US Q2 GDP data were awful – SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that the US Q2 GDP data were awful as the real GDP growth of 1.2% y/y is about as low as it’s been in the ‘new normal’ secular stagnation of the post-crisis world.

Key Quotes

“Nominal GDP growth of 2.4% y/y hasn’t been lower since the first quarter of 2010. And yet, the data aren’t as bad as they look. Final sales grew at a much more respectable 2.6% in Q2 on an annualised basis, and consumer spending at a 4.1% rate. Gavyn Davies argues (in the FT) that after the Q1 doldrums, the US and global economies have picked up a lot of momentum in recent monthsw. These suggest that the US potential growth rate is above 1 ½% even when full employment is achieved. In 2014 and most of 2015, it looked like potential growth could be as low as 1%.

The US economy is still trundling along at a 2%-ish rate, unable to deliver an investment-led acceleration but unlikely to see these weak figures persist as long as there is any slack left in the labour market. So the soggy data, combined with the sense that the global economy is still comfortably away from stalling speed, merely reinforce the pressure on investors to search for yield, wherever and whenever they can find it.

In that context it’s hard to be bullish of the dollar, unfortunately. Yield support is absent, and CFTC positioning data show dollar longs being cautiously rebuilt, and the GDP data will go a long way towards keeping the Fed inactive through the presidential elections. Not a good mix. Beware, in particular, a short squeeze in GBP/USD and a spike higher in EUR/USD.”