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US GDP ahead of expectations

US GDP ahead of expectations

The UK CBI industrial orders index declined to a six-month low of -5 for April from 1 previously and below consensus forecasts with companies expecting little change in output over the next few months. There was a recovery in mortgage lending which suggested resilience in the housing sector and the overall data impact was limited. Chancellor Hammond remained optimistic over finding a Brexit compromise with the Labour Party, although domestic factors remained limited.

The Euro was little changed around 1.1580 while a Dollar correction pushed the UK currency back above 1.2900. Fitch maintained its UK credit rating with a negative outlook, maintaining longer-term reservations over UK fundamentals. Sterling edged higher this morning as narrow ranges prevailed with markets waiting for further political developments.


The much-awaited US GDP number came out and significantly beat market expectations. Real gross domestic product (advance estimate) rose by 3.2% for Q1 of 2019. The main drivers behind the increase include improving exports, higher investments and contributions from personal consumption expenditure. There was also a big positive contribution from net exports as imports declined sharply and significant inventory building. Price indices were weaker, maintaining expectations of subdued underlying inflation pressures and a dovish Federal Reserve (FED) policy. The Dollar spiked higher in an immediate response to the headline data before retreating quickly while the Euro briefly dipped to fresh twenty-two-month lows before recovering quickly to above 1.1150 with the Dollar also susceptible to a wider correction.

GBPUSD climbed above the 1.2900 handle but remains vulnerable to the ongoing Brexit impasse. Talks between the government and the opposition have so far failed to alleviate uncertainty, acting as a drag on consumer confidence and business.

The Dollar Index is expected to hold near recent high on the back of growth divergence. Across the Atlantic, the economies are, mildly put, stalling. Politics and soft fundamentals are expected to weigh heavily on the euro and the pound over the coming sessions. WTI oil is also on a slide for the third session in a row after surging to new 2019 highs.


Friday saw S&P maintain its credit rating for Italy – BBB – which briefly rallied the Euro after dipping to a twenty-two-month low. The rally was fairly short-lived, however, as they caveated the non-change by stating that if there was no reduction in the debt to GDP ratio then there would be a downgrade within the next two years.

In Spain, we saw the current Prime Minister, Pedro Sanchez, of the socialist party PSOE, win the election but with no clear majority in parliament. They won the most seats but the new far-right party, Vox, entered into the equation. This will inevitably mean weeks of protracted negotiations to form a coalition in a country that is already fragmented from a political point of view. If no consensus can be reached the country could return to the polls as well as European elections.

Data today includes a speech from Bank of England (BofE) Governor Carney as well as business climate figures from the EU. There is also money supply, private loans, consumer confidence, industrial confidence and services sentiment from the single market. This data is fairly minor however and the fallout from political developments over the weekend are likely to cause most volatility.


Data to watch

08:10 GBP BoE’s Governor Carney speech
09:00 EUR Business Climate (Apr)
12:30 USD Personal Income (MoM) (Mar)
12:30 USD Core Personal Consumption Expenditure – Price Index (MoM) (Mar)
12:30 USD Core Personal Consumption Expenditure – Price Index (MoM) (Feb)
12:30 USD Personal Spending (Feb)
12:30 USD Personal Spending (Mar)
12:30 USD Core Personal Consumption Expenditure – Price Index (YoY) (Feb)
12:30 USD Core Personal Consumption Expenditure – Price Index (YoY) (Mar)
23:01 GBP GfK Consumer Confidence (Apr)

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