Article / 27 May 2016 at 4:58 GMT

3 Numbers: Hefty upward revision expected for US first quarter GDP

Blogger / MoreLiver's Daily
  • US first quarter growth estimate expected to be lifted, leaving window for hike
  • Key US data releases and Fed speakers will attract attention in coming weeks
  • A surge in US consumer sentiment is to be confirmed, but oil price may play part
  • Janet Yellen to answer questions Friday afternoon as she receives Harvard award

By Juhani Huopainen

The G7 summit in Japan concludes today, and basically nothing is expected from it. All the leaders seem to agree that competitive devaluations and Brexit are unwanted. Almost everyone agrees that monetary policy should remain accommodative, but there is no consensus on pushing deeper into the unconventional policy space.

On the fiscal side there is no consensus, so probably the best we could see is a decision to co-operate on anti-terrorism.

Next week’s European Central Bank meeting, followed by the Federal Reserve’s meeting later in the month, are the key events. As the ECB is expected to be a non-event, the Fed’s meeting, which suddenly has become very alive, will be the focus.

Thus, important US macro data and Fed speakers get the attention during the next couple of weeks. All times GMT.

US Q1 Gross Domestic Production (1230 GMT). The first quarter’s growth rate was initially reported to be an abysmally low 0.5%, but the consensus forecast sees it being lifted to 0.8%.

While the first quarter’s weakness is already old news, it is the main reason why the Federal Reserve has refrained from follow-up rate hikes after the last December’s hike, which was the first one since the financial crisis begun.
Chart source: Saxo Bank

While it took a while to pick up, the second quarter’s growth forecast has been picking up nicely, and the Atlanta Fed’s GDPNow currently estimates growth rate of 2.8%.

So now that the first quarter is apparently not as bad as was believed, and the second quarter seems promising, the Fed could, if it wanted, go ahead with a hike.

US economic weakness has been grossly exaggerated and the second quarter is looking good. Photo: iStock

First quarter’s corporate profits will also be published, and the Thomson Reuters-blog estimated earlier that S&P 500 company earnings would be down 5.1% - but excluding the energy sector, earnings would be up 0.3%.

US corporate profits have remained practically unchanged since 2012, so the stock market rally since then has been mostly “multiple expansion”, or stocks getting pricier, and stock buybacks.

The less there are outstanding stock, the higher the earnings per share. Since the beginning of 2015 stocks have been range-trading as well, and are very close to record highs at the moment.

US CorpProfits
 Chart source: Saxo Bank

US May Michigan Consumer Survey (1400 GMT). The flash estimate of May’s consumer sentiment showed a surprising jump to 95.8, following a reading of 89 in April. The full-month reading for the May is expected to give up some of those surprise gains as the consensus view expects a reading of 95.

The sentiment index is now close to post-crisis highs, but given how high the index traditionally goes during periods of economic growth, this is not an alarming contrarian signal yet.

One worry that the Wall Street Journal mentioned yesterday was that now that the crude oil’s price has hit $50/barrel, maybe the more expensive petrol could begin hurting the sentiment.

Looking at the historical patterns suggest that even if oil price would rally more and gasoline become more expensive, consumer sentiment would probably not be affected that much.

As long as jobs and salaries are improving, higher petrol costs, while a nuisance, are not critical.

US consumer gas
Chart source: Saxo Bank - create your own charts with SaxoTrader. Click here to learn more 

Fed's Janet Yellen speaks (1715 GMT). Federal Reserve chair Janet Yellen will receive an award at Harvard University. There will be remarks from the former Fed chairman Ben Bernanke and a discussion between Yellen and economist Gregory Mankiw.

-- Edited by Adam Courtenay

Juhani Huopainen
is a blogger and a macro analyst at More Liver’s Daily. Follow Juhani or post your comment below to engage with Saxo Bank's social trading platform.


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