Today's session was categorized mainly by consolidation following yesterday's steep declines in equities and moves in favor of safe haven currencies.
We saw a bout of risk aversion in early NY trading, following the release of US GDP data, which came in weaker than expected, and helped to strengthen the USD against the EUR, GBP, AUD, and others, though those gains were pared after the initial knee-jerk reaction.
US 3rd Quarter Growth Revised Lower
US GDP was revised down in the 3rd quarter from its initial advance reading. The second version - the preliminary reading - pointed to an annuisalized 2.0% growth rate, compared to the advance version's 2.5% reading. A good chunk of the downward revision was due to changes to inventories.
- Businesses investment, initially reported to have risen 4.1%, actually fell 0.9% in the third quarter, according to the revised data.
- The downward revision was largely linked to a decline in inventories, which fell $8.5 billion after jumping $39.1 billion in the second quarter.
- In addition, investment in nonresidential equipment rose 14.8% in the third quarter compared to a first reading of 16.3%.
- Corporate profits also slowed in the third quarter. Companies boosted their profits by $39.8 billion, compared to a $61.2 billion increase in the prior quarter.
- Exports rose 4.3% instead of 4.0% as originally reported. Domestic manufacturers have led the U.S. recovery since the end of the last recession, particularly by boosting exports.
- Yet imports rose a much smaller 0.5% compared to an initial reading of 1.9%. Imports subtract from GDP.
Here's a look at that data in visual form:
There are a couple of implications to the data.
1. First the fact that inventories were run down during the quarter, while weighing negatively on GDP in the current quarter, also set up the prospect of firms increasing their orders with manufacturers to restock their inventories which could be a positive for the following quarter(s). Out of all of the ways that GDP could be revised downward, a drop in inventories, as it sets up that prospect of further future orders increasing, might be the best one.
2. On the other hand, we can view the GDP in a negative light in that it may mean that the prospect of more quantitative easing from the Fed is increased.
The S&P 500 which dipped initially on the news, rebounded pretty quickly after the initial knee-jerk sentiment, which helped higher yielders to recoup their initial losses to the greenback following the report. However it came up to its cluster of moving averages here in the 15-minute timeframe and will be an important level for deciding the direction of equities the rest of the trading session.