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US GDP growth stumbles in Q2
A slower-than-expected rise in GDP cools expectations of US economic growth this year. But is it all doom and gloom?
Slowing American GDP growth disappoints markets
Despite estimates forecasting another surging quarter for the US economy, annualised GDP growth failed to match the Dow Jones estimate of 8.4%.
GPD instead rose 6.5% in Q2 2021 according to the US Commerce Department’s initial reading today. Q1’s gross domestic product was downrated slightly to 6.3%.
So, a disappointing quarter which promised so much. Markets were expecting the US economy to surge as pent up demand gets unleashed. That hasn’t happened.
Even so, 6.5% is still pretty rapid expansion for a mature economy like the US.
We’ve seen in July PMI releases that economic activity in the manufacturing and services sectors dropped off compared with June. Higher prices of raw materials, and a labour shortage, all contributed to the lower output. Let’s be clear: the readings still showed growth, at 60.6 and 60.1 respectively, but it appears to be cooling off.
Other factors are at play here too. The delta variant appears to be running rampant throughout the southern states. Surging prices caused by inflation has weakened purchasing power. The impact of the huge fiscal stimulus provided by the Biden Administration is starting to wear off.
The labour market, in particular, has struggled to reach its pre-pandemic levels. There remains a gap of about 6.8 million jobs missing from the sector pre-market. This comes despite last months’ bumper nonfarm payrolls print when 850,000 new jobs were added to the US economy.
400,000 new unemployment insurance claims were filed in the week ending July 24th. That’s roughly double the pre-pandemic level. Continuing claims now floats around the 3.27 million mark.
The outlook for the next quarter, based on these stats, has diminished. Some estimates forecast 3.5% growth – not exactly the fire-breathing rapid rise we were anticipating.
Private domestic investment fell by 3.5% in the last quarter. Federal spending also dropped 5%. A rise in imports was also noted.
Are there any positives regarding this quarter’s US GDP growth?
With the latest estimates, the US GDP is now above pre-pandemic levels, indicating there are still strong fundamentals powering the economy along.
Personal savings essentially halved during the review period from $4.1 trillion to $1.97 trillion. Consumers stashing savings isn’t a good thing for sophisticated economies, so it was encouraging to see consumers spend.
Inf act, 69% of all economic activity in the US during Q2 2021 was driven by consumer spending, according to the Bureau of Economic Analysis. During the review period, it jumped up 11.7%.
The US economy has come on leaps and bounds since the first Covid shutdown. At its lowest point, gross economic output slumped 31.4% in Q2 2020. After that, it rebounded 33.4% and has continued on a growth footing ever since.
If we remove Covid-19 and its economic effects from the equation, current second quarter GDP growth would represent the fastest rate since 2003.
So, there is some room for optimism – but be sure to temper it with the realisation we’ve probably seen peak recovery for this year already. It’s like that growth will slow throughout the rest of the year as the economy fully resets.
Week Ahead: The Fed meets as inflation bites
The Fed meets as inflation starts to bite into the US economy. Will we see any major changes from Powell and co? US GDP is in focus too with forecasts calling for more record quarterly growth. Meanwhile, Tesla hits the accelerator on the busiest US earnings season week so far this quarter.
Earnings reports aside, the week’s big event is July’s FOMC meeting.
Inflation and a hot-running economy are likely to take centre stage during July’s talks. We’ve recently seen Chairman Powell pledge “powerful support” for the US economy post-pandemic amidst a backdrop of rising inflation.
According to Powell, current rising consumer prices is down to the nation’s reopening and will fade. In a testimony to the US House of Representatives, Powell stuck to the jobs script, pointing out there is still 7.5 million jobs missing from the US’ pre-pandemic economy.
A reduction in stimulus is some way off, according to Powell. The Fed’s $120bn a month bond purchasing programme is probably not going to change. As mentioned above, this is tied in with labour markets. Bond-buying and Fed support will likely remain in place until those job gaps are filled.
No rate hike is expected until 2023 at the earliest.
But for all the Fed’s talk of inflation being broad-based, stemming from heightened economic activity, many remain unconvinced on the plan to let the economy run hot.
June’s headline CPI print of 5.4% was the highest reading for nearly 13 years. Observers on both the Democratic and Republic side will be hoping this can be tamed relatively soon.
