US Q4 GDP (second reading) +4.1% vs +4.2% expected

Fourth quarter 2020 GDP estimate

US Q4 GDP (second reading) chart
  • First reading was +4.0%
  • Final Q3 reading was +33.4%
  • Personal consumption +2.4% vs +2.5% expected
  • GDP price index +2.1% vs +2.0% expected
  • Core PCE +1.4% vs +1.4% expected
  • Deflator +2.0%
  • Full report

  • Ex motor vehicles +4.7% vs +4.5% prelim
  • Final sales +3.0% vs +3.0% prelim
  • Inventories added 1.11 pp to GDP vs 1.04 in prelim report
  • Business investment +14.0% vs +13.8% prelim
  • Business investment in equipment +25.7% vs +24.9% prelim
  • Exports +21.8% vs +22.0% prelim
  • Imports +29.6% vs +29.5% prelim
  • Home investment +35.8% vs +33.5% prelim
The consumer was a tad weaker in Q4 than initial reports while business and home investment was a bit stronger. Overall, I don’t see anything here that will bleed into Q1 2021.

US Q2 GDP second reading -31.7% vs -32.5% expected

The second reading on Q2 gross domestic product

US GDP second reading Q2 2020
  • The first estimate was -32.9%
  • Q1 was -2.5%
  • Final sales -28.5% vs -29.3% prelim
  • Business investment -26.0% vs -27.0% prelim
  • Consumer spending -34.1% vs -34.6% prelim
  • Exports -63.2% vs -64.1% prelim
  • Imports -54.0% vs -53.4% prelim
  • Inventory change -$286.4B vs -$315.5B prelim
  • GDP deflator -2.3% vs -2.0% expected
  • Full release
Despite the headline, there’s more good news here than bad. The revision higher in inventories means that inventory rebuilding will be less of a tailwind in Q3 and Q4 than anticipated. The drop in inflation also added to real GDP.
“In the second estimate, real GDP decreased 31.7 percent in the second quarter, an upward revision of 1.2 percentage points from the previous estimate issued last month. The revision primarily reflected upward revisions to private inventory investment and PCE,” the BEA said in the release.

Germany Q2 final GDP -9.7% vs -10.1% q/q prelim

Latest data released by Destatis – 25 August 2020

  • Non-seasonally adjusted GDP -11.3% vs -11.7% y/y prelim
  • Working day adjusted GDP -11.3% vs -11.7% y/y prelim
  • Private consumption -10.9% vs -9.8% q/q expected
  • Prior -3.2%; revised to -2.5%
  • Government spending +1.5% vs +1.5% q/q expected
  • Prior +0.2%; revised to +0.6%
  • Capital investment -7.9% vs -12.2% q/q expected
  • Prior -0.2%; revised to -0.5%
Slight delay in the release by the source. The preliminary report can be found here.
The German economy shrank by slightly less than initially estimated, but it still is the biggest quarterly contraction on record amid the fallout from lockdown measures and the virus outbreak in general from April to June.
There was a heavy drag on consumption/spending but that is largely unsurprising and that contributed to the sharp decline in economic activity seen last quarter.

US storms – Oil producers on Saturday shut 13% of crude oil production ahead of Laura and Marco

Weekend news on industry response to approach of Gulf storms, posting ICYMI:

Via Reuters:
  • Producers halted 240,785 barrels per day of oil production and 119 million cubic feet per day of natural gas output before noon on Saturday, said regulator U.S. Bureau of Safety and Environmental Enforcement.
  • Crews were evacuated from six production and four drilling rigs. Another seven drilling vessels were moved out of the storms’ paths

Japan GDP preliminary for Q2 -7.8% q/q (vs. expected -7.5%)

Japan GDP preliminary for Q2 2020, capturing the impact of the COVID-19 outbreak and response

GDP sa -7.8% q/q  , a miss on already ugly low expectations

  • expected -7.5%, prior -0.6%

GDP annualised sa -27.8% q/q (ps when you see screaming headlines that Japan’s economy has shrunken 30% …. it hasn’t, but this is what the economically illiterate are referring to – you’ll know better)

  • expected -26.9%, prior -2.2%

GDP nominal -7.4% q/q

  • expected -6.5%, prior -0.5%

GDP deflator (an inflation indication) %

  • expected 1.7%, prior 0.9%

Private consumption -8.2%

  • expected -6.9% q/q, prior -0.8%

Business spending -1.5% … if there is some not quite so bad news to take away from the data release this smaller than expected drop in capex is it

  • expected -4.0%, prior -1.7%
This is the 3rd consecutive quarter of GDP contraction for Japan.
Japan is a net exporters, the decline in demand offshore has taken a heavy toll on shipments – Q2 exports fell at their fastest since Q1 2009 (GFC influence) and external demand has subtracted the biggest hit from GDP since 1980 (based on comparable data).
ps. yen is doing little on the data release.

