Markets
Since the early March collapse of Silicon Valley Bank, investors reacted in an asymmetric manner to eco figures. They cherrypicked the slightest disappointments to strengthen their case of a nearby Fed policy rate peak and policy rate cuts starting in H2 2023 to accommodate the economy. Today, in a change of heart, they forfeited on the opportunity to boost their dovish cases after US GDP grew less than expected in Q1 (1.1% Q/Qa from 2.6% in Q4 2022 and vs 1.9% forecast). A look under the hood showed personal consumption accelerating from 1% Q/Qa to 3.7% Q/Qa (vs 4% expected, but nevertheless the fastest pace since Q2 2021) with joe sixpack spending on both goods and services. The consumer does hold up well despite inflation, the Fed’s tightening trajectory and uncertainty around financial stability. A very tight labour market, wage growth and a pandemic build-up in savings provide sufficient counterweight for the moment. Underlying US Q1 GDP was also much stronger when taking into account that inventories took off 2.26 percentage points from the growth rate. Government spending (especially defense) and trade contributed a bit to growth with business investment the only real disappointment. Q1 price deflators printed on the topside as well with especially core PCE rising by the fastest pace since Q1 2022 (4.9% Q/Q from 4.4% in Q4 2022 and vs 4.7% expected). They suggest upside risks to tomorrow’s March monthly deflators. Simultaneously with GDP figures, US weekly jobless claims increased less than expected (230k vs 248k forecast from 246k). Solid underlying growth and stubborn price pressure pulled US Treasuries lower, underperforming German Bunds. US yields currently add 2.6 bps (30-yr) to 8.3 bps (2-yr). The US 2-yr yield turns back above 4% with the 10-yr yield back above 3.5%. German yields add 3 to 3.5 bps across the curve. US eco data and yield dynamics pulled EUR/USD from levels around 1.1050 down to 1.10. We only expect a longer stay below 1.10 should tomorrow’s national EMU CPI data print on the soft side thereby reducing the market implied probability of a 50 bps ECB rate hike next week (currently around 25%). US equity futures already pointed to a positive stock market opening following stronger Q1 Meta earning and got an additional boost on US economic strength. They open up to 1% higher for Nasdaq.
News & Views
Belgian inflation decelerated further from 6.67% to 5.60% in April. Energy decreased sharply again, declining 17.08% y/y and subtracting 2.36% of total inflation. Food prices still add 3.19 ppts (16.64% y/y but slightly lower than the 17.02% last month) and are by far the biggest contributor to headline inflation. Core inflation for the first time since September 2021 eased, from 8.57% to 8.28% y/y. Price pressures in services were slightly less intense than in March, rising 6.80% vs 7.06%. If April indeed marks the start of the disinflationary process (of core inflation), question now is how quickly (or not) it runs. In other Belgian news, GDP expanded at 0.4% q/q in 2023 Q1 with the pace picking up from the previous quarter’s 0.1%, the NBB’s preliminary estimate revealed. Belgium’s economy is now 1.3% bigger than the same period last year. The services sector outperformed, with value added rising 0.7%, followed by construction (0.4%). Value added in the industrial sector shrunk 0.6%.
Swedish GDP grew 0.2% q/q in Q1 of this year following a -0.6% contraction in 2022Q4. That’s more than the stagnation expected by analysts but slightly below the country’s central bank own estimate (+0.3% q/q). The economy grew 0.3% y/y in Q1. The numbers are a preliminary estimate, compiled with more limited statistics than the regular quarterly national accounts (due May 30). They do reveal economic momentum is slowing down. The monthly GDP reading in January still printed at a strong 1.6% m/m but was then followed by -1.1% in February and     -0.2% in March. This suggests the Riksbank’s tightening efforts are gradually filtering through. It has, however, still some way to go with inflation at levels well above the 2% target. Just yesterday, the central bank lifted policy rates by 50 bps to 3.5% and, much to the SEK’s disappointment, only projected an additional 25 bps hike in July or September. The Swedish crown shrugged at today’s numbers with EUR/SEK hovering near multiyear lows at around 10.38.
.){kind=link}