US GDP Expansion Ebbs

Daily Analysis - 30/01/2017

Growth in Globes Largest Economy Slows as Exports and Consumption Fall

gdp-down-for-usa


Amid rampant concerns of the impact of Trump’s trade policies and the fact that tax reform may be still years away, the dollar is trading slightly lower at the outset of the week following a disappointing GDP print recorded on Friday.

2016 US Growth Pace Slowest Since 2011


A confluence of several factors including weaker consumer spending, sliding exports saw fourth quarter US GDP miss estimates of 2.50% growth by a wide margin.  At 1.90%, the advance reading of fourth quarter annualized growth was largely bolstered by investment in equipment, intellectual property, and home building.  While consumption was still positive, adding significantly to the aggregate growth measure, on the whole, 2016 was the slowest year of growth since 2011.

Weighing particularly heavy on the data private investment falling by -1.50% for the calendar year alongside decelerating private and public expenditure growth.  Despite optimism in policy circles about rebounding inflation and unemployment which is trending at the lowest point in years, the dollar remains under pressure as Golden Week begins in China.  After falling back below $1200, gold prices remain under pressure as the dollar improves, ticking back below $1190.

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Japanese Retail Grows Less Than Forecast


Figures for December retail expenditures in Japan came in at just 0.60%, well below forecasts of 1.30% for the period and marking the slowest pace of growth since October.  Although the annualized figure did manage to remain in positive territory for the period, the monthly figure was greeted with disappointment after sales collapsed by -1.70% month over month after growing a meager 0.20% in November.

One of the more worrying signs is wholesale sales falling by -2.50% on an annualized basis, indicating that some softness could be ahead in broader retail figures as well.  At a time when Central Bank officials are desperately working to restore inflation to the 2.00% target, this latest development does not bode well for the outlook.  After strengthening following the report, the Yen has managed to give back some gains, with USDJPY recovering and trying to retake 115.00.

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Spanish GDP Matches Estimates


In a more surprising development, an advance reading of fourth quarter gross domestic product in Spain showed the economy continues to perform admirably despite the absence of a functioning government.  Preliminary fourth quarter figures indicate that the economy grew by 0.70% during the last three months of the year while annualized growth retreated modestly from 3.20% to 3.00% year over year.  Rising growth is coinciding with accelerating inflation which recently climbed to the highest point since July of 2013 alongside a jobless rate that has fallen to the lowest point since 2009.

With these broad-based improvements in the aggregate economy, growth may be able to stay at elevated levels over the medium-term, suggesting that the recovery is gaining momentum.  Nevertheless, despite the optimistic reading, the Euro remains under pressure, with EURUSD ticking back below 1.0700.

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Rig Count Climb Signals Rising Crude Production Ahead


After reporting one of the sharpest upticks in the active drill rig count in years, the latest weekly report from oil services company Baker Hughes on Friday showed that another 15 oil rigs were activated last week.  Besides the fastest pace of additions since 2011, the figures highlight the growing potential for US production as output rises to the highest point in 10 months.

Almost all the rigs added are for horizontal drilling or fracturing, indicating that higher oil prices continue to breathe life back into the embattled shale industry in the western United States.  With production just shy of 9.000 million barrels per day, there is still potential to raise output by another 400,000-500,000 barrels daily based on levels that were recorded over the last few years.  In response, oil prices are still under pressure, with WTI futures trending just above $53.00 per barrel.

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Upcoming Events

  • Time
  • Currency
  • Event
  • Forecast
  • Previous
  • 13:30 GMT
  • USD
  • Core PCE Price Index MoM (December)
  • 0.10%
  • 0.00%
  • 13:30 GMT
  • USD
  • Core PCE Price Index YoY (December)
  • 1.70%
  • 1.60%
  • 13:30 GMT
  • USD
  • Personal Spending MoM (December)
  • 0.50%
  • 0.20%
  • 15:00 GMT
  • USD
  • Pending Home Sales MoM (December)
  • 1.10%
  • -2.50%
  • 23:30 GMT
  • JPY
  • Household Spending MoM (December)
  • 0.60%
  • -0.60%
  • 23:30 GMT
  • JPY
  • Household Spending YoY (December)
  • -0.60%
  • -1.50%
  • 23:30 GMT
  • JPY
  • Unemployment Rate (December)
  • 3.10%
  • 3.10%
  • 23:30 GMT
  • JPY
  • Preliminary Industrial Production MoM (December)
  • 0.30%
  • 1.50%

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