US OUTLOOK/OPINION: Final GDPNow Estimate Picks Up, But Weaker Domestic Demand
The Atlanta Fed's final GDPNow estimate for Q2 GDP has risen to 2.9% from the prior 2.4% estimate made last week, due entirely to today's trade data which showed a smaller-than-expected goods trade deficit for June. This estimate is above the 2.5% currently seen by Bloomberg consensus for Wednesday's official GDP release.
- Net exports are now seen by the Atlanta Fed model as contributing 4.0 percentage points to Q2 growth, vs 3.3pp in last week's estimate and almost a complete reversal of Q1's 4.6pp subtraction. Indeed we noted after the advance trade data for June that "Q2 tracking could be revised higher after today’s June release".
- However, the final reading is a little weaker on the underlying domestic demand front: equipment investment is now seen falling 2.5% in real terms, the weakest estimate of the quarter (vs -0.6% as of last week, the initial forecast of +5.1% and Q1's +23.7%).
- Indeed when netting out inventories (seen subtracting a little more after today's data, at -2.2pp vs -2.1pp prior and +2.6pp in Q1), real domestic final sales, which is more closely watched by the Fed than the headline GDP reading, is estimated to print 1.1% Q/Q SAAR, down from 1.2% last week (and after 1.5% in Q1). That would be the weakest since Q3 2022.
- When netting out government's contribution to growth (0.4pp), that's seen at closer to 0.7% Q/Q SAAR, after 1.6% in Q1 - which would be the weakest since Q4 2022.
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
