Thursday, 28 April 2016 10:42

How Will Markets React To GDP Numbers?

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The advance GDP estimate is scheduled to be released today and this article discusses the various GDP growth rate scenarios and possible market reaction.

The chart below gives the US GDP forecast for 1Q16 from the Federal Reserve Bank of Atlanta, The Federal Reserve Bank of New York and the Bloomberg consensus.

 

US 1Q16 Growth Estimate Consensus

 

I would consider these as major consensus estimates and the following market reaction is likely on actual GDP numbers –

1) If GDP growth is around the broad range of 0.5% to 0.9%, I believe that the markets have already digested these numbers and no sharp reaction is likely in any major asset class.

2) If GDP growth is below 0.5%, I believe that markets are likely to react positively and trend higher. Weak GDP numbers would also imply that rate hike is delayed further and there is room for potential rate cut on another disappointing quarter. While the reaction might be short lived, I believe that very sluggish GDP numbers will take the markets higher.

3) If GDP growth is above 1.0% or well above 1.0%, I am of the view that markets will start focusing on the earnings season with nothing exciting enough on the economic numbers front. However, in this scenario, I expect markets to correct as there has already been some major earnings disappointment.

 

In all likelihood, GDP numbers will be sluggish and I expect precious metals to rally along with other commodities on a weaker dollar. Therefore, it might be a good idea to remain invested in gold and silver along with gold mining stocks in the foreseeable future.

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