It’s been quite the rollercoaster ride these last few days: after an extremely challenging and volatile start to the week, we got a lasting bounce on Wednesday that saw the Dow Jones finish up an incredible 619 points (close to 4%) and the good news continued on Thursday with a healthy upward revision to second-quarter GDP.
By Peter Martin
Thursday, August 27, 2015
The Bureau of Economic Analysis (BEA) had originally estimated that the US economy grew at an annual pace of 2.3% in the second quarter, but upped that to 3.7% in today’s release of its second estimate. Now that more complete source data has been considered, it’s clear that consumer spending and exports were both higher than previously thought, while imports were lower.
The third and final estimate for second-quarter GDP will be released at the end of September, but based on this latest estimate, momentum heading into the third quarter was much better than previously thought, and should offer some support to the stock market at a time when stability is sorely needed, as should the latest jobless data.
Initial jobless claims fell 6000 last week to 271,000, providing further evidence that unemployment levels remain extremely low and suggesting that little slack remains in the labor market. Though the four-week moving average ticked up slightly to 272,500 from the 271,500 in the week prior, this is still favorable compared to how this metric was looking a month ago and points to a healthy jobs report for August.
The strong data, along with overnight gains in troubled Chinese markets, helped lift stocks to a bullish start on Wall Street this morning. Shortly after the opening bell in New York, the Dow Jones was up 230 points or 1.4%, while the S&P 500 Index climbed 1.6% to 1971.7 — both stock indices are attempting to rise for a second straight day. The large gains have strongly increased the chances of the indices finishing up on the day: with nearly the whole trading day still ahead, the binary option for the Dow Jones to finish up was trading with a bid offer of 80.3/83.5 on Nadex.
The next FOMC meeting isn’t until the middle of next month, but market participants will be focussing today on any pointers coming out of the Economic Policy Symposium in Jackson Hole, Wyoming, the annual gathering of central bankers and economists. Interestingly, perpetual-hawk Esther George, the head of the Kansas City Fed, seemed to soften her stance slightly on the back of this week’s volatility, though she did not abandon entirely her long-held view that the central bank should begin normalizing policy. ‘We are in a period of some uncertainty’, she told Bloomberg TV, adding,’What it means for monetary policy I think is not yet clear.’ She stressed that each FOMC meeting is a ‘live option’, and that between meetings the committee looks at developments to judge if there should be a shift in forecast but concluded that she had not seen enough to change her own sense of how the economy is doing. Ms George is not a voting member of the FOMC this year.
William Dudley, the head of the New York Fed, also stressed the importance of resisting over-reaction to short-term market developments when he spoke in a press conference on his region’s economy yesterday, but did say that the case for a September lift-off was ‘less compelling’, citing international developments that have ‘increased the downside risk to US economic growth somewhat.’
The rally in global stock markets has fuelled risk appetite today, depressing demand for safe-haven assets that were thriving earlier in the week, particularly the Japanese yen, which lost 0.5% against the US dollar. Spot gold also fell 0.5%, dropping to $1120 per troy ounce.
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