The Atlanta Fed’s GDPNow estimate dived well below the 2.5% last week based on its projection for inventories, and it turned out to be far worse than many had expected. There is no chance of a September rate hike now, and for it to occur in December the Fed will require steady job growth and a noted pick up in GDP in the second half of the year – developments that are far from certain.
US Wholesale inventories declined 0.1% year-on-year in June – the first year-on-year decline seen since the GFC.
The big miss in US 2Q GDP saw the DXY US dollar drop 1.25% on Friday. This provided welcome relief for emerging market currencies and commodity prices that had been under pressure from USD strength. The Bloomberg commodity index gained over 1%, and WTI oil broke its ten-day losing streak to close up 0.9%. This helped the S&P 500 energy sector see the second best performance on Friday after telecoms. In such an environment, gold and silver could be set for a bit of a run, and certainly the risk of US PMIs or non-farm payrolls disappointing this week offers further upside to them.
This also saw the Aussie dollar gain 1.3%, and it does look like it has an upside bias. If the RBA upsets rate cut expectations tomorrow, the Aussie could set course to retest US$0.78. And some of the upside momentum behind the currency could see it continue head that way in the near term even if the RBA does cut rates.