The Daily Update - ECB, US GDP, I knew I was right.

The ECB left its policy rates, QE stance, and its forward guidance on rates unchanged at yesterday’s meeting in line with market observers’ expectations. President Draghi called the Trump-Juncker deal a “good sign” but still noted downside risks to the outlook from trade. He continued to call the outlook for growth as “broadly balanced” and noted some improvement in recent survey data. In the questions and answers session Draghi said the ECB did not discuss its reinvestment policy and said that the ECB’s forward guidance on rates helped align current market pricing with its own expectation, which may show that he is content with current market consensus, of rate rises post mid-year 2019.

A surprise could be if the market starts to price in a hike sooner than current expectations, something we would not discard given economic activity is now more robust; although the Mediterranean countries are still a drag on growth. However, inflation in Germany, France and other more northern countries is approaching the 2.3% level, which warrants some attention.

Today we have the Q2’18 U.S. GDP advance figure which is widely expected to come in around 4 to 4.5% qoq annualised, boosted by a jump in personal consumption, up to around 3% from the very low 0.9% seen in the first quarter. Interestingly the market consensus is for core PCE at 2.2% qoq down from 2.3% in the first quarter. Also we have the benchmark change to the GDP calculations; which usually means a number of GDP revisions.

This will be the 15th comprehensive update of the national income and product accounts which always causes us to grin. Many billions of dollars are traded on the initial economic releases only for them to be altered; we wonder how many traders sit there and think “I knew I was right” having lost money on the initial release.

Have a great weekend.

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