + Analysis Disclosure & Disclaimer Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated. Saxo Bank utilizes financial information providers and information from such providers may form the basis for an analysis. Saxo Bank accepts no responsibility for the accuracy or completeness of any information herein contained. Any recommendations and other comments in Saxo Bank's analysis derive from objective fundamental macro economical and company specific calculations, statistical and technical analysis, and subjective general market assessment. If an analysis contains recommendations to buy or sell a specific financial instrument, such recommendation should be seen as Saxo Bank's opinion that the specific instrument will respectively outperform the relevant market or underperform compared to the market. Saxo Bank's recommendations should statistically correspond to an even distribution between buy and sell recommendations. The recommendations may expire promptly due to market volatility and in general, Saxo Bank does not anticipate its recommendations to be valid more than one month. An analysis will be updated if and only if a market development or other issues relevant to the analysis render a new analysis on the same topic relevant. Saxo Bank's analysis does not cover any specific financial product over time but only products which Saxo Bank's strategy team finds it important to cover at any given point in time. In order to prevent conflicts of interest, Saxo Bank has established appropriate business procedures, incl. procedures applicable to research and analysis to ensure objective research reports. Saxo Bank's research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis. Saxo Bank is under supervision by the Danish Financial Supervisory Authority. Saxo Bank does not engage in corporate finance activities and accordingly, Saxo Bank's employees, incl. the persons responsible for an analysis, do not receive remuneration associated with investment banking transactions.