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The Dow Jones rallied to recover recently-lost ground on Thursday. Equities are broadly higher as investors focus on good-bad news. Rate markets second-guess their stance on a Fed rate cut, but only slightly. The Dow Jones Industrial Average (DJIA) rallied on Thursday after headline US Gross Domestic Product (GDP) figures lurched higher, crimping rate market odds of a September rate cut. However, a mixed outlook in the underlying GDP figures and a sharp contraction in US Durable Goods Orders has overall risk appetite pinned firmly in the high end as investors continue to hinge entirely on softening data to help bully the Federal Reserve (Fed) into a fresh rate-cutting cycle. Annualized quarterly GDP surged to 2.8% in the second quarter, well above the forecast 2.0% and piling onto the previous quarter’s 1.4%. The firm upswing in US headline GDP growth over the first half of 2024 made rate traders blink, and rate traders have backed away from sky-high hopes of a first rate cut in September. Despite the easing in rate cut expectations, odds of an upcoming rate slash in the third quarter are still affixed firmly on the high side: according to the CME’s FedWatch Tool, rate markets briefly priced in only 85% odds of at least a quarter-point rate cut on September 18 before investors took a second look at US data figures and re-pinned rate cut odds at 100%. Looking at the underlying data that made up the US’ Thursday data dump, there was more to US GDP figures in the second quarter than meets the eye. A wide uptick in government spending at the federal and state levels made up a large chunk of the gains in Q2 GDP growth, and a significant amount of spending-as-growth were large gains in shelter spending and healthcare costs, two categories that…

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Filed under: News - @ July 26, 2024 1:12 am