Powell has promised that if inflation runs rampant, “we will use our tools to guide inflation back down.”
But “it would be a mistake to act prematurely.”
Sticking with the US economy, we are due the first reading of the nation’s Q2 GDP on Thursday.
So far, predictions are good. Deloitte cites technological advances may help power the US towards another bumper quarter – outstripping pre-pandemic growth levels.
The Conference Board has predicted the US economy will grow at an annualised 9% in 2021’s second quarter.
“As the economy fully reopens and consumer confidence continues to rise, we expect consumer spending to help drive the recovery forward – especially spending on in-person services,” TCB said. “These outlays will be underpinned by a strengthening labour market and a large pool of savings derived from three rounds of fiscal stimulus checks dispersed over the last year.”
We’ve also seen in previous PMI releases that manufacturing and services sectors have continued to act on a growth footing into June following a strong April and May. Three months of solid PMI performance should help power US GDP growth this quarter.
But again, all of this pent up demand being unleashed is leading into the higher core consumer goods prices the US is currently experiencing. We’ve also had reports of high input prices starting to affect manufacturing output too. June’s manufacturing PMI reading was actually slightly lower than May’s for instance.
But, if predictions are correct, the US is about to experience one of its best periods of quarterly growth since the Second World War.
Moving away from data, it’s the busiest week for earnings season this quarter so far.
Nearly 40 US large caps are due to share their Q2 earnings this week. This includes the bulk of the FAANG stocks. Netflix reported last week, but these remaining tech giants, Alphabet (Google), Amazon, Facebook, and Apple, are all reporting in.
Tesla, however, kicks off proceedings with its earnings summary coming on Monday after US market close.
This is interesting because Tesla has rocketed 330% in terms of share price between May 2020-May 2021 and traditionally share prices tend to rise prior to Tesla releases. They have done so at an average of 1.6% ahead of all quarterly releases for the past three years.
Elon Musk’s carmaker has much to celebrate this quarter. It delivered 200,000 in a quarter for the first time. Tesla has also unleashed a range of new automation services, based on an $199-per month subscription service.
Earnings forecasts are strong, but we’ll know more on Monday.
For more information on which large caps are reporting, be sure to check out our US earnings calendar.
Major economic data
|Mon 26-Jul||9.00am||EUR||German ifo Business Climate|
|Tue 27-Jul||3.00pm||USD||US Consumer Confidence|
|Wed 28-Jul||2.30am||AUD||CPI q/q|
|2.30am||AUD||Trimmed Mean CPI q/q|
|3.30pm||OIL||US Crude Oil Inventories|
|7.00pm||USD||Federal Funds Rate|
|7.30pm||USD||FOMC Press Conference|
|Thu 29-Jul||1.30pm||USD||Advanced GDP q/q|
|3.30pm||GAS||US Natural Gas Inventories|
|Fr 30-Jul||9.00am||EUR||Germany Preliminary GDP q/q|
|1.30pm||USD||Core PCE Price Index m/m|
Key earnings data
|Mon 26 Jul||Tue 27 Jul||Wed 28 Jul||Thu 29 Jul||Fri 30 Jul|
|Tesla||3M||Automatic Data Processing||CME||AbbVie|
|General Electric||Boeing||Keurig Dr Pepper||Aon|
|Advanced Micro Devices||McDonald’s||Mastercard||Caterpillar|
|Microsoft||Spotify||Gilead||Procter & Gamble|
|Mondelez||Liberty Global||Takeda Pharmaceutical|
Week Ahead: US GDP and consumer confidence shake as inflationary pressure grows
It’s relatively quiet in terms of major announcements this week. The bulk of the key market-moving data will be coming from the US, as preliminary quarterly GDP figures are released alongside the latest CB consumer confidence sentiment. Both will be enlightening as to US economic sentiment as inflation stops lurking in the background and comes to the fore.
We start, though, with New Zealand. The Reserve Bank of New Zealand’s latest cash rate decision and statement is due early on Wednesday morning. No major changes are expected to the current official cash rate (OCR) of 0.25%, although inflationary pressures look like they are starting to make their mark on New Zealand’s economy.
RBNZ targets 2% inflation, which may have already been breached.
“We are forecasting a 0.6% increase for the quarter yielding 2.6% annual inflation. Another way of thinking about this is that CPI inflation for the three quarters to March 2021 was already 2.0%,” says Bank of New Zealand’s Head of Research Stephen Toplis.
