Despite disappointing data on the economy and housing market, positive earnings reports and the belief that interest rates are nearing a peak swept Wall Street this morning. The Federal Reserve is still expected to raise its benchmark interest rate by 25 basis points next week, but will begin cutting rates by up to 50 basis points by the end of the year.
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The weaker-than-expected headline GDP figure was largely due to a decline in business stockpiles and housing, reflecting the bearish outlook of business owners evident in yesterday’s major durable goods orders. Consumers may complain about economic challenges, but they continue to spend because they are tapping into the extra savings they saved during the pandemic. Today’s data reflects first-quarter activity, but retail sales slowed dramatically in March, suggesting the pendulum may be starting to swing in the opposite direction.
Index up, fear index down (again)
- At the time of writing, the S&P 500 and NASDAQ Index were up 1.5% and 2.2% respectively to 4,116 and 12,108.
- Wall Street’s fear index, the VIX, has fallen again to 17.1, signaling optimism.
- Dollar Index and Major Cross Rates Unchanged
- 2-Year and 10-Year Treasury Yields Rise to 4.08% and 3.51%, respectively
Metal bars in the $2,000 range
- Gold price still hovering around $2,000 per ounce
- Oil prices rose 1.1% to $75.1 a barrel
- Grains and Oilseeds Export Demand Still Very Weak, Chart Signals Weak, Fund Selling Continues
US GDP slows in Q1; consumers remain strong
- Gross domestic product grew at an annualized rate of 1.1% in the first quarter of this year. That was below analysts’ expectations of his 2.0% growth and down from his 2.6% in the fourth quarter.
- Consumer spending grew at a healthy 3.7% annualized rate in the first quarter from 1.0% in the fourth quarter of last year. Personal consumption accounts for nearly 70% of his US economic activity.
- Business investment slowed to a modest 0.7% growth in the first quarter, down from 4.0% growth in the previous quarter.
- Spending on buildings, oil rigs and other structures jumped 11.2%, while spending on computers, delivery trucks, factory machinery and other equipment fell 7.3%.
- This is ironic, as consumer spending at the household level accounted for most of the economy’s strength in the first quarter.
- Elsewhere, the Kansas City Fed’s manufacturing index fell to -10 this month from zero in March, indicating a month-on-month contraction.
Home sales fell short of expectations
- The National Association of Realtors’ Pending Home Sales Index fell 5.2% in March to 78.9, but analysts had expected a slight gain after gaining 0.8% in February.
- The index reflects closed contracts, but not completed sales.As such, it is designed to be a leading indicator of housing activity focused on existing home sales.
- Interest rates were cut significantly in March, resulting in a significant drop.
Unemployment claims fall slightly
- First claims for unemployment benefits fell to 230,000 in the week ending April 22, below analyst forecasts of 249,00 and down from 246,00 the week before.
- The four-week moving average fell to 236,00 from the previous week’s 240,00.
- Recurring claims declined slightly to 1,858,000 for the week ending April 15
Soft commodities affected by global politics
- Russia again blocked the movement of four ships in the ‘safe corridor’ yesterday, but today it seems to be moving again
- The United States Department of Agriculture (USDA) announced this morning that China has canceled previous purchases of more than 9.2 million bushels of U.S. corn.
Analysis by Chief Commodity Economist Alan Suderman
contact: [email protected]
