US GDP Growth Slows Markedly, And Inflation Remains The Focus

Economic

Summary:

US GDP growth slowed to 1.6% annualised in the first quarter of this year, less than half the 3.4% rate recorded in 4Q23, but core inflation was stronger, picking up from a 2% annualised rate to 3.7%.

Higher inflation catches the markets' eye, rather than weaker growth

US first quarter GDP growth is an annualised 1.6%, well below the 2.5% consensus expectation, but inflation is hotter with the core PCE deflator up 3.7% annualised versus 3.4% expected. This suggests, assuming no revisions to monthly data, that the core PCE deflator will come in above 0.4% today rather than the current 0.3%MoM consensus forecast. Unsurprisingly, Treasury yields have pushed higher as if that is the case, it makes a near-term Federal Reserve interest rate cut look even more unlikely.

That said, this inflation number is a quarter-on-quarter annualised measure, so any revisions to October through February could have influenced today's outcome - we won't know until when we get the monthly income and spending report. We could still get a 0.3%MoM, but we have to acknowledge that yesterday’s data makes it look less likely.

GDP still running below pre-pandemic trend levels

In terms of the GDP growth breakdown, consumer spending was softer than thought likely, rising 2.5% annualised, while residential investment was a very firm +13.9%. Business capex was subdued, government spending saw a marked slowdown to 1.2%, while weakness in net trade subtracted 0.9pp from the headline growth rate, and inventories subtracted a further 0.35pp. The chart above shows that while GDP has performed well, the level of output is still a couple of percentage points below where we perhaps could have been had the pandemic not happened, and instead, the economy had continued running at its 2024-19 growth trend. US GDP Growth Slows Markedly, And Inflation Remains The Focus_2

US GDP Growth Slows Markedly, And Inflation Remains The Focus_2

As for the growth outlook, we expect to see more subdued activity in upcoming quarters. The divergence between business surveys and official data is very wide. We strongly suspect that business caution will translate into weaker hiring and wage growth and subdued business capex, and that will eventually show up in the official GDP data. The move higher in market borrowing costs this year will also weigh on activity and eventually dampen price pressures in the economy. Nonetheless, there is next to no chance of a rate cut before September.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Warren Takunda

Forex

Economic

The Canadian dollar (CAD) is feeling the heat, falling below the key 1.37 USD level and approaching a five-month low. This decline is primarily driven by two diverging forces: a sluggish Canadian economy and a strengthening US dollar.

Canadian Consumers Tighten Belts

Disappointing retail sales data is painting a picture of a Canadian consumer pulling back on spending. The first quarter saw no growth in retail sales, marking the slowest pace since mid-2023. This economic weakness adds pressure to the Bank of Canada (BOC) to consider rate cuts at its upcoming June meeting.

US Dollar Supported by Rate Hike Bets

On the other hand, the US dollar is benefiting from expectations of sustained interest rate hikes by the Federal Reserve. Persistent inflation and a robust labor market are fueling this sentiment, even if US GDP growth sputtered in the first quarter. This monetary policy divergence between the US and Canada is making the greenback a more attractive proposition for investors.

Technical Outlook

The technical outlook for the USD/CAD pair presents a mixed picture. Intraday bias currently sits in neutral territory, with the key support level at 1.3660 USD acting as a potential floor. A strong rebound from this level could signal a continuation of the near-term bullishness for the USD/CAD pair. Conversely, a sustained break below 1.3660 USD could trigger a deeper decline, potentially targeting the 55-day exponential moving average (EMA) currently sitting around 1.3592 USD.

Taking a broader perspective, the recent price action from the 2022 high of 1.3976 USD as a potential corrective pattern within a larger uptrend. This suggests that the current weakness might be a temporary pause before the uptrend resumes. In this scenario, strong support should emerge above the previously broken resistance level of 1.2947 USD, potentially leading to a rebound. A decisive break above 1.3976 USD would definitively confirm a resumption of the entire uptrend that began from the 2021 low of 1.2005 USD. The next potential target on that uptrend path could be the 61.8% projection of the Fibonacci retracement between 1.2401 USD and 1.3976 USD, coming in at approximately 1.4149 USD.