While inflation is probably already here, the likelihood of a rate hike is low. ANZ’s Chief Economist Sharon Zollner and senior strategist David Croy suggest rates won’t rise until August 2022, rising to 0.75%. The pair also predict a further two rate increases across 2023, culminating in a final 1.75% figure.
Looking to US data, preliminary q/q GDP figures are released on Thursday, following up the advance reading from late April. At 6.4%, annualised US GDP growth was the second-largest since 2003, surging as the economy reopens again. Growth was stimulated by numerous sectors, including increased personal consumption, fixed residential and nonresidential investment, and government spending.
Preliminary readings are the mid stage of the overall GDP reporting process before the final reading is released at the end of the month. The advanced reading is generally the strongest indicator, but revisions to final figures are not uncommon.
US consumer confidence is in focus too. Friday sees the latest printing of the CB consumer confidence index. April’s reading beat expectations, rising from 109 points in Mach to 121.7. Consumers had more cash in their pockets, thanks to Biden’s stimulus cheques, and were happy to spend it.
However, inflation could cloud May’s Consumer Board readings. The preliminary reading for the University of Michigan Index of Consumer Sentiment dipped to 82.8 for May from 88.3 in April – a 6.2% month-on-month decline.
Consumer sentiment has taken a knock due to higher-than-expected headline inflation, recorded at 4.6% in April. This is the sharpest rate of increase since 2008. Headline inflation stood at 2.6% in March.
Increased consumer spending was a cornerstone of Q1 GDP growth. Should that retract as inflation grows, the calls for the Fed to shake up its monetary policy could become all the more louder as the year rolls on.
Major economic data
|Tue 25-May||9.00am||EUR||German ifo Business Climate|
|3.00pm||USD||US CB Consumer Confidence|
|Wed 26-May||3.00am||NZD||Official Cash Rate|
|3.00am||NZD||RBNZ Monetary Policy Statement|
|3.00am||NZD||RBNZ Press Statement|
|4.00am||NZD||RBNZ Press Conference|
|3.30pm||USD||US Crude Oil Inventories|
|Thu 27-May||1.30pm||USD||Preliminary GDP q/q|
|3.00pm||USD||Pending house sales|
|3.30pm||USD||US Natural Gas Inventories|
|Fri 28-May||1.30pm||USD||Core PCE Price Index m/m|
Key earnings data
|Tue 25-May||Intuit||Q3 2021 Earnings|
|Wed 26-May||Nvidia||Q1 2022 Earnings|
|Thu 27-May||Salesforce||Q1 2022 Earnings|
|Costco||Q3 2021 Earnings|
|Royal Bank of Canada||Q2 2021 Earnings|
|Toronto-Dominion Bank||Q2 2021 Earnings|
|Fri 28-May||National Bank of Canada||Q2 2021 Earnings|
Week Ahead: Apple and Tesla earnings, Fed meeting and US GDP in focus
Lots to bite our teeth into this week. We start with the Fed, although we’re not anticipating big things. An optimistic GDP outlook is coming for the US, though, while consumer confidence indicators are on their way.
Elsewhere, China’s manufacturing PMI data is released after 13 months of straight growth.
We’re also looking at another earnings charge as Wall Street reporting season rolls on with Apple, Facebook, Tesla, Alphabet and Microsoft all due to deliver quarterly numbers.
Fed meeting: no major changes ahead
America is gradually getting back to normality. The vaccine roll-out is picking up, people are returning to work and leisure, lockdown restrictions are easing and the economy is surging.
“You can see the economy opening, you can see the riderships [sic] on airplanes going up and people going back to restaurants,” Fed Chair Jerome Powell said in a recent Economic Club interview. “I think we’re going into a period of faster growth and higher job creation and that’s a good thing.”
So, what does this mean for the week’s Fed rate decision? The FOMC meets this week amidst speculation that the current “easy money” strategy may not be the right one.
With three stimulus deals pumping more liquidity into the economy, and historically low rates, ominous inflation war drums are sounding for some. However, we’re not likely to see any wholesale changes this week, with no change expected to rates until at least 2023 and bond purchases continuing at the current pace at least until later this year.
