US GDP Expected to Slow

GDP forecasts have been slashed across the board for the first quarter of 2015 as sell-side institutions pare back their estimates. Citing the Atlanta Federal Reserve model, the first quarter growth estimate is approximately 1.20% due to poor weather conditions slowing business on the East Coast and the port stoppage on the West Coast that dented the flow of goods through the economy. With the revisions lower in fourth quarter numbers for 2014, this is not an unexpected shift in momentum, but may nevertheless force the Federal Reserve to redraw the interest rate policy timeline. Although positive employment figures have raised speculation that the Fed will tighten policy sooner, the recent spate of economic data points to weakening underlying economic fundamentals that must resolved. In spite of the lower growth estimates, equities rallied, led by the 0.78% gain in the Dow Jones Industrial Average.

Chinese CPI growth has been steadily declining since July of 2014 until overnight data showed a rebound higher to 1.40% growth, mainly attributed to looser monetary policy and gains in consumer spending. The Lunar New Year was recognized as a major factor in the latest data for an economy that has seen producer prices contract for 36-straight months. Policy measures from the People’s Bank of China are starting to have a greater impact on the economy, but expectations remain high for further accommodative policy actions. Across the sea in Japan, more evidence is unfolding regarding the Bank of Japan’s quantitative easing program and its reduction of market liquidity in bonds and other assets. This is a troubling development especially as quantitative easing has failed to keep real growth above inflation. USDJPY hit new multi-year highs not seen since 2007 as the Yen weakens further.