The US economy continues to demonstrate resilience, with the second-quarter real gross domestic product (GDP) growth revised upward to 3%, a significant increase from the initial estimate of 2.8%. This robust growth, more than double the 1.4% recorded in the first quarter, marks the eighth consecutive quarter of sequential growth for the US economy. The surge was primarily driven by a strong increase in consumer spending, which jumped by 2.9% in the second quarter, exceeding the previously reported 2.3% and significantly surpassing the 1.5% growth in the first quarter. Corporate profits also showed improvement, transitioning from a 2.7% contraction in the first quarter to a 1.7% expansion in the second.
Further encouraging signs emerged from price pressures, as Personal Consumption Expenditure prices were revised downward in the second estimate. While the data also included downward adjustments to nonresidential fixed investment, exports, private inventory investment, government spending, and residential fixed investment, imports were adjusted slightly higher.
The resilience of the US economy has significantly reduced recession risks that had emerged earlier this month following a cooler-than-expected July jobs report. This positive economic outlook has improved risk sentiment among investors, particularly those focused on domestic economic conditions, such as small- and medium-cap stocks. The concurrent decline in price pressures strengthens the Federal Reserve’s confidence that inflation is moving towards its 2% target, paving the way for a potential September interest rate cut. However, the strong economic activity also presents a factor that could restrain the Fed from implementing large or rapid rate cuts to avoid reigniting inflationary pressures.
Market-implied odds for a 50-basis-point rate cut in September have slightly eased from 38% a day ago to 32.5%, according to CME Group’s FedWatch data.
Market Reactions:
*
U.S. Dollar:
The U.S. Dollar Index rallied 0.4% in response to the GDP data, building on a 0.5% gain from the previous day.*
Bonds:
Treasury yields edged higher, causing the iShares 20+ Year Treasury Bond ETF to decline by 0.5%.*
Japanese Yen:
The USD-JPY pair rose 0.7% to 145.35 levels. The Invesco CurrencyShares Japanese Yen Trust fell 0.7%.*
Stocks:
The S&P 500 rose by 0.3%. The tech-heavy Nasdaq 100 climbed 0.8%, despite a 2.2% drop in Nvidia Corp.*
Sector Performance:
The Technology Select Sector SPDR Fund led sector gains, up 0.9%.*
Oil:
The United States Oil Fund rose by 2.2%, fully reversing the previous day’s losses.*