Powell has laid out the criteria for a major policy shift:
- Effective complete recovery in the labour market
- Inflation reaching 2%
- Inflation running above 2% for a sustainable period of time
None of those boxes have been ticked thus far. Even so, jobs numbers are improving. The unemployment rate nudged down to 6% with last nonfarm payrolls. The extra liquidity afforded by Biden’s stimulus deals may also pump up consumer good prices too. Conditions for a rate change are swirling around.
But don’t go into the FOMC press conference expecting a blitz of new policy changes. The course is a steady one from here on out.
US quarterly GDP set to soar as economy roars
With the US economy roaring back to life, US GDP forecasts for the first quarter are electric.
Q4 2020 saw GDP growth revised upward from 4.1% to 4.3% as US consumers splash their stimulus cash. Consumer spending has been the key driver, but other areas of business investment are helping an economic surge. Exports rose 22.3%. Business investment in intellectual property, inventories and residential housing was up too.
All very good – but the real surge could be about to begin. Estimates for Q1 2021 GDP are exceptionally high.
The Atlanta Fed forecasts a whopping 8.3% at its latest GDP estimates dated April 16th. The key driver here is personal income. In January, household wealth increased by $2 trillion, alongside a 2.4% rise in spending. Combined with the other factors at play, like higher nonfarm payrolls, consumer spending, and industrial output, the recipe for high GDP growth is all there.
Extra household stimulus cheques are on their way. As vaccine rollout progresses, and further sectors are opened to individual spending, it’s likely GPD growth will surge. The challenge, then, is sustaining it.
Can US consumer confidence stay high?
It seems highly likely: consumer confidence hit a one-year high in March and things have only improved since then regards vaccines, reopening and stimulus. Given the way the vaccine rollout and economy are performing, this will probably be the case in April too.
Let’s look at March’s data to gauge April sentiment. Last month, consumers were upbeat about the jobs market. They were feeling cheery as restrictions on small-businesses are lifted. The thought of extra free cash from stimulus cheques is lifting the mood.
Big ticket items like cars, houses and household appliances are on US consumers’ shopping lists going forward as a savings glut plus extra government money is increasing spending power.
In point terms, the Confidence Board’s survey jumped 19.3 points to hit 109.7 in March. That’s the highest it has been for a year, and the highest points leap since April 2004.
March’s mood was good. Will we see the same in April?
China manufacturing PMI: can the sector bounce back?
China’s manufacturing PMI data is released this week as the nation’s economic recovery gains traction.
March’s index showed an increase over February’s numbers, rising from 50.6 to 51.9. While growth is still historically low for Chinese manufacturing, a reading over 50 implies the sector is still expanding. In fact, PMIs have shown growth readings for 13 straight months.
Production capacity was closed during Lunar Festival but it’s been back online. This is partly responsible for the PMI rise, but there are more important factors at play. Namely, the global economic recovery.
Orders are up, which means Chinese plants are busier. The US stimulus cheques are feeding into higher demand for consumer goods – great news for Chinese factory owners. Additionally, domestic and international orders of machinery like excavators are helping prop up sectoral growth.
Future prospects are buoyed by big spending plans overseas. Joe Biden’s mammoth infrastructure plan, if it passes, is being hungrily eyed by Chinese construction machinery and materials manufacturers. There’s profit to be had stateside.
China is on course for a bumper first quarter according to China’s National Bureau of Statistics. GDP growth has clocked in at a record 18.3%, following an economic surge that completely outpaces the US stellar growth.
While the short term outlook is encouraging, questions around sustainability remain. Exports, fuel for China’s manufacturing fire, were up 38.7% overall in Q1 2021, but those eye-watering numbers have been tempered by somewhat by the drop in export activity between February and March. A cause for concern to be sure, so this week’s PMI release will be interesting to watch.
Tech-heavy week ahead for earnings season
Wall Street prepares for another earnings barrage this week. As ever in earnings season, the reports are coming thick and fast.
There’s a bit of a tech focus to earnings this week. Apple, Amazon, Facebook, and Tesla are all reporting in. Tesla will be interesting, purely to see the impact its decision to spend billions on bitcoin has had on its financials. Previous reports suggest it has made more profit from the crypto this year then selling cars.
Apple’s financials come after the company’s 2021 launch event. A shiny new colour the iPhone twelve, plus a rainbow of hues for iMacs, Apple TV updates, and more have all been launched – but the focus is very much on iPhone 12 sales. With six out of every ten smartphones sold in Q1 being an iPhone, Apple could be looking at another record breaking quarter.
