Scoreboard: GDP brush-off

Wall Street closed higher despite a shock GDP reading, while the Australian dollar pushed back above US93c.

It’s official -- the US is staring down the barrel of that ever elusive double-dip recession (I'm joking of course). Growth contracted 1 per cent in the first quarter of 2014, the first GDP contraction in three years. The result was much worse than the initial estimate of 0.1 per cent, and expectations for a 0.5 per cent fall. And yet stocks pushed higher and bonds actually managed to sell off (yields rise).

The reason for that is because the weak GDP outcome is basically due to poor weather and, in particular, this latest downward revision was largely due to a revised inventory number. Note that inventories took off 1.6 per cent from GDP in the quarter. A double-dip is highly unlikely and most look for a strong rebound in the June quarter.

Ultimately, these figures don’t accurately capture the growth dynamics. Otherwise the signals were good, especially that rise in household consumption, which was over 3 per cent for the quarter. Outside of that data was solid, and it was perhaps more important news that jobless claims fell in the week to May 24 -- down to 300,000 from 327,000. 

Equities pushed higher on that and Wall Street actually had a decent session. At the bell, the S&P 500 was up 0.5 per cent (1920) to a new record high. The Dow followed suit, almost back at its highs, with a 65-point rise (16,698), while the Nasdaq was up 0.5 per cent. Over in Europe, gains were harder to come by -- the Dax was flat and the CaC fell 0.02 per cent, although the FTSE100 was up 0.4 per cent.

Rates pushed higher for a change, although that wasn’t initially the case. Before ending 2 bps higher at 2.468 per cent, the US 10-year Treasury yield actually fell again, hitting a session low of 2.4 per cent -- and that’s after all the data. The turn seemed to be arbitrary, but turn they did and yields pushed higher. The 5-year yield was then up about 4 bps to 1.529 per cent, while the 2-year is at 0.367 per cent. Aussie futures were then down 3 ticks a piece -- the 10s at 96.335 and the 3s at 97.21.

Forex markets saw the Australian dollar push higher, now over the US93c mark -- but only just, at 0.9303. That’s up just over 30 pips though from yesterday at 4.30pm (AEST), and up 80 pips from yesterday morning. The euro was then up smalls to 1.3603 on a 50 pip range, the British pound was little changed at 1.6716, and the Japanese yen is at 101.8.

Commodities had a mixed session with crude pushing higher, especially on WTI which rose 0.9 per cent ($103.6) despite a report from the EIA showing a lift in inventories for the week. Brent was otherwise flat at $110.08. In the metal space, gold fell $4.5 to $1254, silver was down 0.2 per cent and copper fell 0.9 per cent.

Elsewhere, data was light but generally positive. In the US we saw pending home sales rise 0.4 per cent in April, following a 3.4 per cent gain the month prior.

Markets today. The SPI suggests the market will have a relatively flat session today ( 0.2 per cent), the index up 9 points. Data wise, there is a run of data out of Japan from 9.30am (AEST) -- CPI first up, followed by industrial production at 9.50am (AEST). At 11.30am (AEST), the Reserve Bank puts out private sector credit numbers, while tonight, the key US data includes personal spending and income, Michigan University’s consumer confidence index and a couple of Fed speeches -- Lacker and Williams.

Have a great day.

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