Marketmind: Accelerating US economy sideswipes markets
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[August 17, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
Far from the recession forecasts of earlier this year, U.S. economic
growth may actually be accelerating in the second half of 2023 -
upending bond and stock markets scrambling to reprice long-term
inflation and interest rate assumptions.
After a blowout July retail sales report on Tuesday was followed
yesterday by news of a surprising surge in U.S. industrial output and
housing starts last month, third quarter U.S. gross domestic product
estimates are ratcheting higher.
Although often a volatile model, the Atlanta FederalReserve's real-time
'GDPNowcast' estimate of current quarter GDP growth has soared to as
high as 5.8% - its highest since January 2022 and more than twice what
it was just one month ago.
That compares with the official estimates of second-quarter GDP growth
at an annualized 2.4% - itself a significant upside surprise - and Wall
St forecasters are re-drawing forecasts again. Deutsche Bank on
Wednesday, for example, more than doubled its third quarter real GDP
call to 3.1%.
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With China's economy struggling under a weight of property sector,
credit and geopolitical worries - and GDP forecasts there being revised
down rapidly - U.S. growth could well outstrip it this quarter.
The implications of such resilience in U.S. activity in the face of more
than five percentage points of interest rate rises in 18 months has
forced many to rethink the sustainable interest rate level over the
horizon and increase long-term projections.
The Fed itself, judging by minutes of its most recent policy meeting
released on Wednesday, is still unsure whether it should raise rates
again. It has its annual Jackson Hole conference later this month to
nuance any guidance before it meets again in September.
For now, the constellation is seeing an ongoing repricing of bonds and
10-year Treasury yields topped 4.3% on Thursday for the first time since
October.
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![](../images/081723PIX/busine77.jpg)
A sign is seen outside the 11 Wall St.
entrance of the New York Stock Exchange (NYSE) in New York, U.S.,
March 1, 2021. REUTERS/Brendan McDermid
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And the restiveness of the bond market has unnerved stocks to boot -
even though the earnings and interest implications of accelerating
growth are competing influences.
After another heavy loss on Wall St indices on Wednesday, futures
regained some ground ahead of the bell today. Ebbing oil prices
might help as China's woes cut across energy demand forecasts.
Overseas, China's stocks stabilized tentatively after days of
attrition but bourses elsewhere in Asia and Europe were in the red
again.
The dollar is the big winner in the whole piece - soaring against
China's yuan to its highest level of the year despite reports of
Chinese state banks trying to prop up the renminbi.
The dollar's DXY index against developed market currencies surged to
its highest in two months.
Events to watch for on Thursday:
* U.S. corporate earnings: Walmart, Applied Materials, Tapestry,
Ross Stores, Keysight Technology
* U.S. weekly jobless claims, August Philadelphia Fed business
survey, July leading indicator
* U.S. Treasury auctions 4-week bills
(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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