We also see oil majors ExxonMobil, BP, Shell, TOTAL, and Chevron share earnings, which probably won’t be as colossal as Apple’s. ExxonMobil says resurgent oil prices means figures may be better than expected but could be facing a chilling $800m loss thanks to the Texas Big Freeze. Will we see more hefty losses for the majors?
See below for a roundup of this week’s reporting large caps.
Major economic data
|Mon 26-Apr||9.00am||EUR||German IFO Business Climate|
|Tue 27-Apr||Tentative||JPY||BOJ Outlook Report|
|Tentative||JPY||Monetary Policy Statement|
|Tentative||JPY||BOJ Press Conference|
|3.00pm||USD||CB Consumer Confidence|
|Wed 28-Apr||All day||All||OPEC-JMMC Meeting|
|2.30am||AUD||Trimmed Mean CPI q/q|
|1.30pm||CAD||Core Retail Sales m/m|
|1.30pm||CAD||Retail Sales m/m|
|3.30pm||USD||US Crude Oil Inventories|
|7.00pm||USD||Federal Funds Rate|
|7.30pm||USD||FOMC Press Conference|
|Thu 29-Apr||2.00am||NZD||Final ANZ Business Confidence|
|1.30pm||USD||Advance GDP q/q|
|1.30pm||USD||Advance GPD Index q/q|
|3.00pm||USD||Pending House Sales|
|Fri 30-Apr||2.00am||CNY||Manufacturing PMI|
|9.00am||EUR||Germany Prelim GDP q/q|
Key earnings data
|Mon 26-Apr||Tesla||Q1 2021 Earnings|
|Vale||Q1 2021 Earnings|
|Canadian National Railway Co.||Q1 2021 Earnings|
|Philips||Q1 2021 Earnings|
|Tue 27-Apr||Microsoft||Q3 2021 Earnings|
|Alphabet (Google)||Q1 2021 Earnings|
|Visa||Q2 2021 Earnings|
|Novartis||Q1 2021 Earnings|
|Texas Instruments||Q1 2021 Earnings|
|Starbucks||Q2 2021 Earnings|
|HSBC||Q1 2021 Earnings|
|GE||Q1 2021 Earnings|
|3M||Q1 2021 Earnings|
|AMD||Q1 2021 Earnings|
|BP||Q1 2021 Earnings|
|Mondalez||Q1 2021 Earnings|
|Chubb||Q1 2021 Earnings|
|Capital One||Q1 2021 Earnings|
|Wed 28-Apr||Q1 2021 Earnings|
|Apple||Q1 2021 Earnings|
|QUALCOMM||Q2 2021 Earnings|
|Boeing||Q1 2021 Earnings|
|Moody’s||Q1 2021 Earnings|
|NOVATEK||Q1 2021 Earnings|
|Spotify||Q1 2021 Earnings|
|Ford Motor Corp||Q1 2021 Earnings|
|Thu 29-Apr||Amazon||Q1 2021 Earnings|
|Samsung||Q1 2021 Earnings|
|MasterCard||Q1 2021 Earnings|
|China Construction Bank||Q1 2021 Earnings|
|McDonald’s||Q1 2021 Earnings|
|Royal Dutch Shell||Q1 2021 Earnings|
|Bank of China||Q1 2021 Earnings|
|Sony||Q4 2020 Earnings|
|Caterpillar||Q1 2021 Earnings|
|TOTAL||Q1 2021 Earnings|
|Airbus||Q1 2021 Earnings|
|S&P Global||Q1 2021 Earnings|
|Gilead||Q1 2021 Earnings|
|Sinopec||Q1 2021 Earnings|
|BASF||Q1 2021 Earnings|
|Baidu||Q1 2021 Earnings|
|Equinor||Q1 2021 Earnings|
|Fri 30-Apr||Alibaba||Q4 2020 Earnings|
|ExxonMobil||Q1 2020 Earnings|
|AstraZeneca||Q1 2021 Earnings|
|BNP Paribas||Q1 2021 Earnings|
|Colgate-Palmolive||Q1 2021 Earnings|
Week Ahead: Acronyms a-go-go – CPI, PMI & GDP releases
A lot of economic data is released in key economies this week. Starting with the UK, CPI and retail sales figures are released, with furlough and lockdown still looming large over the economy. US GDP numbers for the first quarter are finalised but the focus will be on business sentiment showing up in a fresh batch of PMI releases from the US, UK and Eurozone amid vaccine progress that is diverging in the major economies.
