US equities fell on Thursday while bond yields rose after GDP for Q1 was significantly softer-than-expected, while showing price pressures remained.
United States
For the first quarter of 2024, the US economy expanded at a 1.6% annualised rate, well below the 2.5% forecast and moderating from 3.4% after the end of 2023. This is a particular concern, raising concerns of “stagflation” where inflation remains above target while economic growth weakens. As part of the GDP release, the price index showed a 3.1% gain, up from 1.6% in Q4 2023, while a core measure of prices rose 3.7% well above the 3.4% expected. The combination of slower growth and sticky prices will be concerning for Fed officials, likely dashing hopes of any easing in 2024 given the general view that inflation is more damaging to the economy in the long run rather than a slowing in economic growth.
US GDP (QoQ Annualised %)
In focus for investors tonight are the PCE inflation numbers for March, expected to show a 2.6% increase over the 12 months in headline prices, and 2.7% increase in core prices.
The S&P500 declined -0.46% along with the Dow Jones -0.98%, Nasdaq Composite -0.93% and Russell 2000 -0.72%. Treasury yields were higher with the 2-year rate up 6.6 basis points to 4.993% while the 10 and 30-year rates were both 5.8 and 4.1 basis points higher respectively. In individual names, shares in Facebook owner Meta slumped -10.92% after its latest earnings report after the close on Wednesday raised concerns about higher expenditure as part of its push into Artificial Intelligence.
Europe
European equities were also lower on Thursday, with sentiment weighed as US futures fell after the close on Wednesday after Meta’s earnings results. The Euro Stoxx 600 declined -0.64% along with the DAX -0.95% and CAC -0.93% while the FTSE1000 rose 0.48%. In economic data, the latest German Consumer Confidence report for May was better-than-expected, coming in at -24.2 vs expectations of -25.9 ad improving from -27.3 previously.
Australia
The ASX is expected to open sharply lower this morning with ASX200 futures down -49 points or -0.64%. This follows a -0.77% decline in futures overnight on Wednesday when the ASX was closed on Thursday. In economic data today, a Bank of Japan rate decision is in focus for Asian investors, with expectations of a 0.1% increase in interest rates from 0% currently.
Commodities
In commodities, oil prices rose with both WTI and Brent crude up 1.15% and 1.35% respectively. The gains come after a large and unexpected draw in crude oil inventories for the week ending April 19th of -6.368m barrels vs expectations of a 1.6m barrel increase. Iron ore futures in Singapore are -1.05% lower this morning at US$116.60 after being little changed on Thursday, while copper is 1.87% higher. Gold rose 0.75% overnight to US$2,333.45 an oz, while silver rose 0.95% and Bitcoin was 0.69% higher.
Economic Calendar
BOJ Rate Decision 13:00
US PCE Inflation (YoY Mar) 22:30
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