Japan final Q1 GDP -0.6% q/q

January to March economic growth data from Japan. Old, old news by now.

  • GDP sa q/q -0.6%, prior -0.6%
  • GDP annualised sa q/q -2.2%, prior -2.2%
  • GDP nominal q/q -0.5%, prior %
  • Private consumption -0.8% q/q, prior -0.8%
  • Business spending +1.7%, prior +1.9%

Yen unchanged.

USA credit rating outlook revised to negative from stable by Fitch

Bold move by the rating agency

USA downgrade Fitch
The rating was affirmed at AAA but lowered to negative from stable. That’s how you get yourself a lawsuit.
  • Cites ongoing deterioration in public finances
  • Sees general debt to GDP above 130% by 2021
  • Expects deficit to narrow to 11% of GDP in 2021
  • Expects US economy to contract 5.6% this year
  • Statement
What Fitch had to say:
The Outlook has been revised to Negative to reflect the ongoing deterioration in the U.S. public finances and the absence of a credible fiscal consolidation plan, issues that were highlighted in the agency’s last rating review on March 26, 2020. High fiscal deficits and debt were already on a rising medium-term path even before the onset of the huge economic shock precipitated by the coronavirus. They have started to erode the traditional credit strengths of the US.
They’re not wrong.
Another risk they cite is the possibility of policy gridlock after the election because neither party will get a 60-seat Senate majority.

Recap of the FOMC, “as expected” … but US Congress fiscal policy remains an unknown

Via CIBC Research on Wednesday’s FOMC policy statement.

“Today’s FOMC announcement unfolded largely as expected, with policymakers commenting that economic activity and employment remain well below where they stood prior to the pandemic, despite picking up somewhat in recent months. Indeed, the outlook has become increasingly uncertain since the last meeting on account of the surge in virus cases and the re-tightening of social distancing in many states, with the Fed noting that the path forward for the economy depends significantly on the virus which is expected to weigh heavily on activity in the near term. While the Fed stands ready to do more to support the recovery, as shown by the extension in several credit facilities beyond their initial deadlines, the fiscal support package being discussed by Congress remains an unknown” 

“As a result, they appear to have opted to wait for the September meeting, when the next set of forecasts are due, to provide more concrete forward guidance on future rate hikes by perhaps tying them to the outcome of a macro variable. Tomorrow’s Q2 GDP report will provide a starting point for assessing the scale of the output gap” 

Key economic releases and events for next week’s trading

Big week for stock earnings. Advance GDP to be released

In addition to a slew of big-name earnings including Apple, Amazon, Google the key economic releases and events for next week include:

Monday, July 27
  • US durable goods, 8:30 AM ET/1230 GMT
Tuesday, July 28
  • RBA assistant governor can’t speaks at 8 PM ET, Monday/0030 GMT
  • Spanish unemployment rate, 3 AM ET/0700 GMT
  • US consumer confidence, 10 AM ET/1400 GMT
Wednesday, July 29
  • Australia CPI QoQ, 9:30 PM ET Tuesday/0130 GMT
  • US pending home sales, 10 AM ET/1400 GMT
  • FOMC decision and statement, 2 PM ET/1800 GMT
  • FOMC press conference, 2:30 PM ET/1830 GMT
Thursday, July 30
  • German preliminary GDP quarter on quarter, 4 AM ET/0 800 GMT
  • US advance GDP for the 2nd quarter annualized, 8:30 AM ET/1230 GMT
  • US initial claims for unemployment, 8:30 AM ET/1230 GMT
Friday, July 31
  • China manufacturing PMI, 9 PM ET Thursday/0100 GMT
  • Canada GDP, 8:30 AM ET/12:30 GMT
  • US core PCE price index 8:30 AM ET/1230 GMT
  • Chicago purchasing managers index, 9:45 AM ET/1345 GMT
  • University of Michigan consumer sentiment revised, 10 AM ET/1400 GMT

In addition, the US coronavirus relief package will continue to be worked out between Republicans and Democrats.

ECB leaves rates unchanged, as expected

ECB continues to reiterate stands ready to adjust all of its instruments

ECB continues to reiterate stands ready to adjust all of its instruments
  • Full statement
  • Prior statement
  • Interest rates to remain at present or lower until it has seen inflation outlook robustly converge to a level sufficiently close to but below 2% within its protection horizons (repeat)
  • No change to rate tiering multiplier
  • Will continue purchases under PEPP with a total envelope of 1,350B euros
  • Will continue to fully invest maturing securities at least through end-2022
  • PEPP will run at least through end of June 2021
  • The ECB cites ‘very high takeup’ of TLTRO-III
  • In its June forecast the ECB saw GDP down 8.7% in 2020 and up 5.2% in 2021
There are no changes here whatsoever. The euro chopped around 1.1400 on the release but has ticked up to 1.1410 since.
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