Investors and FX traders will be watching UK inflation figures this week following the Bank of England decision.
Inflation is in focus in the UK right now, as the effects of rising bond yields, further government economic support via Chancellor Sunak’s “spend now, tax later” budget, and the Bank of England’s response continue to colour the economic picture.
ONS data shows the latest full-year CPI at 0.9%. Across 2021, the CPI is expected to rise to 1.5% across the year. Some estimates suggest it may even rise to 1.8% by April.
CPI inflation for the UK came in at -0.2% month–on–month in January, down on December’s 0.3%, but the figure was above the -0.4% the market was expecting.
CPI inflation rose 0.7% year-on-year in January, which is above December’s figure of 0.6% and above the consensus expectation for a reading of 0.6%. January’s upward trend was driven by rising prices of food, transport, and household goods.
UK Retail Sales
UK retail sales data is released this week. The latest industry data suggests February was a solid month for the UK’s retail sector, according analysis from KPMG.
Total sales were up 1% in February on a like-for-like basis against last year’s stats. Importantly, this was a sharp reversal of January’s retail sales, where sales contracted 1.3% against 2020’s figures.
Driving February’s growth was March’s reopening of schools across England. Spending on non-food items, like school uniforms and stationery, was up as shopper’s fell into the back-to-school trend.
Non-essential stores still remain shuttered in England and will remain so until April 12th. Online sales are benefitting greatly from lockdown, mainly because consumers have no other choice but to use digital outlets to get their non-essential items. Non-food spending accounts for 61% of February sales – up nearly double compared with 31% in February 2020.
However, overall consumer spending is down, Barclaycard reports, slipping 13.8% y-o-y in February. Lockdown restrictions on hospitality and leisure continue to weigh heavy. No doubt they’ll surge once full lockdown restrictions are removed in June, but until then the sector is going to greatly underperform.
US, UK, EU PMI
PMI data is released in major economies this week as the UK, US, and EU share index findings.
Starting with the UK, observers will be hoping the momentum started in February will continue into March. The IHS Markit/CIPS Composite PMI gave a reading of 49.6 for February, up from an eight-month low of 41.2 in January.
Some industries are performing above expectation. According to IHS Markit, UK construction was perkier than forecast in February, with the construction PMI at 53.3 from 49.2, as projects halted by Covid-19 were given the green light to continue or begin. Manufacturing continued an upward swing too, rising to 55.1 last month.
However, services remain disappointing, with the revised February figure chalked up as 49.5 – still below the 50 growth threshold. This is perhaps to be expected. Leisure and hospitality are still heavily restricted, so don’t expect any upward trends in March.
EU leaders were breathing a little easier after February’s numbers. For instance, manufacturing was up to 57.9 in February from 54.8 in January – a 3-year high – led by strong performance from The Netherlands and Germany.
However, since then the outlook for Europe has deteriorated as Covid cases in France and Germany have spiraled and Italy has entered a fresh lockdown. Survey data may not reflect the recent developments fully.
Hopping across the Atlantic, the US enjoyed a smash-hit manufacturing PMI in February, blowing the EU’s impressive numbers out the water. The US manufacturing PMI came in at 60.8 – the highest level seen for 3 years. However, that impressive figure may be cooled by issues in the supply chain.
According to manufacturers surveyed by the Institute for Supply Management (ISM), commodities and component prices are rising. The steel price is up, for instance, which massively affects pricing for the US manufacturing sector.
The final reading for US Q4 2020 GDP comes this week but all eyes are really on the updated forecasts we are getting for 2021. Last week the Federal Reserve raised its outlook for growth to 6.5% this year, up from 4.2% expected at the time of the December meeting.
The OECD and several investment banks have also upped their guidance for US growth this year. Therefore, high frequency data like the weekly unemployment claims and personal income and spending figures will be the ones to watch, particularly as the arrival of $1,400 stimulus cheques begins to be felt.
Markets, however, like to look forward, not backward. Q1 2021’s GDP figures will be very interesting for the market. On that front, the outlook is optimistic.
