US GDP Surprises – Rises 1.0% in Q4

Daily Analysis - 29/02/2016

U.S. GDP Growth Surprises to the Upside

Data released on Friday showed US fourth quarter GDP surprising to the upside, rising 1.0% up from 0.70% estimates. Inflation was also higher, with personal income and spending posting a modest recovery as well. US annual inflation was at 1.30%, below the Fed’s 2.0% inflation target range, but the US Dollar posted strong gains by Friday’s close.

Euro Falls on Weak German Inflation

Flash inflation data released from Germany showed inflation rising 0.40%, below the forecasts of 0.50% for the month of February but better than the previous month's -0.80% decline. On a year over year basis, Germany's inflation was flat at 0.0%. Concurrent French inflation data showed an increase of 0.20%, below the estimates of 0.40%, while on a year over year basis, the French CPI declined by -0.20%. The Euro remained subdued on the data and started to decline in early trading on Friday with losses especially against the British Pound. Following the strong US GDP release recently, EURUSD fell below the $1.10 handle to trade near $1.095. Against the British Pound, the Euro was down for the second day.

U.S. Q4 GDP Revision Bursts Upward

Data released on Friday in the US showed the economy expanding at a faster pace of 1.0%, up from the preliminary estimates of 0.70%. Retail trade, mining, utilities and construction were some of the biggest contributors to the GDP expansion, with the latest GDP data suggesting that a smaller trade deficit is likely due to falling imports. Other data released by the U.S. Commerce Department included consumer spending, which increased 2.0%. Following the GDP data, core PCE numbers showed the headline metric at 1.30%, while the core rose to a 4 year high at 1.70%, confirming the previous CPI trend. USDJPY jumped on the news, and the greenback was seen trading above 113.00. By Friday’s close USDJPY was up 0.86%, marking a second straight day of gains.

Oil Ends Lower on Volatile Session

WTI crude oil futures were down -0.61% on Friday after prices touched a one-month high at $34.66, before settling at $32.85 by the close. Oil prices have remained volatile over the past few weeks as OPEC members continue to form a consensus to scale back production to stabilize prices. Earlier in February, prices fell to fresh multi-year lows at $26.5 but reversed their losses as Saudi Arabia and Russia agreed to freeze output at January levels. While posting a steady rally, WTI ignored the weekly build-up in inventories. The gains in Friday's rally came about as newswires reported pipeline disruptions in Iraq and Nigeria, stopping nearly 800,000 barrels of crude from reaching the markets. The S&P 500, which has been closely tracking oil's price swings also rallied to 1,965 before easing back and closing at 1,945 on Friday.

Busy Week Begins with Slow Start

The economic calendar is packed today but no major events are of note ahead of a busy trading week. Japan's retail sales numbers kick off with expectations of a 0.20% increase following -1.10% decline. In Australia, the MI inflation gauge is expected to show an increase to 3.20% from -1.70%, with the AUD at risk as the Reserve Bank of Australia (RBA) meets tomorrow, the 1st of March. The meeting includes a lot more impactful data such as building approvals and current account data, which could see a lot of volatility in the AUD crosses. AUDUSD has seen a steady rally in prices over the past six weeks, with last week’s movement testing 0.72 before prices pulled back lower. No change is expected from the RBA but the recent appreciation of the Australian dollar could perhaps be mentioned as a cause for concern. Previously, RBA economists were dovish, calling $0.65 a fair value for the AUDUSD exchange rate.