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Earnings a focus, but also looking to GDP for Fed clues

A trader works on the floor of the New York Stock Exchange.
Adam Jeffery | CNBC
A trader works on the floor of the New York Stock Exchange.

Thursday brings another wave of earnings with companies from Procter & Gamble to Amgen reporting, but markets will also be digging deep into GDP data for any clues on the Fed.

The first look at second-quarter gross domestic product is scheduled to be released at 8:30 a.m. ET, along with three years' worth of revisions from the Bureau of Economic Analysis. Economists are watching for changes as it attempts to correct a pattern of overly weak first-quarter growth.

CNBC's Steve Liesman reported in April that first-quarter GDP was statistically softer than the other three quarters for the past 30 years, and substantially weaker in the past five.

The BEA acknowledged the problems and said it was developing methods to address them.

"What we should have seen in the first quarter was a gain of 1.8 percent," said Deutsche Bank's chief U.S. economist, Joseph LaVorgna. The latest report from the government was for a decline of 0.2 percent in the first quarter.

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LaVorgna noted the BEA's annual revisions should try to address the seasonal tendency for first-quarter weakness. He noted that the first quarter over the last five years averaged just 0.6 percent growth, well below the average quarterly expansion rate of 2.3 percent, and was followed by accelerated second-quarter growth of 3 percent.

Michelle Girard, chief U.S. economist at RBS, said she also expects to see the first quarter's minus 0.2 percent growth revised to a positive number. "People in addition to GDP will also be looking to any revision to the core PCE deflator, and to the extent that there are any slightly upward revisions," she said, noting that a boost could mean a slightly higher inflation reading and more ammunition for the Fed to raise rates.

Girard expects 2.4 percent second-quarter growth, just under the consensus 2.5 percent.

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The Fed on Wednesday released a post-meeting statement that upgraded its view of labor but still showed concerns about the slow pace of inflation. Strategists and economists said the central bank opened the door to a September rate hike with the release but it was vague enough to give the Fed flexibility on when it will raise rates.

"There wasn't too much there. It was as expected," said Cantor Fitzgerald interest rate strategist Justin Lederer. "They're getting close to starting the normalization process. It still leaves September on the table. It's definitely going to be two very big payroll reports that we have before then, and they're definitely looking to get off the zero bound."

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The next monthly payroll report will be released in a week, and Fed watchers see the GDP report Thursday and Friday's employment cost index as important data points for the central bank.

Besides GDP on Thursday, there are weekly jobless claims, also at 8:30 a.m.

Earnings are expected before the bell from P&G, Fiat Chrysler, A-B InBev, Colgate-Palmolive, ConocoPhillips, Deutsche Bank, Diageo, CME Group, Time Warner Cable, Teva Pharma, Sony, Starwood Hotels, T-Mobile and Delphi Automotive. After the bell, Amgen, Electronic Arts, LinkedIn, Boston Beer, UnitedHealth, Shopify and FireEye report among others.

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