- UST longs and/or USD shorts should not take solace in the GDP "miss".
- Nominal GDP registered a major 13% increase, while real GDP grew "only" 6.5%. Personal consumption expenditures rose 11.8%. The PCE deflator which adjusts nominal to real growth came in at 6.4%.
- Higher-than-expected PCE inflation significantly chipped away at nominal growth, leading to lower-than-expected real growth, yet that is still a negative for USTs.
- The inventory destocking component of investment's contribution to GDP, while now a headwind, will likely become a tailwind to growth as inventories are rebuilt.
- The near-term passing of around $4T in infrastructure bills will clear the way for the US dollar and UST yields to push higher near term.
For further details see:
Q2 GDP Report Supports USD Buying And U.S. Treasury Selling