Shifting to shorter timeframes, particularly the 4-hour and 1-hour charts, the USD/CAD pair has been trading within a descending channel. Recently, the price action exited this channel and hit a resistance level, which is often associated with selling pressure. This presents two potential behavioral scenarios for the 4-hour timeframe.

The first scenario posits that if the pair is unable to break above the current resistance zone, it could retrace back down to the support level created by the previous order block (OB) that caused the price to jump. This support level would likely be situated around the area where the price exited the descending channel.

The second scenario takes into account the recent exit from the descending channel. This return to the resistance level could be interpreted as a pullback towards the broken channel before the uptrend continues. However, for this scenario to play out, the pair would need to decisively break above the resistance level and the 61.8% Fibonacci retracement level to target the next potential resistance zone. If this breakout fails to materialize, the first scenario becomes more likely.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Kevin Du

Economic

Central Bank

The March Personal Consumption Expenditures price index is forecast to show a mixed picture of inflation trends, potentially reinforcing the Federal Reserve's resolve to hold off on interest rate hikes.

Analysts expect the overall PCE Price Index to rise slightly on a year-over-year basis to 2.6% from 2.5% in February, according to FactSet. However, they also predict the index's month-over-month change will fall to 0.30% from 0.33%.

When volatile food and energy costs are factored out, economists forecast the core PCE inflation index to rise 2.7%, down slightly from a 2.8% year-over-year increase in February. However, the consensus estimate for core PCE inflation is a month-over-month increase to 0.30% from February's 0.26%.

The Consumer Price Index report usually overshadows the PCE report, but the latter is the Fed's preferred method for tracking inflation. With the CPI showing inflation progress as stalled, the PCE is garnering more attention as Fed officials express dwindling confidence about the potential for inflation to continue its decline toward their 2% target.

March PCE Report Forecast Highlights

PCE report release date and time: Friday, April 26 at 8:30 a.m. EDT.
The PCE price index is forecast to rise 0.30% in March after rising by 0.33% in February.
Core PCE is forecast to rise 0.30% in March after rising by 0.26% in February.
The PCE price index year over year is forecast to rise to 2.6% in March from 2.5% in February.
Core PCE year over year is forecast to fall to 2.7% in March from 2.8% in February.

Stalled Progress On Inflation

NatWest Markets economist Kevin Cummins wrote that the core PCE deflator “may have advanced by another 0.3% in March. On an unrounded basis, our estimate is a ‘low' 0.3% at 0.256%, which if realized would yield a year-over-year pace of 2.7%, after 2.8% in February and 2.9% in January ... At recent appearances, both Chair Powell and Vice-Chair Jefferson referred to the Fed's estimate of core PCE inflation for March being at 2.8%.”

Cummins continued: “A 2.8% or a 2.7% year-over-year pace in March would be viewed as insufficient progress on the Fed's inflation mandate ... A reading in line with our estimate would push up the three-month annualized rate of change for the core PCE from 3.5% in February to 3.9% in March, while the six-month annualized rate of change would tick down from 2.9% to 2.7%—both still a bit too far above the Fed's target.”

March PCE Inflation Index Forecasts Show Mixed Readings On Price Pressures _1

For the March report, Cummins noted that a 0.4% gain in the March core CPI “was chiefly led by outsized gains in the motor vehicle insurance and medical care services components—both of which do not feed into the core PCE deflator.” At the same time, the components of the core PCE deflator sourced from the Producer Price Index, like airfare and financial services, “are likely to have made a decent positive contribution last month. As a result, we expect a 0.3% increase in the core services ex housing measure—a measure often cited by Chair Powell as being key in bringing inflation back down to 2.0% after a 0.2% uptick in February.”

Milder Core PCE Inflation

Morningstar's chief US economist Preston Caldwell sees a mixed report for March but better eventual news for the PCE. “Core PCE for March will be far milder than core CPI, but it's still accelerated to an estimated 3.8% annualized in three months ending in March, up from 1.6% in prior three months,” he says. “However, the largest contributors to the acceleration in core PCE inflation (durables, housing, and financial services) should reverse course in coming months. Slowing economic growth over the next year will provide another negative impulse for inflation.”

Core CPI has declined significantly from its last peak in September 2022, but its rate of decline has also slowed. Core PCE also peaked in September 2022 with a 5.5% year-over-year increase. It had declined to a 4.8% rate by the end of 2022, then to 2.9% by year-end 2023.