Back in December, Goldman upgraded its Q1 2021 GDP figure to 5%, following the passing of $900bn in stimulus. Joe Biden’s further $1.9bn stimulus package has been passed, which may influence the quarter’s GDP movement.
More recently, the Philadelphia Fed has put Q1 2021 GDP growth at 3.2%, citing a brighter outlook for labour markets, although it has also bumped its inflation expectations up to 2.5% for this quarter’s CPI release. The Atlanta Fed is even more upbeat than its cousin to the north. Its initial Nowcast puts the quarter’s GDP growth at 5.2% – in line with Goldman’s December estimate.
The point about unemployment raised by Philadelphia is pertinent here. The last Nonfarm payrolls indicated the jobs market was beginning to come off life support, surging 379,000. More people at work suggests more productivity, suggests healthy Q1 GDP growth.
Essentially, we’re looking at a healthier US economy in 2021 so far. Morgan Stanley has even gone so far as to suggest pre-pandemic GDP growth will kick in as early as the end of March. That might be a bit too ambitious, but it’s an indicator of increased confidence regarding the United States.
Major economic data
|Wed 24 Mar||7.00am||GBP||UK CPI y/y|
|8.15am||EUR||French Flash Manufacturing PMI|
|8.15am||EUR||French Flash Services PMI|
|8.30am||EUR||German Flash Manufacturing PMI|
|8.30am||EUR||German Flash Services PMI|
|9.00am||EUR||Flash Manufacturing PMI|
|9.00am||EUR||Flash Services PMI|
|9.30am||GBP||Flash Manufacturing PMI|
|9.30am||GBP||Flash Services PMI|
|1.45pm||USD||Flash Manufacturing PMI|
|1.45pm||USD||Flash Services PMI|
|2.30pm||USD||US Crude Oil Inventories|
|Thu 25 Mar||8.30am||CHF||SNB Monetary Policy Statement|
|12.30pm||USD||Final GDP q/q|
|2.30pm||USD||US Natural Gas Inventories|
|Fri 26 May||7.00am||GBP||Retail Sales m/m|
|9.00am||EUR||German ifo Business Climate|
Key earnings data
|Mon 22 Mar||Saudi Aramco||Q4 2020 Earnings|
|Tue 23 Mar||Adobe||Q1 2021 Earnings|
|Markit||Q1 2021 Earnings|
|Wed 24 Mar||Tencent Holdings||Q4 2020 Earnings|
|Geely Motors||Q4 2020 Earnings|
|Thu 25 Mar||CNOOC||Q4 2020 Earnings|
Week Ahead: Fed meets, US GDP & Big Tech earnings
In the week ahead, the Federal Reserve holds its first meeting of the new year, with a range of new appointments in place, but a major policy change seems unlikely. Latest US GDP figures are released too. Forecasts are showing a mixed but optimistic outlook for Q4 2020’s numbers. Finally, earnings season continues with big tech firms leading the large caps in the latest earnings calls.
FOMC meeting & press conference
The first Federal Reserve meeting of 2021 goes ahead next week, off the back of newly inaugurated Joe Biden’s plans for additional stimulus and Treasury pick Janet Yellen’s calls to ‘act big’ on fiscal policy. $1.9 trillion is the ballpark figure for additional economic stimulus as the US seeks to shore up its economy against the continued Covid-19 onslaught.
Four new regional Fed presidents are being rotated into the key voting spots this January – a rotation that could indicate a more dovish Fed for 2021. Out go Mester (hawk), Kashkari (dove), Kaplan (neutral) and Harker (neutral). In come Evans (dovish), Daly (neutral), Bostic (dove), and Barkin (neutral).
New members provide a little interest, but the Fed is not about to change course, with Jay Powell making it clear that now is not the time to talk about tapering bond purchases, although some policymakers have suggested this may be warranted later in 2021.
According to December 2020’s Fed meeting minutes, policymakers see rates staying in the 0%-0.25% currently targeted range until 2022, with a long-range estimate of 2.5%. No one foresees a rate hike this year. The status quo is very much in favour. According to Atlanta Fed President Bostic, a lot would have to happen for that to occur.
There is a possibility of some increases in 2023, and maybe even as early as the second half of 2022. Three key points will be looked at: the health of small businesses, the effect of Fed lending programmes, many of which were closed by the end of 2020, and temporary vs permanent job losses. Overriding all of those though will be the continued response to the Covid-19 pandemic.
