Upward GDP Revision Supports US Dollar

Daily Analysis - 28/03/2016

US Q4 2015 GDP Revised Higher


Amid the bank holiday on Friday, the revision higher of US GDP data for Q4 of 2015 to 1.4% from the previous estimate of 1% came as an upside surprise. In contrast, corporate profits continued to shrink at the fastest pace since 2011.

Japan’s Core Inflation Remains Weak

The Bank of Japan's measure of consumer inflation rose at an annual pace of 1.10% in February, unchanged from January's print. The weak inflation reading has sparked speculation of further policy action from the BoJ when it meets in April. Low energy costs and weaker consumption continued to put pressure on consumer prices. The core consumer price data in Tokyo saw the biggest annual drop in three years in March. Considered a leading indicator on consumer prices, the data suggests that inflation will remain subdued in the near term. The weak inflation data reinforces the market views that the BoJ could cut its inflation forecasts as well as the timing of reaching the 2.0% inflation target rate it has set for itself. BoJ's quarterly review is due to be released in April.


French GDP Revised Higher to 1.20%

Data from statistics agency Insee released on Friday showed French economic growth rising more than previously estimated. Gross Domestic Product in France expanded at a pace of 1.20% in the year ending 2015, accelerating sharply from the 0.20% growth rate in 2014. The data was revised higher from previous estimates of 1.10%. French Finance Minister Michel Sapin said that economic growth will continue to accelerate this year as well. On a quarterly basis, French GDP grew at a pace of 0.30%. In a separate release, the French budget deficit shrank to 3.50% in 2015 from 4.0% in 2014, marking a second consecutive year of decline in the budget deficit. French authorities were targeting a budget deficit of 3.80%. The budget deficit narrowed as France shifted its policy in 2014 towards increasing spending cuts instead of tax hikes while using some of the gains from the cuts towards tax breaks to encourage existing businesses.


US Q4 GDP Revised Higher to 1.40%

The U.S.’s fourth quarter final revised GDP was adjusted higher, rising to a seasonally adjusted 1.40%, from previous estimates of 1.0%. The markets were expecting to see an unchanged print of 1.0%. The upward revision came from increased services consumption and smaller declines in US exports. Despite the positive print, US corporate profits continued to shrink at the fastest pace since 2011. Capital consumption adjustments fell 8.10% from the previous quarter, and 3.60% in the same period from a year ago. In the past four quarters, corporate profits fell 11.50%, posting sharp year over year declines. Spending on commercial structures fell 5.10% while production of new equipment declined by 2.10% in the quarter.


US Personal Income and Spending Expected to Remain subdued

Personal income, spending and PCE data is due to be released today with analysts expecting a broadly subdued outlook. Personal spending is expected to rise 0.20% in February, slower than the 0.50% gains seen in January while personal income is expected to rise 0.10%, below January’s 0.50%. The Fed's preferred gauge of inflation, Personal Consumption Expenditure data is also due today. Expectations are for the headline PCE to have increased 1.0%, slower than the previous month's 1.30%, while Core PCE is expected to rise 1.70%, unchanged from the previous month. US pending home sales data follow with expectations of a 1.40% increase in February.


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