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Market Roundup: GDP Contraction Cools Hawkish Forward Views

US TSYS
Rates and stocks rallied after this morning's recession metric cooled: U.S. GDP contracted by 0.9% in the second quarter, far below analyst expectations for a 0.4% gain, driven by decreases in inventory investment, housing and government spending, according to Wed's advance est by Bureau of Economic Analysis.
  • Short end rallied/yield curves bull steepened (well off initial highs: 2s10s currently at -20.894 vs. -14.369) as expectations over another 75bp hike in Sep cool - 50bp looking more likely at the moment but remain data dependent.
  • Technicals for TYU2: Treasuries have traded higher and cleared resistance at 120-16+, the Jul 6 high and bull trigger. The outlook is bullish and the break higher has confirmed a resumption of the current bull cycle.
  • The contract has also established a bullish price sequence of higher highs and higher lows. This opens 121-10 next, a Fibonacci retracement. On the downside, the 50-day EMA, at 118-23+, is a firm support. Key support is at 117-14+, the Jul 21 low.
  • Equities like the concept of less aggressive forward guidance from the Fed, but pull-backs this morning associated with weak earnings by a handful of stocks: Overstock (OSTK) miss: $0.17 vs. $0.277 est, Stanley Black-Decker (SWK) miss: $1.77 vs. $2.126 est, T Rowe Price (TROW) $1.79 vs. $2.145 est. Sources cite moves in DAX (+115.73 at 13282.11) and carry-over rally in Microsoft for current rally in SPX emini futures (ESU2 +29.50 at 4054.0)
  • Cross assets: Spot gold extends gains +20.06 at 1754.25, crude off highs: WTI +0.84 at 98.10.

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