FOREX TRADING

US GDP

US preliminary Q3 GDP was revised down to 2.8% from original report of a 3.5% rise in the advanced estimate. Despite the downward revision, the improvement in US GDP suggests that the worst of the US recessions is over. According to the Bureau of Economic Analysis the increase in Q3 GDP reflects positive contributions from personal consumption, exports, private inventory investment, federal government spending and residential fixed investment. An increase in consumption and improvement in the housing market helped boost Q3 GDP.

This improvement reflects significant impact of government stimulus to encourage demand for auto sales by the cash for clunkers plan and tax credit for new homebuyers. There is concern that when government stimulus is withdrawn the pace of the expansion may slow with growth limited by the weakness of the US labor market. In addition, the Fed is beginning to lay the foundation for the end of its ultra low interest rate policy and the first steps to exit from quantitative ease. How the economy reacts when the Fed begins to withdraw stimulus will be key to the outlook for US GDP growth in 2010. Columbia University economist’s Stiglitz says there’s a significant chance that the US economy will contract in the second half of 2010. He urges the US government to prepare a second stimulus package to create jobs. According to Stiglitz, the economy must grow by at least 3% to create enough jobs to meet US population growth.

Final Q3 GDP will be released on December 22nd at 8:30 ET and is expected to be revised down to 2.7%. The additional downward revision will reflect weaker September construction figures and a more rapid drop in inventory drawdown.

US existing home sales

According to the National Association of Realtors (NAR) US existing home sales surged by 10.1% in October. This followed an 8.8% rise in September. The gain in existing home sales reflects the impact of the first-time buyer tax credit, lower mortgage rates and increased affordability of housing as prices of homes have continued to decline. Existing home sales rose to an annual rate of 6.10mln units in October from the downward revised pace of 5.54mln in September. Existing home sales are 23.5% above the 4.94mln unit level of October 2008 with sales activity at its highest level since February 2007. According to the chief economist for the NAR Yun the rise in existing home sales reflects many buyers rushing to beat the deadline for the expiration of the first-time buyer tax credit that was originally due to expire on November 30th. The tax credit has been extended until April 30th, 2010. The total inventory of existing homes fell 3.7% to 3.57mln. This represents a seven month supply existing home sales. Total inventories of unsold homes are 14.9% below a year ago. The supply of existing homes is at the lowest level in over two and half years. According to the NAR’s Yun the housing market is getting closer to the balance between buyers and sellers. The median sales price for existing home was 173,100k down 7.1% from last October.

On December 22nd at 10:00 ET November existing home sales will be released expected at 6.25mln compared to 6.10mln last month. The inventory of existing homes is expected to fall to 6.7% from 7% in October and median sales price of an existing home to have stabilized.

The USD is consolidating near three month high as equities trade at a new high for 2009 and bond yields rise. This suggests that the worst may be over for the USD as the inverse correlation to equities continues to break down. Positive US economic news is supporting the USD as focus shifts to the US recovery and probability of rising US interest rates. The impact of the revised GDP and existing home sales report will depend on whether the data contributes to optimism about the US recovery

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