### POV: GDP UNLIKELY TO MAKE FOMC....>

US DATA REACT: ### POV: GDP UNLIKELY TO MAKE FOMC MORE HAWKISH: Rate markets

initially took the Q2 GDP figures hawkishly, with EDZ9 at post-May lows.

- Apart from headline beat (2.1% Q/Q ann. vs 1.8% exp.), personal consumption

(+4.3%) boosted strong real final sales to private domestic purchasers (+3.2%,

double 1.6% in Q1) and suggest a robust domestic economy.

- But the hawkish reac may have been hasty (and mkts are already reversing) as

there is plenty for the FOMC doves here too.

- First and foremost is a sizeable core PCE price miss (+1.8% vs 2.0% exp.), but

composition of growth will remain a concern for some FOMC members (as was Q1).

- Nonresidential fixed investment shrank 0.6%, worst since Q116 - not a smoking

gun, but suggesting business uncertainty filtering into the real economy.

- And government spending played a big part in overall growth - contributing

0.85pp to the headline GDP number (i.e. two-fifths of growth), led by a whopping

15.9% growth print in federal nondefense spending, most since Q498.

- Can that be sustained? As one client noted, there is an election next year...

- Overall does little to dissuade case for 25bps Jul cut-but 50 still unlikely.