Hold on to your hats! Final 2Q GDP Seasonal Adjust Annual Rate figures came in a whopping 1.4% vs. consensus of 1.3%; the previous figures were at 1.1%. This economy just continues to show why the Fed must raise rates immediately [sarcasm].
In all seriousness, this an absolute joke. First off, they make these number so confusing that nobody can understand what they mean. Go ahead — go to the FRED website and look at the sheer number of types of GDP figures there are. 1.4% is the annualized rate, meaning just that, it is the rate quarterly growth for the quarter multiplied to annualize it. So logically, my assumption would be we take 1.4% and divide it by 4, which would give us the actual rate of growth for Q2 over Q1, which would mean Q2 GDP grew 0.35%. Wow. Now how do we prove it?
Looking through all the of maddening numbers, I found the Real GDP Chained Type Seasonal Adjusted Index (luckily I already knew it existed). In this case, the index is indexed to 100 from 2009.
Here is a closer look:
Do we agree now on the 0.35% reading of the non-annualized number?
Now the questions is: What is the actual y-o-y growth in GDP?
It is just a hair below 1.3%.
So what is the difference? This is a chart using the report from this morning.
The Q2 "Annual Change from proceeding period" is a fancy way of saying "Quarter-over-Quarter."
You see how annualizing data over inflates the readings. Has our GDP grown at even close to 5% since 2008? Year over Year, GDP has barely increased over 2.5% since 2008.
Let's raise rates, yes. We should raise rates based on artificially adjusted numbers to make things look better than what they truly are.
But enough on this.
Markets and Sectors
The big pop we got yesterday afternoon following the excitement in Oil, seems to have worn out a little bit today. The S&P 500 (NYSEARCA:SPY) is down just 2 points and is now sitting at 2167.
The machines have found the next level to take the market too and that is 2170, and that is basically where we are.
The sector that we focused on your yesterday is the Biotech (NASDAQ:IBB) sectors which once again is under pressure. Today it is down another 1.5% and is sitting right around $291.
You can see it just continue to drift towards this $290 level, where there seems to be a wall of support. I feel l like a broken record saying this, but I can't see the broader market advancing without this sector.
The energy (NYSEARCA:XLE) is the best-performing sector on the heels of yesterday's run-up. We can see from the chart it broke the previous downtrend authoritatively.
Yield and Currency
The yield on the 10-year (NYSEARCA:TLH) is moving up today to around the 1.59% level. This is a really interesting development in this.
Just look at this setup: Our blue downtrend which has served us so well in determining the direction of Yields since January now appears to be acting as support. If the yields can recapture the green up trendline, it clearly marks a short-term shift in yields and strengthens the possibility of a move to 2% on the 10-year.
The Yen is a fantastic chart to behold.
The Yen is up about one handle today 101.62 vs. the USD. Look at the defense of the 100 Yen to the Dollar (NYSEARCA:UUP) level. Four times the Yen has gotten to 100 Yen (NYSEARCA:FXY), and it hasn't been able to bust through. We can see there has been a tremendous amount of strengthening in the Yen since the beginning of the year. 100 as held firm, someone is out there vigorously defending the 100 level. Something is going to give real soon. Either the Yen is about Strengthen materially or is about to Weaken substantially. Whatever the case, it isn't staying at this current level much longer.
There are a lot of inflection points it would seem this morning, for what is a rather quiet day on the surface. The Biotech sector is on the cusp, the Yen is on the cusp, and Ten-year is on the cusp. There seems to be a significant shift occurring at this time. These changes will cause a rotation to occur, and it is likely to bring volatility with it. Be mindful of higher yielding equities (NYSEARCA:HYG) at the moment, be mindful of Biotech (NYSEARCA:XBI) and be aware of Japanese (NYSEARCA:EWJ) equities. There seems to be a wind of change blowing.
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