Thread by @Darky999

US Q4 #GDP thoughts: Consensus = 2.0% (BBG), Atlanta Fed 1.7%; NY Fed 1.2%; Hedgeye 0.07%. A friend of mine who loves to model this stuff has 0.7%. These are QoQ SAAR numbers, this means Q3 to Q4 growth rate which is THEN ANNUALISED @HedgeyeDDale
1/N

US Q3 GDP was 2.1%, so anything below this = slowing of growth in rate of change terms.

I don't see any upside to the above consensus number of 2.0%. I see a lot of potential downside.

The bond market in recent days is front running a combo of weak GDP growth, and #Corona

2/N

It's hard to know how much the bond market is due to GDP and how much due to Corona. Almost certainly both are having an effect on a huge reduction in 10Y yields from 1.95% (Jan 1) to 1.57% (now). This is a large move in 4 weeks!

3/N

Recent weak home sales, durable goods, inventories, industrial prod, CAPEX, and some initial cracks in retail (70% of GDP) will be offset by a lower trade deficit (note imports are still -5% YoY and this will work itself into the consumer number).

GDP = C + I + G + (X – M)

4/N

C = Private Consumption (i.e. "the consumer")
I = Gross Investment (e.g. CAPEX, change in inventories etc)
G = Government Investment (e.g. Infrastructure etc)
X - M = Exports - Importans (i.e. Trade Deficit)

5/N

So you just calculate these 4 components and you have GDP! It's really hard to know these numbers accurately only 30 days after the quarter end, so everyone is estimating, including the BEA. This is why GDP numbers are often revised @D_Blanchflower = expert on this

6/N

It seems really hard to believe that Q4 will be above consensus (and thus 2.1% or more) and equal to Q3 (2.1%), as economic data have slowed. So I think the prudent thing to assume is that there is more downside risk than upside risk to the 2.0% consensus number

7/N

If you agree & you are overweight in equities then you might want to get some defensive positions (e.g. $TLT, $ZROZ, $GLD, CASH etc). If the GDP comes in with a 0-handle on the front then even the current S&P will likely find that hard to be bullish about @KeithMcCullough

8/N

I you want to 'roll the dice' and you think the GDP number will be far below the 2.0% consensus then perhaps consider $ED call options - but this is a more sophisticated trade, if you need to ask what strike/expiry to use you shouldn't be making the trade - DYOR @RaoulGMI

9/N

There is an argument if a really weak number is printed, that S&P might rally as more #cowbell (i.e. Fed easing = rate cuts and QE) would be coming from the Fed. A 'paradoxic' rally is possible, except one day it won't happen & the market will get 'rekt' @delphicapitalsd

10/N

If you think GDP will surprise on the upside (i.e. >2.0%) then commodity (esp Oil) exposure might be the way to play it, i.e. $XLE, $OIL, $USO ( $CL_F & $QM_F for those who trade futures), as Oil has been beaten over the last 3 wks - be warned, these can be highly volatile

11/N

My personal estimate is 1-1.5%, which would be a 'risk off' number, but not a disaster either (look at Q4 2018 = 1.1%). I'd be surprised if it started with a 2-handle, and not that surprised if it has a 0-handle.

The GDP number is out at 9:30am EST on 30 Jan.

12/12

@threadreaderapp unroll

*Imports (nice typo!)