US GDP second estimate revised down, but upward of forecast

The Bureau for Economic Analysis released today the second estimate for Q2 GDP at 1.6% growth, a heavy foot on the breaks from the first quarter's 3.7%. However, the revision was expected to land at 1.4% from the Q2 first estimate of 2.4%.

The release also includes the Gross Domestic Purchases Price Index showing that inflationary pressures remain low. The indicator stayed put at 0.1%, turning a blind eye on the 1.8% forecast. 

Real Personal consumption Expenditures QoQ rose from a revised 1.9% to 2.0% bypassing expectations of a drop to 1.7%.

Gross Domestic Product Annualized

1.6%

Actual

1.4%

Consensus

2.4%

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Mid-Day Report: USD/JPY Extends Rebound after Better than Expected GDP Revision

USD/JPY extends this week's rebound after better than expected Q2 GDP revision from US. GDP growth was revised down from 2.4% to 1.6% annualized, above consensus of 1.4%. GDP price index was revised up from 1.8% to 1.9%. USD/JPY jumps after the release and breaches 85 level. But no follow through buying is seen in dollar against other currencies yet, not is there follow through selling of yen. Markets are still cautious ahead of Bernanke's speech later in the US morning.

There is more rhetoric from Japan today. Prime minister Naoto Kan said that government is ready to take bold action in the currency market as "volatile movements in the currency market have a negative impact on economic and financial stability." Kan is expected to meet Shirakawa after the BoJ governor returns from US next week and before next BoJ meeting on Sept 6.

Other data released today saw UK Q2 GDP growth revised up from 1.1% qoq to 1.2%, from 1.6% yoy to 1.7% yoy. Swiss KOF leading indicators dropped slightly to 2.18 in August. Japan remained in deflation for the 17th month with national core CPI dropped -1.1% yoy in July. Unemployment rate improved from 5.3% to 5.2% in July though.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 84.23; (P) 84.55; (R1) 84.78; More.

USD/JPY's rebound form 83.61 rebounds further and touches 4 hours 55 EMA as expected. Further rise could still be seen. But after all, note that upside is expected to be limited below 86.36 resistance and bring another fall. Below 84.27 minor support will flip intraday bias back to the downside first. Further break of 83.61 will confirm down trend resumption for next key level at 80 psychological support. However, note that decisive break of 86.36 resistance will argue that USD/JPY has formed a short term bottom at least and bring stronger rise towards 88.11 resistance first.

In the bigger picture, whole down trend from 2007 high of 124.13 is still in progress and has resumed by the strong break of 84.81 low. Current decline is expected to continue towards 79.75 (1995 low) next. On the upside, break of 94.97 resistance is needed to be the first signal of medium term reversal. Otherwise, outlook will remain bearish.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:30	JPY	Tokyo CPI Core Y/Y Aug	-1.10%	-1.20%	-1.30%
23:30	JPY	National CPI Core Y/Y Jul	-1.10%	-1.10%	-1.00%
23:30	JPY	Unemployment Rate Jul	5.20%	5.30%	5.30%
23:30	JPY	Household Spending Y/Y Jul	1.10%	1.60%	0.50%
08:30	GBP	GDP Q/Q Q2 P	1.20%	1.10%	1.10%
08:30	GBP	GDP Y/Y Q2 P	1.70%	1.60%	1.60%
08:30	GBP	Index of Services 3M/3M Jun	0.70%	0.70%	0.80%	1.00%
09:30	CHF	KOF Leading Indicator Aug	2.18	2.25	2.23	2.22
12:30	USD	GDP (Annualized) Q2 P	1.60%	1.40%	2.40%
12:30	USD	GDP Price Index Q2 P	1.90%	1.80%	1.80%
13:55	USD	U. of Michigan Confidence Aug F		70	69.6
14:00	USD	Fed Chairman Ben Bernanke Speaks		--	--
--	EUR	German CPI M/M Aug P		0.20%	0.30%
--	EUR	German CPI Y/Y Aug P		1.10%	1.20%

Croatia: 2Q GDP contracted by 2.5% y/y

According to the first flash estimate, GDP in 2Q repeated the 1Q performance, posting a 2.5% contraction. The figure came in somewhat below our forecast and the market consensus (ESBe: 2.2% y/y; market 2.3% y/y), showing the ongoing fragile economic development. The detailed breakdown should be revealed as the end of September. We expect the GDP performance to have remained subject to a strong negative impact from contracting investment activity, which likely remained in double-digit negative territory. Private consumption could also remain a  burdening factor, still likely showing some stabilization with respect to 1Q (-4.1% y/y). Trade balance  statistics, on the other hand, suggest a continuation of the strong net export offsetting effect.

For 3Q, we anticipate stabilization, due to encouraging preliminary tourist season figures (7% y/y more overnight stays in July) and additional stabilization of private consumption. Merchandise trade should also remain supportive, though likely to a lesser extent than in the robust 2Q. Overall, our FY10 GDP forecast remains in the 1.5% region.

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Euro-shares stay low after UK GDP

European stocks resumed its downtrend in early trade, ahead of a key speech from Fed's Chairman Mr. Bernanke and US growth data. Stocks alos struggled in Asia, extending its week of losses as lingering worries over the state of the global recovery continues to wreak havoc sentiment.

On the currency market domain, a rising yen, considered a safe asset class when uncertainty knocks on the door, is at 15-yr low, helping little to keep equities afloat. The risk-off scenario, intensified over the course of this week, may get even bleaker should the upcoming US GDP fail to deliver a "doubtful" promising result.

In Britain, GDP preliminary reading for the second quarter reached 1.2%, improving slightly from a 1.1% expected. The FTSE-100 was off 0.40%, not much changed from before the report. CAC-40 declined 0.70% while the DAX was 0.32%. Energy companies were hit by falling oil prices, while no further relevant news were made public on M&A activity.

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