Data run-down:
GDP:
- Headline GDP +1.9 vs +2.2 forecast
- Final Sales +0.9 vs +2.3 forecast
- Deflator +2.1 vs +2.1 forecast (inflation metric)
- Business Inventories account for +1.0 pct of GDP
Durable Goods
- Headline -0.4 vs +2.6 forecast (very big miss)
- Excluding Transportation +0.5 vs +0.5 forecast
- Nondefense Cap Orders Excluding Aircraft (Capex) +0.8 vs +0.5 forecast. Big revision to previous month (+1.5 vs +0.9)
A huge volume spike at data time lets us know that markets aren't completely tuned out from economic data at the moment. It's hard to say what the bigger market mover was. At first glance, one would assume it MUST have been the huge miss in Durable Goods.
While that's possible, keep in mind that markets put a lot of stock in "capex," which came in better than expected and was revised much higher for the previous month as well. Even so, the headline is indeed probably big enough to earn some bond buying.
GDP has a somewhat opposite issue. The headline reading was OK but the internals were weak. Final sales at +0.9 vs +2.3 is VERY weak, and the headline itself would only be +0.9 without the benefit of the build in inventories.
With all of the above in mind, I think it's fair to give roughly equal blame to the two reports. Ultimately though, the combination of headline levels and internal components isn't the end of the world for financial markets, and that's likely why we're seeing bonds bounce back into weaker territory already.
The tenor of the day has yet to be fully revealed, however. This bounce toward weaker territory could simply be a rush to square up short term positions after the initial reaction. Stock market momentum may be informative coming up at the 9:30am NYSE open. From there, traders will be looking for any major changes in inflation expectations in the Consumer Sentiment data.
