Stock index futures are edging slightly higher ahead of this morning’s U.S. Third Quarter GDP Report. The report is expected to show that increased consumer and government spending helped expand the economy for the first time in over a year. Pre-report estimates are for this report to show an increase of 3.2%. A Bloomberg survey shows the possible range of guesses at 2.0% to 4.8%. The market will move on how much above or below 3.2% the actual number is reported.
The overnight strength in equity and gold markets is indicating that traders are leaning toward a better number. This notion is being seconded by the weaker Dollar and Treasuries. Traders are trying to build appetite for risk back into the game following this week’s sell-off in equities.
Even if the number comes out better than expected, gains could be limited. There are a number of traders who feel that the jump in GDP was triggered by government stimulus and if this stimulus is removed the next quarter’s GDP will be labored. The real question is can the growth in GDP be sustained? Some investors also feel that stocks may have priced in the expected economic rebound.
Treasury Bonds and Notes are trading lower as traders take profits ahead of this morning’s GDP Report. Demand for higher risk assets in anticipation of a bullish number is also weighing on the fixed income instruments. A better than expected GDP Report is likely to pressure T-Bonds and T-Notes because it will mean the possibility the Fed will begin to take liquidity out of the market.
This week’s auction has been well-received by domestic and foreign investors. Today, the Treasury auctions billions of 7-Year Notes. Investors will be reacting to the GDP report when they begin the bidding process. This could mean asking for higher yields if the report comes out better than expected.
Traders are selling the U.S. Dollar overnight ahead of today’s U.S. Third Quarter GDP Report. Pre-report estimates are for the report to show that the U.S. economy grew at a pace of 3.2%. This would mark the first increase in over a year.
Although this report is expected to show the economy has recovered from the recession, it will give no indication as to how robust the impending recovery may be. Growing unemployment is still a major concern for investors.
The Third Quarter increase in GDP was most likely caused by consumer and government spending. Traders are expressing concerns that the economic recovery will be rocky if the government begins to pull liquidity out of the market.
The December Euro is trading higher overnight after a 50% retracement level was tested. Bullish traders are hoping for a stronger than expected GDP number so that they can put appetite for risk back into the equation.
Yesterday, the December British Pound did not participate in the break. This was caused by the unwinding of spreads put on against the British Pound over the past few weeks. The strength in the Sterling did not represent developing strength in the economy. Traders are still speculating that the Bank of England will increase and expand its asset-purchase program.
The U.S. Dollar is gaining back some of yesterday’s loss versus the Japanese Yen this morning ahead of the GDP Report. Technical factors are most likely the main reason behind the overnight strength. A stronger U.S. economy is likely to pressure the Yen because it will bring the Fed closer to removing liquidity from the financial markets.
Oversold conditions as well as higher equity and crude oil markets are helping to boost the December Canadian Dollar. Gains could be limited however because the Bank of Canada wants to see a weaker currency to promote economic expansion.
December Gold is rebounding after testing a major 50% price at $1028.80. This could mean a retracement back to $1049.00 over the short-run. The weaker Dollar is helping gold to rally as well as oversold technical factors.
Yesterday’s Energy Information Administration Report showed an unexpected rise in gasoline supplies. This news helped break December Crude Oil sharply lower. Overbought conditions, a stronger Dollar and weaker equity prices also contributed to the selling pressure. The charts indicate there is plenty of room to the downside.
Crude oil may rebound today if the Dollar stays weak and the U.S. GDP shows a greater economic expansion than expected.
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