Today at 8:30am, the United States' GDP, on a quarterly basis, will come out and let investors know how the country's economy is doing. The Gross Domestic Product essentially measures the value of goods and services produced by the economy. It is a broad measure of economic health and is integral for understanding whether economic or monetary policies are truly being reflected in the public and private sectors.
Positive GDP indicates that companies as well as individuals are ultimately creating more output, despite uncertain economic times. Companies are essentially ramping up business and are providing more services for their clients. This indicates to traders that things may be better, after all, and tends to move the equity markets higher. In pre-market trading, the currency will move higher along with equities as well.
This afternoon, traders will be looking for American GDP to surpass an estimate of 2%. If the number is greater than the estimate, the US Dollar will immediately move higher, and barring unforeseen European news or other macroeconomic news, will set the stage for the US equity markets. The US news may influence European markets during their midday trading session.
Long-term investors should also keep in mind the GDP from the prior period, which was 2%. GDP comes in every quarter, so long-term investors should keep track of quarterly snapshots of the consumer retail sector. Any aberrations or sudden drops could mean that consumers are getting skittish about the economy and are refusing to spend money on items not deemed necessary.
Investors should also keep in mind that the holiday season may artificially bolster trends. If investors see a sudden drop in January sales, they should not assume the economy is extremely bearish. However, if investors see a sudden drop this afternoon, then there may be underlying problems affecting the economy.
Consumers have a few options when it comes to understanding the global economy. The United States' GDP number is one indicator that could help investors gauge where the economy is heading into the future. Investors should also keep up with the news to stay on top of major developments that move markets.
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Bullish View:
Traders who believe that the American GDP will be positive might want to consider the following trades:
- Long a bullish American ETF during market hours. An ETF such as the S&P 500 SPDR SPY would serve well for this cause; you could also purchase options after market open if US news is continuously bullish. If you go with the options strategy, you could purchase a straddle just to reduce risk associated with the bet.
- Long the US Dollar/Euro currency pair, which will move higher due to positive American economic news.
- Commodities including energy and precious metals will most likely move positively with the US Dollar if actual GDP beats estimates.
Traders who believe that America's GDP will not be positive may consider the following positions:
- Short US Dollar futures. The futures market typically relies on technical analysis for entry and exit points, so identifying the next support level may be useful.
- Long the Euro against the US Dollar, which will move upwards if the USD shows weakness.
- Depending on Great Britain's GDP number, it may be wise to long the GBP/USD currency pair. If both GDP numbers are negative, short the side which missed estimates by a bigger margin.
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