Friday’s Agenda -- North America -- 2:17 PM EDT
A guide to what could move North American markets.
Rising revisions on GDP
What we expect: 1Q-02 GDP Growth is expected to be revised higher on Friday to +6.3% from +5.8% in the advanced report.
Why we care: The reasons are straightforward: The improvement to foreign trade will add +0.3%, while the improvement to inventories will add +0.1% and a joint contribution from residential investment and consumption to add +0.1%. In turn, this upward revision will produce an upward revision to 1Q-02 Productivity growth of +0.3 basis points to 8.9% from 8.6%. We expect that the GDP inflation deflators will be nearly unchanged from their advanced readings. We expect 2Q-02 GDP growth to come in near +4.0%, bringing the first half average growth rate to +5.15%.
Where markets will go:A rise GDP will further underscore the need for the Fed to raise rates soon to keep inflation in check. Higher rates increase returns, but raise borrowing costs and act as a damper on profits, and consequently on foreign investments – not good news for the USD. But early week declines stocks are ready to rise again. Following a firm goods order report on Thursday, an upwardly revised GDP report (with some help from favourable earnings reports) should see equities post gains. But since the early 1990s, the Dow has more often ended the session before Memorial Day weekend with declines. Treasuries have risen all this week in the face of adverse data on the back of equity declines. Will Friday be different – wait and watch.