welve months ago US first quarter GDP surprised with a particularly weak number
due to the polar vortex, and here we are again with a sense of déjà vu with a similarly disappointing GDP number, which also exceeded the worst of expectations, coming in at 0.2%, against an expectation of 1%, despite the fiscal boost of much lower oil and gas prices for US consumers.
A number of factors have been blamed including the weather
, the west coast ports strike, a sharp drop in oil investment, and the stronger US dollar, and the expectation is that just like last year the Q1 slump will prompt an even sharper rebound in subsequent quarters.
The bigger concern is that subsequent revisions are likely to be to the downside in the same way they were last year, when we got a similar 0.1% print before we got a final print of -2.1%.
There is certainly something to be said for the argument for a strong bounce back,
let’s face it given how weak US consumer spending has been in the last six months, we are well overdue a pickup, but this view also overlooks the fact that the US dollar is over 20% higher now than it was then, which means it will continue to be a slight drag in the coming months, even if it does weaken from where we are now.
There is also the added factor that investment in the energy sector will be much lower as a result of the lower oil price.
Last nights Fed statement not surprisingly offered few surprises as to the FOMC’s thinking,
with the committee removing all calendar references to what the Fed might do next. We do know that the Fed still thinks that the slowdown in Q1 is transitory, and while we saw US markets also decline yesterday, the move lower was much more sedate given that it is likely that we probably won’t see a move on rates before September, at the earliest.
Sentiment will now depend on next week’s US employment report for April
, as well as the latest ISM data as to whether the transitory view has any legs.
Today we have the latest Chicago PMI for April,
which in the wake of two successive sub 50 readings needs to show some evidence of a rebound, with a reading of 50 expected, from March’s 46.3.
We also have the latest March numbers for personal spending and income
, with the hope that we could see a rebound after poor February numbers. The latest PCE core inflation numbers are expected to remain at 1.4%. still well below the Fed’s 2% target rate.
European markets dropped sharply on the weak US number
, as the greenback slid sharply and the euro surged through 1.1000 as concerns about further euro strength saw a massive unwind in the German DAX, which posted its biggest one day fall since 2008
Despite yesterday’s sharp falls we should see a modest rebound when markets re-open this morning, as we get set for a data deluge ahead of the European long weekend.
It’s a data heavy calendar in Europe
ahead of tomorrow’s May Day holiday with the latest unemployment numbers from Germany, Italy and the EU
as a whole. Germany’s rate is expected to stay at 6.4% for April, while the March numbers for Italy and the EU are expected to improve slightly to 12.6% and 11.2% respectively.
The latest EU inflation numbers for April
are also expected to show a pick-up from -0.1% to 0%, with core prices unchanged at 0.6%.
Events in Greece remain as unpredictable as ever, despite the ECB raising the ELA on Greek banks again
yesterday, as bank deposits fell to a 10 year low as the bank jog continued. This appears to have prompted Moody’s to downgrade the country further into junk territory, with a negative outlook.
With the cash continuing to run out there has been some talk that the Greek government appears to be on the cusp of agreeing some form of deal
with respect to 51% stakes in the ports of Piraeus and Thessaloniki, though this hasn’t been confirmed and has been mooted previously before being denied.
Meanwhile the clock keeps ticking down as Greece’s new negotiator heads to Brussels
in an attempt to thrash out a new reform list that Greece’s creditors find acceptable.
– yesterday’s break above 1.1050 saw the euro push up towards the 1.1200 level. The next resistance sits at 1.1220, while a break through here would then target the 1.1500 area. Having been resistance for such a long time dips back to the 1.1050 should act as strong support.
– yesterday’s move towards 1.5500 has unfolded much quicker than anticipated with the potential for a move towards 1.6000 in the coming weeks. Next resistance sits at 1.5570 while support remains back towards the 1.5175 level and 100 day MA.
– a slightly firmer tone yesterday has seen the euro inch higher but we need to push through the 0.7235 area to argue for a move towards 0.7300. Support remains at the recent lows at the 0.7115/20 area.
– strong support remains just above the March lows at 118.30, while at the same time the rebounds keep getting shallower. We need to see a break above 120.20 to mitigate the downside risk of a move towards 116.50.
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