Morning Commentary: U.S. GDP – Something for Everyone

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

U.S. GDP – Something for Everyone Share this story: Alan Rose Foreign Exchange Senior Trader

Today’s U.S. Q2 GDP has something for everyone. While the overall report beat expectations, there are some worrisome components within the report that will continue to negatively impact future expectations and growth. Overall, Q2 U.S. GDP came in at 2.1% which beat expectations of 1.8%; Q1 GDP remained unrevised at 3.1%. While the 2.1% number beat expectations, it is the weakest quarter since Q1 2017 when President Trump first took office.   The report shows that the consumer remains generally upbeat and optimistic while business investment and exports are taking it on the chin. Consumer spending rose by an impressive 4.3% with an upward revision to Q1 meaning that consumer spending rose by nearly 5% in Q2. Durable goods purchases rose to the fourth highest level since the end of the Great Recession. The savings rate was also revised higher and now stands at 8.1% indicating that the consumer is in a very good place with both improved spending and savings. Consumer spending makes up about 70% of GDP.   The negatives on the report were related to non-residential investment which fell by 0.6%, the first drop since 2015. Residential investment also fell for a sixth straight period. Reduced global trade volumes and tariffs have taken their toll with exports falling sharply to a 12-year low. Prices rose sharply from Q1 at 2.4%, but core prices rose less than expected at 1.8%. Today’s figures showed that GDP rose 2.9% in 2018, and from Q4 2017 to Q4 2018, GDP rose by 2.5%.   Bottom line: There are reasons to be optimistic about the future path of the economy, and there are reasons to be concerned. Early calls for a recession appear to be premature as updated forecasts for the second half of the year reside near 2.0%. Market reaction at this time is pretty muted. U.S. interest rates are fractionally lower, and the U.S. dollar is mixed to higher. U.S. equities, as measured by the Dow, are opening near unchanged. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: The Bank of Russia cut interest rates as expected by 25 bps to 7.25%. This is the second consecutive month the central bank has cut interest rates. Slowing inflation and lethargic economic growth are providing cover for the central bank to cut interest rates. CPI was 4.7% in June making it the third straight month of declining inflation.

If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!

Follow City National Bank on social media:

Non-deposit investment products: • Are not FDIC insured, • Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and • Are subject to investment risks, including possible loss of the principal invested. This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

Unsubscribe from this list  |  Update email preferences This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list. Copyright ©2019 City National Bank – All Rights Reserved. 350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071 City National Bank is a subsidiary of Royal Bank of Canada. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | City National Bank Member FDIC