Macro economics

Analytics on 26/04/2019. US GDP - the devil is in the details

European stocks are trading in a mixed and muted manner on Friday, as investors digest another portion of corporate results. Deutsche Bank reported stronger-than-expected first-quarter net profit. The net income came in at 201 million euros. As a reminder, the bank formally abandoned merger talks with Commerzbank yesterday. France’s Sopra Steria said revenue rose 10% in the first three months of the year, with the results sent the shares up nearly 8%. On the data front, French consumer confidence remained at an eight-month high in April. Against this backdrop, Britain’s FTSE 100 sheds 0.07% to 7,428, France’s CAC 40 is up 0.13 percent to 5,564, while German DAX 30 rises by 0.09 per cent to 12,294. US stock index futures rebounded after the GDP report eased concerns over the health of the economy.

The headline US GDP number surprised to the upside, with growth was helped mainly by inventories and trade. According to the official report, the GDP increased at an annual rate of 3.2 percent in the first quarter of 2019 after a rise by 2.2 percent in the previous quarter. The greenback spiked higher in the initial reaction, with the USD index jumped to a fresh 2019-high of 98.33 but reversed the course quickly and got 0.3% negative on the day. The mixed reaction was due to the details. The core PCE was lower at 1.3% versus 1.8% in the fourth quarter, the GDP price index came in at 0.9% versus 1.7% last quarter, while consumer spending backed off to 1.2% from 2.5% previously. As a result, European currencies turned even higher on the day after a short-lived dip. EURUSD jumped to the 1.1160 area, where however it has encountered some offers and failed to stage a more significant rebound. GBPUSD saw daily highs at 1.2925 and has settled above 1.29 since then.

Oil prices accelerated the bearish correction on Friday, with Brent is challenging the $72 barrier for the first time in a week. The current pullback threatens to derail the longest run of weekly gains in years, after a four-week rally. Profit-taking is partly due to growing expectations that some OPEC producers will ramp up output in a response to shrinking exports from Iran after Washington decided to tighten its sanctions against the Islamic Republic. Earlier, the market extended the rally on reports that Germany, Poland and Slovakia suspended imports of Russian oil via a major pipeline, citing poor quality. However, market reaction to the news turned out to be short-lived as Russia said it planned to start supplying clean oil via a pipeline on April 29. In the short-term, Brent will likely remain under the selling pressure as there are no any immediate incentives for investors to resume buying. The next key event for the market is Baker Hughes report due later today.

Gold prices continue to recoup earlier losses for a third day in a row on Friday. The precious metal is challenging the $1,280 area after touching a 10-day low above $1,283 earlier in the day. A mild USD retreat helped the bullion to extend the upside correction but the bullish potential still looks limited as dollar bulls are still in the game, while safe-haven demand for gold is subdued. On the other hand, some weak data from Germany and Asia confirm that the global economy still struggles. In the longer term, further disappointments on the economic front could fuel concerns over global growth and spur buying of safe assets including gold. From the technical point of view, the yellow metal needs to regain the 200-DMA at $1,291 to confirm the easing downside pressure.

Nathan Lambert, Head of Global FX Analytical Department

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