It is no secret that the U.S. economy has been growing at a fast pace, both over recent months and over recent years, comparing very favourably to the rate of growth of any other developed economy. Provisional GDP data was released today and beat expectations, showing an increase of 2.6% when the consensus forecast had been significantly though not excessively lower, at approximately 2.2%. President Trump will be pleased and proud, but what do the markets seem to be thinking based upon the reaction of prices to the data?
The U.S. Dollar Index is up following the news, but only by 0.14% which is not a significantly large amount. The stock market barely reacted, with the benchmark S&P 500 Index completely unchanged. The USD/JPY currency pair, which typically seems to show a positive correlation with the S&P 500 Index of U.S. stocks, did rise by a significant amount, by more than 0.39%. Yet overall, the market was not impressed by this stronger than expected growth.
This might be telling us two things. Firstly, that the data just wasn’t that important to the market, or that it was overshadowed by the seeming failure of the U.S. / North Korea summit. A successful resolution of the Korean conflict would probably have a strong economic impact, saving the U.S. and South Korea money while opening a new market for development. Alternatively, the market reaction may betray weakness in the U.S. stock market and the U.S. Dollar – when good news fails to raise the price, its typically a sign of underlying weakness.
The other major market standout of recent days was the strong rise in the British Pound, with the GBP/USD reaching as high as the major resistance level of 1.3350 yesterday. The rise seems to have run out of steam, at least temporarily, with the price seeming to begin a bearish retracement.