Read on the Trading Floor - 25 April 2024
Today’s focus… Stagflation, Ccy Wars, AI costs and much more
Macro Themes At Play
Theme 1 - US drifting towards stagflation?
Theme 2 - CCY Wars
Theme 3 - The cost of AI
Further reading and listening of note
Theme 1 - US drifting towards stagflation?
Slower growth and higher price pressures. Is the US drifting towards stagflation?
GDP Adv Q1 QoQ: 1.6% vs exp 2.5% and prior 3.4%
Core PCE Prices QoQ: 3.7% vs exp 3.4% and prior 2%
Following on the heels of Meta's disappointing earnings, the stock market has not liked today's data set. Lower growth, higher capex on AI retooling as well as sticker inflation / prices pressures keeps the Fed's >20% chance of a hike on the table. 10s have sold off to 4.73%, 2s broken 5% whilst SPX and Nasdaq are firmly in the red (both currently down over 1.5% at thew time of writing). Maybe Jamie Dimon was on to something when he pushed back against the market pricing a high probability of a soft-landing.
The lower GDP print comes on the back of a surge in imports, which is a subtracting factor in the calculation of GDP (Calculated Risk: Real GDP increased at 1.6% Annualized Rate in Q1). Inventory depletion also weighed on the number. 1.6% disappoints the US exceptional theme as we drop towards a potential period of moderate growth.
However, the USD is stronger as yields sell off and today's data set adds to the anticipation for the Fed's favoured Core PCE Index print tomorrow. 0.4% or hotter (exp 0.3%) and "higher for longer" (despite weakening growth) will be the mantra as the inflation battle is most certainly not won. Biden/Powell will be hoping for an inline print! Furthermore, corp t+2 USD demand and AM rebalancing flows could also provide a tailwind for the greenback in month end.
Source: Tradingeconomics.com