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American Growth Misses Forecasts

Daily Analysis - 29/01/2017

Gross Domestic Product Expansion Decelerates During Fourth Quarter

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US growth experienced a deeper than expected pullback during the fourth quarter as a combination of weaker consumer spending and lower exports dragged on growth while investment and housing led the upside gains during the period.

Last Week


President Donald Trump’s heavy handed approach sent shockwaves through global financial markets last week as the threat of a trade war looms between the United States and Mexico.  After abandoning plans to meet with Trump on Tuesday, Mexican President Pena Nieto promised that Mexico would not pay for the proposed border wall.  The result was another plunge in the Peso before the currency managed to recover modestly.

Meanwhile, US growth took a turn in the fourth quarter, backpedaling to 1.90% annualized growth compared to the 3.50% recorded during the third quarter.  Lower exports of soybeans combined with weaker personal consumption expenditures were the primary culprits.  In other news, the United Kingdom’s 2016 annualized growth of 2.20% put it at the top of advanced economies belonging to the G7.  Though the UK Supreme Court ruling requiring both Houses of Parliament to vote on triggering Article 50 may have given the “remain” camp a bit of hope, parliamentarians are still expected to respect the referendum result.  Finally, in Japan, export growth turning positive for the first time in 15-months in a sign that trade is improving.  However, headline inflation tapered modestly while core inflation remains in deflationary territory on an annualized basis, complicating the outlook for consumer prices.

 

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The Week Ahead


Although the Chinese Lunar New Year celebrations are already well underway, festivities are likely to result in slightly lower activity and volumes in financial markets until the middle of the week.  Nevertheless, the sessions ahead will be filled to the brim with important monetary policy announcements set to be delivered by major central banking institutions.  Kicking off the interest rate decisions is the Bank of Japan which is widely expected to keep the benchmark rate on hold at -0.10%.

The Federal Reserve and Bank of England will also be meeting to determine policy, with each Central Bank forecast to keep rates on hold.  It will be most important to read the policy statements to find hints about the outlook for interest rates and in the case of the BoJ and BoE, any comments about expanding or tapering quantitative easing.  Aside from policy decisions, the Euro Area is set to report advance figures for inflation and fourth quarter gross domestic product.  The unemployment figure for December will also be delivered, with the joblessness expected to remain at 9.80% for the aggregate Euro Area.  Finally, to end the week, the US Bureau of Labor Statistics will be distributing the latest job creation figures, with the unemployment rate forecast to hold steady at 4.70%.

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