US GDP smashes forecasts; S&P500 within striking distance of ATH

Summary:

• US Q1 GDP: +3.2% vs +2.1% exp

• GDP deflator: +0.6% vs +1.3% exp

• Stocks jump ahead of the opening bell

The latest growth figures from the US serve to reaffirm the notion that the world’s largest economy continues to outperform its peers, with an annualised growth rate of 3.2% seen in the first quarter. This figure is well above the 2.1% expected and shows that despite the government shutdown, trade tensions with China and slowdown in other major economies the US remains a pillar of relative strength.

The US economy has made a bright start to the new year according to the latest GDP release with a rise of 3.2% for the first quarter. Source: XTB Macrobond

Looking more closely at the breakdown of the growth, there are some factors that make it appear not as strong as it first looked, even if it is still fairly pleasing on the whole. Firstly, a decent chunk of the growth (0.65%) came from a build up in inventories which reflects a temporary boost that will likely revert while imports were fairly weak - this contributes to higher GDP from net exports but could be seen to indicate less domestic demand.

In terms of market reaction, US yields and the US dollar both jumped higher initially, but they have since reversed to trade below where they were on the release. The main reason for this seems to be the GDP deflator component which showed a print of +0.6% vs +1.3% expected. Lower inflation is negative for both these assets but overall is seen as positive for the stock market with US indices receiving a double boost from both this and the strong headline figure.

The S&P500 has reacted positively to the release and moved above a falling trendline from the recent highs of 2940. Bulls may have the all-time high of 2947 in their sights as we head into the final session of the week. Source: xStation