“Core inflation has continued to trend down on a year-over-year basis, with the core PCE Index reaching 2.7% year over year in March by our estimate, down from 2.9% as of December 2023,” explains Caldwell. “Core CPI is running a good deal higher at 3.8% year over year, with the gap versus the core PCE Index being driven largely by the former's much higher weight in housing, where inflation is running hot ... However, zooming in to a higher-frequency measure, we have seen core PCE inflation jump to about 3.8% annualized in the three months ending in March, up from 1.6% in the three months ending in December 2023.”

Caldwell points to durable goods inflation as a key factor keeping core PCE elevated: “Given that supply chain conditions remain improved, we expect durables to dip back into deflationary territory. Housing inflation has remained stubbornly high, but leading-edge data still strongly points to a normalization of housing inflation being around the corner.”

Source: Morning Star

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

ING

Economic

Forex

USD: Reading through the first quarter data tea leaves

There has been much speculation this week over the outcome of tomorrow's release of the US March core PCE data. Remember this is the Fed'eral Reserve's preferred measure of inflation, and there is a strong consensus behind a 0.3% month-on-month reading. Such an outcome would again be too hot for the Fed's disinflation narrative and would keep expectations of the 2024 Fed easing cycle contained. Just 41bp of Fed easing is currently priced.

But today's release of the full first quarter of 2024's core PCE deflator can provide clues for tomorrow's number. This data is released on a quarter-on-quarter annualised basis, and the consensus for today's reading is 3.4% (QoQ annualised). Assuming there are no revisions to the October-Februray data (we only find that out on Friday), analysts will today be looking at the first quarter data to extract the March reading. A 3.42% release for today's first quarter data would imply a 0.3% MoM release for tomorrow's March data, whereas a 3.40% figure would imply a 0.2% MoM release tomorrow. Equally, a 3.55% release would imply quite a bad 0.4% MoM figure and probably trigger more bearish flattening of the US yield curve and dollar strength.

In short, today's first quarter core PCE deflator could be quite a market mover. We think the risks from this are pretty symmetric for the dollar. Long dollars is quite a crowded trade, and a fairly sharp sell-off in the dollar earlier this week on the back of the soft US PMI readings served as a reminder that long dollar positions are not bulletproof. Equally, however, signs of a 0.4% MoM reading tomorrow could see Fed easing expectations cut back to just 25bp and send DXY back to 106.50 – and perhaps 107.00. Such an outcome would probably send USD/JPY sharply higher again and heighten intervention risk – see more details on this below.

EUR: Down, but not out

EUR/USD has found some stability this week on the back of marginally quieter geopolitical conditions and some emerging signs of growth in the eurozone economy. Surprisingly, a June rate cut from the European Central Bank is not fully priced yet (just 73% probability) and the ECB seems to be managing communication carefully as to what happens after the June rate cut.

EUR/USD will be driven by the US data release today. Technically, EUR/USD could stall around current levels (1.0710) and any break above 1.0725/45 today (were the US price data to come in on the soft side) would have to prompt a re-assessment of a near-term 1.05 scenario in EUR/USD.

Elsewhere in the EMEA space today, we have a Central Bank of Turkey rate meeting. Our Chief Economist in Turkey, Muhammet Mercan, thinks that after an unexpectedly strong 500bp rate hike last month, plus a large set of macro-prudential measures, the CBT will prefer to see the impact of the tightening on the inflation outlook and keep its policy rate unchanged at 50% this month.

GBP: False start on the sell-off

Just as we started to get excited about an important leg lower in sterling earlier this week, Bank of England Chief Economist, Huw Pill, poured cold water over the sterling sell-off. This leaves the market a little confused over the direction of travel for the insiders on the UK MPC committee. We certainly like sterling lower this year as the restrictive 5.25% policy rate gets cut for an economy running a negative output gap. The timing of the sterling sell-off remains a little unclear, however.

We would say the chances of a significant BoE communication shift at the 9 May meeting have been reduced after those comments from Pill. Though, EUR/GBP can probably now trade in a slightly higher 0.8550-0.8650 range.

