Advance GDP for the fourth quarter showed a super-strong growth of 5.7%, much better than expected. The market’s reaction wasn’t strong at first. There are two reasons for this slow initial response.
The highest growth rate in 6 years doesn’t impress the markets at first. EUR/USD (in a lower range) traded at 1.3940, only 30 pips below the price before the release. GBP/USD and other pairs follow the same trend. The dollar is making gains, but not leaping. There was eventually great greenback strength, but it took a lot of time.
This figure was much higher than the 4.6% growth rate that was predicted. So why isn’t there a jump?
Update 15:00 GMT: EUR/USD drops to 1.3900. Other currencies lose ground as well. This happens as two more American figures are better than expected: Chicago PMI jumped to 61.7 points instead of dropping. The revised Consumer Sentiment from the University of Michigan was revised to 74.4 points, more than expected.
Update 23:00 GMT: EUR/USD totally collapsed. Most currencies followed with huge losses. Only the Canadian dollar didn’t lose a trading range.
1. The details
Looking into the details of this release, we see that manufacturers stopped erasing their stockpiles quickly – meaning that they produce more. This contributed most of the growth. This move by manufacturers came after they didn’t have too much of a choice.
But contrary to Germany, Japan, Australia and other countries, the US economy is mostly based on consumers – about 70%. Here the growth is much more moderate – only 2.2%. While this faster than last quarter, it’s already much more moderate.
2. The doubts
Looking back just at Q3, the initial announcement was a growth rate of 3.5% – a strong and joyful end to the recession. But this didn’t last long. The second release was already under 3% and the final release of Q3 GDP showed a more modest growth – 2.2%. More than a third of the growth rate was cut off between the initial and final releases. So how is Q4’s 5.7% going to turn out? Hmmmm
Looking at the job market, there are doubts also there. The last month of 2009 saw a disappointing drop in jobs, although November saw a small gain. The past week’s jobless claims weren’t too hopeful as well. Even if the growth rates stay, a “jobless recovery” isn’t enough for the economy – not enough for a rate hike and not enough for the dollar bulls to rage.
Next week’s Non-Farm Payrolls are super-important now.
Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.
Share
