GDP has a One Day Impact, Rate Decisions Ahead

Investors experienced a rollercoaster ride last week as economic data had a major impact on the currency market. Even though the major news came on Thursday in the form of a better than expected GDP result, the news quickly wore off on Friday as the markets dropped lower. Friday’s session was a major turnaround as the market nosedived and closed down sharply for the week. The S&P 500 index finished the week down 4 percent or 43 points at 1036. The Dow Industrial average settled unchanged for the month.

The market started the week on the defensive side, led down by transportation, financials and healthcare stocks. Even though previous news from large names, such as IBM, helped to prevent a major drop, consumer confidence numbers prevented the previous week’s momentum from continuing. Tuesday and Wednesday the market continued to show weakness as market participants waited for the US GDP release on Thursday. The correlation between dollar strength and US equity market weakness was extremely strong during the week, as the dollar rebounded from oversold levels. As one can see on the chart below, the Dollar jumped higher for the week along with an S&P sell-off.

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Thursday was the major day of the week as a wave of news hit the boards. Japanese industrial production expanded for the seventh month in September, the longest run in 12 years. Output climbed 1.4% from a month earlier, more than the 1% expected. The US released new on Gross Domestic Product (GDP), which came out much better than the consensus. Gross domestic product expanded at a 3.5% seasonally adjusted annual rate in the third quarter, a rise that leaned heavily on government spending. Some of the largest components of growth came from spending on cars and house building, two areas propped up by federal programs. Out of the 3.5% growth, approximately one percent came from sales of motor vehicles and parts. Auto sales were accelerated by the "cash for clunkers" trade-in program.

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