May 1, 2014

Global Macro 360 - Daily Note -The Rear View Mirror

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Here is an extract from today’s Global Macro 360 Daily Note. To read the full content click here to sign up for a One Week Free Trial.

RV Mirror

Summary

  • United States: Very weak Q1 number
  • United States: Boring FOMC
  • China: Manufacturing essentially flat
  • Turkey: More spin from the central bank

Good morning,

In terms of tedium, what is worse watching Chelsea or reading the FOMC minutes? I suspect that Fed watching is a greater penance and yesterday’s minutes didn’t fail to disappoint. I will get to them in a bit, but seriously what is there to say. The economy was very weak in Q1 and it’s getting a bit better, period!

The markets seemed bored too.

Yesterday, equities closed up despite a worse-than-expected Q1 GDP print for the US (+0.1% vs. 1.2% expected). Chicago PMI may have managed to give equities a boost (63.0 actual vs. 57.0 consensus). Later in the day, the FOMC tapered another $10bn, in line with expectations.

There was nothing of note from the FOMC statement either although it was a tiny bit more optimistic on growth).

Treasuries rallied following disappointing GDP data with 10s closing 4.5bps stronger on the day. This was, for me, a little odd given the forward looking data was good (GDP is in the rear view mirror).

We have more key US economic data today ahead of the employment data tomorrow.

United States: Mixed data has traders in a tizzy

Table 1 1 May

GDP grew only 0.1% in Q1 (vs. consensus +1.2%). While GDP is backward looking data, this is a significant shortfall and well below our own expectations. The standout positive from the data was the personal consumption component which rose 3.0% (see chart below), although the increase appears to have been largely due to special factors including a weather boost to utilities and “Affordable Care Act”-related healthcare spending. Personal consumption taken on its own would have suggested a number closer to 2%.

Apart from personal consumption, business fixed investment disappointed our expectations, falling by 2.1%. This slump undermines my forecast that business spending would pick up quite a bit in 2014.

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