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US Economic Expansion Stalls

US Economic Expansion Stalls

The preliminary GDP reading from the United States confirmed the recent softness in the economy as macroeconomic data experiences one of the worst starts to a calendar year. The Federal Reserve nevertheless continued to prepare markets for higher interest rates after removing key language from the latest FOMC Statement.

Last Week

The global economy continues to face an imminent downturn as evidenced by slowing expansion across the globe. GDP expansion in the UK continued to decelerate with annualized growth reduced to 2.40% versus 3.00% in the prior period. The United States saw the comparable quarterly measure fall to 0.20% for the first quarter after initial estimates saw the measure expanding by 3.00%. Even amid the weakness in the underlying fundamentals, the Federal Reserve pressed forward with its preparations for higher interest rates, removing the calendar guidance language from the FOMC Statement. Although a June rate hike is largely out of the question, there is substantial probability of an increase in the second half of the year. The Bank of Japan and Reserve Bank of New Zeaccland also left monetary policies unchanged, but maintained the more dovish outlook as risks to growth and inflation mount. Euro Area fundamentals continue to improve with annualized consumer prices rising back to flat for the first time since December as key metrics recover. Loan creation advanced for the first time in three years, but unemployment woes remain despite the efforts of the ECB to revitalize growth and development.

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The Week Ahead

The dominant force driving markets in the coming week from a calendar perspective is data due on US unemployment. Initial indications for nonfarm payrolls and ADP nonfarm employment are expecting job creation in the range of 190,000-210,000 with the unemployment rate forecast to dip towards 5.40%. However, the recent trend lower in jobs might be a risk to existing estimations of growth. Other important data include an interest rate decision from the Reserve Bank of Australia which is forecast to cut the key benchmark by 25 basis points to 2.00%. Manufacturing and services data from major global economies will be the other relevant macroeconomic calendar events starting out with the Chinese HSBC Manufacturing PMI followed by German and Euro Area manufacturing figures. Services data from the United Kingdom, United States, and Euro Area are also due to be released. Robust expansion is expected across the board from the non-manufacturing numbers. Other important items to watch will be the dollar which has faced persistent weakness in recent weeks despite the updated outlook from the Federal Reserve. Hostilities in the Persian Gulf will also be front and center as oil prices at multi-month highs.

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