JPY: Intervention watch

USD/JPY is now trading above 155 – the level that most had expected to trigger Japanese FX intervention. While we do believe that last week's trilateral meeting of US, Japanese and Korean finance ministers was an important one for the intervention story, the joint press release was necessary but not sufficient for intervention. The sufficiency has to come from market conditions and one can argue we are not there yet.

For example, when the Bank of Japan first came in to the market to sell $20bn on a single day in September 2022, one-month USD/JPY implied volatility had been trading in a 12-15% range. And USD/JPY had seen a 20-day rate of change in the 5-8% area. Currently, one-month traded volatility is still sub 10% and the 20-day rate of change is far more modest at closer to 3%. It will therefore be tough for the Japanese to argue they are responding to disorderly FX moves.

Were the US data to point to a 0.4% MoM March core PCE release tomorrow, USD/JPY could spike into the 156/157 and bring us closer to BoJ intervention. But those who argue intervention will not come until closer to 160 do have a point.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Ukadike Micheal

Forex

Economic

In the week ending April 20, the seasonally adjusted initial claims for unemployment insurance decreased by 5,000 to 207,000, compared to the previous week's level of 212,000. This decline suggests potential stability in the labor market, indicating fewer individuals filing for unemployment benefits, which could signify improved employment conditions.

Meanwhile, the 4-week moving average, a more stable indicator that smooths out weekly fluctuations, declined by 1,250 to 213,250 from the previous week's average of 214,500. This consistent downward trend in the moving average implies a sustained decrease in initial claims over a longer period, reinforcing the notion of potential strengthening in the labor market.

On the other hand, the advance seasonally adjusted insured unemployment rate remained unchanged at 1.2 percent for the week ending April 13. While this rate remained stable, it's crucial to monitor any shifts in insured unemployment rates, as they reflect the proportion of individuals receiving unemployment benefits relative to the total workforce.

The number of insured unemployment claims decreased by 15,000 to 1,781,000 from the previous week's revised level, indicating a decline in the number of individuals receiving unemployment benefits. This decrease suggests potential improvements in reemployment opportunities or individuals transitioning out of unemployment.

Examining the unadjusted data, there was a notable decrease of 7,363 in actual initial claims under state programs, totaling 201,619 for the week ending April 20. While seasonal factors typically influence unemployment claims, the decrease observed exceeded the expected decline, indicating potential positive shifts in labor market dynamics.

Similarly, the unadjusted insured unemployment rate remained unchanged at 1.2 percent for the week ending April 13. However, the number of insured unemployment claims in state programs decreased by 27,685 to 1,820,655 from the preceding week. This substantial decrease suggests a decline in the number of individuals receiving unemployment benefits, potentially signaling improvements in labor market conditions at the state level.

Moreover, the total number of continued weeks claimed for benefits in all programs for the week ending April 6 was 1,873,546, representing a decrease of 79,491 from the previous week. This decline in continued weeks claimed for benefits indicates potential progress in individuals exiting unemployment and reentering the workforce or finding alternative sources of income.

Despite the overall positive trends observed in the unemployment insurance weekly claims report, it's essential to acknowledge regional disparities and demographic differences in unemployment rates and initial claims. For instance, certain states experienced higher insured unemployment rates, indicating ongoing challenges in specific labor markets.

Additionally, fluctuations in initial claims across states highlight the uneven economic recovery from the COVID-19 pandemic and underscore the importance of targeted policy interventions to support vulnerable populations and industries disproportionately affected by the crisis.

The latest unemployment insurance weekly claims report provides valuable insights into the evolving dynamics of the labor market. While declines in initial claims and insured unemployment rates suggest potential improvements in employment conditions, continued monitoring and proactive measures are necessary to ensure a robust and inclusive recovery for all segments of society.

Source: U.S. Department of Labour

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Ukadike Micheal

Economic

Forex

The "advance" estimate from the Bureau of Economic Analysis indicates that real gross domestic product (GDP) in the first quarter of 2024 increased at an annual rate of 1.6 percent, down from the 3.4 percent growth recorded in the fourth quarter of 2023. This preliminary estimate is subject to further revision as more complete data becomes available, with the "second" estimate scheduled for release on May 30, 2024.

