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US Grows At Faster Pace Than Expected in Second Quarter


Today's financial recap and tomorrow's financial outlook.

The advance estimate of second quarter GDP showed in the US rose at a quarterly annualized pace of 4%. Economists had been expecting growth of 3% for the quarter. Most market participants had been anticipating growth that was below the 3% consensus. The first quarter was revised up to -2.1% from -2.9%. The above-consensus figure was helped by another record gain in inventories, likely a result of companies preparing for a strong post-weather snapback in activity. Business investment also rebounded strongly, much more than economists had expected.

The FOMC released its monthly monetary policy statement in the afternoon. It was modestly less hawkish than most had anticipated. The committee noted a recent improvement in inflation that had reduced the risk of sub-2% readings in the future. However, it stated that a broad range of labor market indicators suggested that significant labor underutilization - or low wage growth - remains. Most markets responded favorably to the statement.

Lastly, the ADP report of private payrolls showed a net gain of 218K  jobs in July. Economists expected a gain of 230K after 281K in the month prior. This suggests that the government nonfarm payrolls report on Friday should be near the consensus of 231K.

US stock indices traded erratically today, influenced heavily by the various economic reports. Shortly following the GDP report, the S&P 500 (SPX) bounced strongly most likely due to short positions betting on a poor result. The rally faded out as the day progressed, however, as interest rates continued to rise and the US dollar rallied. The 10-year Treasury yield rose as much as nine basis points to 2.55% during the day.

Twitter (TWTR) rallied sharply after it reported significantly better-than-expected second-quarter earnings results Tuesday after the close.

Other social media stocks like LinkedIn (LNKD) and Facebook (FB) rallied in reaction.

In other earnings news, we saw beats from American Tower (AMT) and Garmin (GRMN), and misses from HCA (HCA) and WellPoint (WLP).

Tomorrow's Financial Outlook

The most significant economic report scheduled for tomorrow is the Chicago regional manufacturing survey. The survey is highly sensitive to auto sales, which have been extremely strong of late. The index is expected to rise to 63.0 from 62.6 last month. Also scheduled to be reported is weekly jobless claims and the regional Milwaukee manufacturing survey.

The initial estimate for the July eurozone consumer price index will be released tomorrow morning. A similar report covering price changes in Germany reported today showed a larger than expected increase in prices from the month prior. Germany will report its monthly unemployment change and Canada will report its second quarter GDP.

Seventy six major US companies are scheduled to report earnings tomorrow, the busiest day of the week. Notable companies include Exxon Mobil (XOM), ConocoPhillips (COP), Mastercard (MA), T-Mobile (TMUS), Time Warner Cable (TWC), Tesla Motors (TSLA), LinkedIn (LNKD), and DirecTV (DTV).

Twitter: @Minyanville

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No positions in stocks mentioned.

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