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UK GDP, Japan inflation, US GDP – Markets this week (May 23 – 27)

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The US dollar continued to surge higher sending gold prices falling to a 7-week low after prices previously touched a yearly high above the $1300 an ounce handle. Oil prices were also trading higher, briefly testing the psychological $50 handle before giving back the gains. Oil prices gained as the weekly inventory data showed a more than expected drawdown in oil inventories. The Euro remained weak for the most part as economic data this week showed weak flash estimates on the Eurozone composite PMI numbers. German GDP growth was unchanged at 0.70%, but it helped little to stem the euro’s declines against the dollar.

Here’s a quick recap of this remainder of this week’s economic events that shaped the markets.

UK revised Q1 GDP unchanged at 0.40%

The Office for National Statistics released the second revised estimates for the Q1 GDP, which remained unchanged. The data showed that on a quarter of quarter basis, UK’s GDP grew at a pace of 0.40%, same as the preliminary estimates. On a year over year basis, the GDP was revised to 2.0% annualized from the previous estimates of 2.10%. The ONS said that growth in the economy came from a 0.60% increase in the services sector which remained unchanged at the second estimate but was down from the 0.80% growth recorded in the previous quarter. Manufacturing production declined 0.40%, unchanged while construction sector fell by 1.0% more than the previous estimates of a 0.90% decrease.

The ONS said that the UK’s economy experienced moderate growth in the first three months of the year, but uncertainty about the outcome of the EU referendum weighed on business optimism which cut back on investments. In the first three months of the year, business investment in the UK fell 0.50% compared to the final quarter of 2015 and lower by 0.40% on a year over year basis, marking a second consecutive quarterly decline in slowing investment.

Commenting on the revised GDP, UK Chancellor George Osborne said that it was a warning that “the threat of leaving the EU is weighing on our economy.” In a statement released by the Treasury Department, Osborne noted that “Investments ‎and building are being delayed, and another group of international experts, the OECD, confirms British families would be worse off if we leave the EU”

Japan continues to log weak inflation

Latest inflation data released today showed that consumer prices continued to elude the Bank of Japan’s inflation target of 2.0%. The national core CPI fell 0.30% on a year over year basis in April, extending the 0.30% declines from March. The Bank of Japan’s own gauge of CPI was also weaker, rising only 0.90% in April down from 1.10% in March and missing expectations of a 1.0% increase.

BNP Paribas Chief Japan economist Ryutaro Kono said: “Because the effects of the weak yen have started to diminish, it is very likely that the new core will continue to slow.” Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance also adds to the view saying that “[the] underlying upward pressure on prices is weakening.”

The weak inflation print is keeping speculators busy as expectations start to build up that the BoJ could take additional easing pressures as early as June. Norinchukin Research Institute chief economist Takeshi says “Considering the situation, I wouldn’t be surprised if they undertake [additional easing], although I think it will still be difficult” in producing the impact needed to put the price trends back into an upward trajectory.

US GDP rises faster than initial estimates

The commerce department’s revised Q1 GDP numbers for the US showed a stronger than expected economic growth in the first three months of the year. Official GDP numbers showed that the economy expanded at a pace of 0.80%, up from the preliminary estimates of 0.50%, but the data was lower than economist expectations of a 0.90% increase. Despite the increase, the 0.80% quarterly GDP growth rate was the weakest since 2015 Q1. The revised GDP estimates reflected a smaller than expected drag from trade than previously thought. The government reported a rebound in after-tax corporate profits, increasing at a pace of 0.60% in the first three months of the year.

Consumer spending saw no revisions and confirmed that spending increased at a pace of 1.90%, slowing down from the previous quarter’s 2.40% quarterly growth rate. Household income for disposal after taxes and inflation was revised higher to 4.0% from the initial estimates of 2.90%.

Economic events this week

  • French flash manufacturing PMI 48.3 vs. 49.0
  • French flash services PMI 51.8 vs. 50.8
  • German flash manufacturing PMI 52.4 vs. 52.1
  • German flash services PMI55.2 vs. 54.6
  • Eurozone flash manufacturing PMI 51.5 vs. 51.9
  • Eurozone flash services PMI 51.5 vs. 51.9
  • US flash manufacturing PMI 50.5 vs. 51.0
  • FOMC Member Bullard speech
  • German final GDP q/q 0.70% vs. 0.70%
  • UK Public sector net borrowing 6.6 billion vs. 6.3 billion
  • German ZEW Economic Sentiment 6.4 vs. 12.1
  • Eurozone ZEW economic sentiment 16.8 vs. 23.4
  • US New home sales 619k vs. 521k
  • New Zealand Trade balance 292mn vs. 40mn
  • Australia construction work done q/q -2.60% vs. -1.40%
  • German Ifo business climate 107.7 vs. 106.9
  • US flash services PMI 51.2 vs. 53.1
  • BoC leaves interest rate unchanged at 0.50%
  • US Crude oil inventories -4.2mn vs. -1.7mn
  • Australia private capital expenditure q/q -5.20% vs. -3.20%
  • UK Second estimate GDP q/q 0.40% vs. 0.40%
  • UK preliminary business investment q/q -0.50% vs. 3.20%
  • US durable goods orders m/m 3.40% vs. 0.30%; core durable goods orders m/m 0.40% vs. 0.30%
  • US weekly unemployment claims 268k vs. 275k
  • The US pending home sales m/m 5.10% vs. 0.60%
  • Tokyo Core CPI y/y -0.50% vs. -0.40%
  • BoJ Core CPI y/y 0.90% vs. 1.00%
  • US Preliminary GDP q/q 0.80% vs. 0.90%
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