The growth in real GDP was primarily driven by increases in consumer spending, residential fixed investment, nonresidential fixed investment, and state and local government spending, although these were partly offset by a decrease in private inventory investment. Notably, imports, which are subtracted from GDP calculations, also increased.

Consumer spending saw an increase in services, particularly in healthcare and financial services, partially offset by a decrease in goods purchases, notably in motor vehicles and parts. Residential fixed investment rose, led by brokers' commissions and new single-family housing construction, while nonresidential fixed investment saw an increase mainly in intellectual property products. State and local government spending rose due to increased compensation, while inventory investment declined, driven by decreases in wholesale trade and manufacturing.

Compared to the previous quarter, the slowdown in real GDP growth was primarily attributed to decelerations in consumer spending, exports, and state and local government spending, alongside a downturn in federal government spending. However, residential fixed investment accelerated, and imports saw an uptick.

In terms of current-dollar GDP, there was a 4.8 percent increase at an annual rate in the first quarter, reaching $28.28 trillion, compared to a 5.1 percent increase in the fourth quarter. The price index for gross domestic purchases rose by 3.1 percent in the first quarter, with the personal consumption expenditures (PCE) price index increasing by 3.4 percent, driven by food and energy prices.

Personal income also saw growth, with current-dollar personal income increasing by $407.1 billion in the first quarter, primarily due to increases in compensation and personal current transfer receipts. Disposable personal income rose by 4.5 percent, while real disposable personal income increased by 1.1 percent.

While the GDP growth rate in the first quarter of 2024 reflects a slowdown compared to the previous quarter, various sectors of the economy continue to show resilience and growth. As more comprehensive data becomes available, further insights will emerge regarding the trajectory of economic recovery and potential implications for market dynamics.

Source: Bureau of Economic Analysis

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Warren Takunda

Economic

Cryptocurrency

Bitcoin traded lower on April 25 after a fresh knee-jerk reaction to geopolitical news cost bulls up to 5%. Bitcoin Short Liquidation Risk Surges as BTC Price Dips Under $64K_1

Bitcoin Short Liquidation Risk Surges as BTC Price Dips Under $64K_1

BTC/USD 1-hour chart.

BTC price stays sensitive to Middle East

Data from Cointelegraph Markets Pro and TradingView showed BTC price action attempting to form support at $64,000 prior to the Wall Street open.

This followed a dip to $63,575 around the previous daily close, resulting from renewed Middle East tensions.

According to the latest figures from monitoring resource CoinGlass, liquidity increased on both sides of the spot price across crypto exchanges on the day.

Notably, a large cloud of asks had appeared, beginning with around $75 million at $64,765 and laddering up to $67,700.

To the downside, there was comparatively modest bid interest focused on $63,500 — the local low. Bitcoin Short Liquidation Risk Surges as BTC Price Dips Under $64K_2

Bitcoin Short Liquidation Risk Surges as BTC Price Dips Under $64K_2

Bitcoin liquidation heatmap.Source:CoinGlass

Bitcoin managed to fill one of two recently-created CME Group futures gaps with its latest downside.

Commenting on the current status quo, popular trader Daan Crypto Trades reiterated the “healthy” state of funding rates as a basis for a slow but steady BTC price recovery going forward.

“Keep it this way as we grind up and we should have a solid base for higher. Don’t want to see longs ape back in on the next best green candle,” he wrote in part of commentary on X alongside CoinGlass data. Bitcoin Short Liquidation Risk Surges as BTC Price Dips Under $64K_3

Bitcoin Short Liquidation Risk Surges as BTC Price Dips Under $64K_3

Bitcoin funding rates heatmap (screenshot). Source: CoinGlass

In the latest edition of its “New York Color” market updates sent to Telegram channel subscribers on April 24, trading firm QCP Capital revealed shifting crypto sentiment on low-timeframes.

“The market is expecting upside to be capped and for spot price to consolidate in the short term,” it wrote.

Bitcoin ETF flows tread water

Meanwhile, the United States’ spot Bitcoin exchange-traded funds (ETFs) returned to net outflows on April 24.

These were driven mostly by outflows from the Grayscale Bitcoin Trust (GBTC), data from sources including United Kingdom-based investment firm Farside shows. Bitcoin Short Liquidation Risk Surges as BTC Price Dips Under $64K_4