US equities climb after soft GDP
US stocks rallied to fresh record highs and Treasuries slumped anew after a downside surprise in both GDP and jobless claims justified the Fed’s dovish stance. The softness in today’s GDP data was mainly attributed to the decrease in inventories. Given how strong current demand has been, factory activity will play catch up over the coming quarters. The growth story is getting stretched into next year and this is very positive for risk appetite. Initial jobless claims still remain elevated above pre-pandemic levels and that suggests the economy is still far from achieving substantial progress in the labor market. A taper announcement at the Jackson Hole Symposium is off the table and if the labor situation doesn’t dramatically improve over the next few jobless claims reports and next week’s nonfarm payroll report, a September taper will seem unlikely.
Today’s wrath of economic data shows the US consumer is strong, the housing market may have peaked, and that economic growth next quarter will be robust. The economy in the second quarter grew at 6.5%, a miss of the consensus estimate of 8.4% and nowhere near the double-digit estimate some economists forecasted. American businesses are struggling to meet consumer demand as supply chain disruptions still remain in place. Personal consumption rose to 11.8%, well above the 10.5% estimate, as cash-filled Americans continue to spend.
Initial jobless claims declined to 400,000 a miss of the 385,000 estimate, but an improvement over the upwardly revised 424,000 prior reading. Reopening momentum is not firmly in place as many states continue to grapple with the current Delta variant wave. Auto shutdowns and other seasonal factors impacted the data, which might explain why jobless claims still can’t drop towards pre-pandemic levels.
Pending homes sales fell in June as the housing market continues to show signs of cooling. House prices gains and limited inventories are starting to weigh on what has been the brightest spot of the economy. June pending home sales fell 1.9%, a miss of the expected flat reading.
The Robinhood IPO was a dud. The Robinhood IPO was doomed from the beginning given retail sentiment has always been mixed, given the companies handling over meme stock trading mania. Robinhood fell over 10% in its trading debut and that could get uglier if retail quickly wants to throw in the towel. Robinhood planned on having retail own anywhere between 20-35% of the stock, which was a terrible idea given how the Reddit boards were not completely behind them.
The dollar’s reign over the euro appears over as the Fed appears nowhere near tapering as the economy slowly makes its way to achieving substantial progress in the labor market. Today’s economic data was positive for risky assets as softness in GDP and jobless claims supported the Fed’s dovish stance. Should the yield curve continue to slowly steepen with risk appetite remaining in place, dollar bearishness could accelerate in the coming weeks.
Bitcoin’s eight-day winning streak appears to be coming to an end as it fails to rally above the upper boundaries of the tight trading range that has been in place since the end of May. Bitcoin bullish exhaustion could be temporary if the institutional world delivers a fresh endorsement. Bitcoin will have strong underlying support from yesterday’s dovish Fed policy decision that cements the view that this economy will continue to see unprecedented support for the rest of this year, with the tapering of asset purchases starting next sometime early in 2022.
Many crypto traders will pay attention to MicroStrategy’s earnings and guidance over their bitcoin holdings.
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