Right now, it appears that the Fed will essentially be staying the course, committing to policy established across the course of 2020.
Latest US GDP figures released
Like pretty much every advanced economy worldwide, the US was rocked by repeated blows from the Covid-19 pandemic. Thursday sees the advanced reading of Q4 GDP stats and the picture looks muddled to say the least. GDP diagnoses really depend on who you ask.
The Atlanta Fed’s GDPNow model forecasts 7.4% annualised growth in Q4 as of its January 15th release, although this has been revised down from 8.7% forecast on January 8th., The New York Fed’s Nowcast model indicates 2.5% expansion.
GDP growth will all depend on which economic sectors can back on their feet fastest. The US Commerce Department stated recently that consumer spending, the US main economic engine, had been revised upward slightly, alongside fixed business investments. However, these were tempered by a drop in exports. Services, where 61% of consumer spending goes, were down 17% year-on-year in third quarter of 2020 – can they recover? Time will tell.
Earnings Season – Apple, Microsoft and Facebook lead the large caps
Earnings season continues on Wall Street and this week the focus shifts to tech giants. Big tech seems like it’s getting bigger and bigger with lockdowns playing into the sector’s hands. Will earnings reports confirm that?
Apple could be onto its first-ever $100bn quarter as the consensus EPS climbs 12% year-on-year to $1.40. Holiday shopping season falls squarely into Apple’s first-quarter reporting, and with a multitude of iPhone 12 models hitting markets – enough for 30% rise in production numbers this quarter – the indicators a bumper earnings call coming from the California tech giants are pretty strong.
Microsoft has been a winner. If you’re working from home, you’ve probably had to grapple with Microsoft Teams, now the de facto business communications software of choice for businesses around the globe.
Cloud computing solutions are helping Microsoft push record quarterly revenues. With the increased uptake of products like Azure, GitHub, SQL Server, and Windows Server, commercial cloud services have generated 31% more revenue y-o-y in the recent quarter, hitting $15.2bn. Combined with its other productivity-led software, i.e. Office, Teams, etc., Microsoft Q1 2021 revenues are on course to reach $40.2bn.
Facebook’s reputation has taken a bit of a hit in recent months. The spread of fake news and hate speech on the platform is one of the major complaints levelled at the company.
Despite this, Facebook reported 12% growth in active daily users in the last quarter, up to 1.82bn, while monthly active users grew at the same rate, reaching 2.74bn – just over a quarter of the global population. Ad revenues are up 22% y–o–y too, even in the face of a boycott from 1,000 prominent advertisers.
See below for a full breakdown of the large caps reporting earnings this week.
Major Economic Data
|Mon Jan 25|
|Tue Jan 26||7.00am||GBP||Unemployment Claims|
|3.00pm||USD||CB Consumer Confidence|
|Wed Jan 27||12.30am||AUD||CPI q/q|
|3.30pm||USD||US Crude Oil Inventories|
|7.00pm||USD||Federal Funds Rate|
|7.30pm||USD||FOMC Press Conference|
|Thu Jan 28||1.30pm||USD||Advanced GDP q/q|
|1.30pm||USD||Advanced GDP Price Index q/q|
|3.00pm||USD||CB Leading Index m/m|
|3.30pm||USD||US Natural Gas Inventories|
|Fri Jan 29||8.00pm||CHF||KOF Economic Barometer|
|3.00pm||USD||Pending Home Sales m/m|
Key Earnings Data
|Mon 25 Jan||NIDEC|
|Brown & Brown|
|Equity Lifestyle Properties|
|Tue 26 Jan||Microsoft|
|Johnson & Johnson|
|Canadian National Railway Co.|
|Maxim Integrated Products|
|LG Household & Health Care|
|Nitto Denko Corp.|
|Wed 27 Jan||Apple|
|Shin-Etsu Chemical Co.|
|Automatic Data Processing Inc.|
|Norfolk Southern Corp.|
|Edward Lifesciences Corp.|
|TE Connectivity Ltd|
|Las Vegas Sands Corp.|
|Ameriprise Financial Inc.|
|Hormel Foods Corp.|
|Nomura Research Institute|
|Raymond James Financial|
|Packaging Corp. of America|
|Thu 28 Jan||Samsung|
|Air Products & Chemicals|
|Walgreens Boots Alliance|
|Stanley Black & Decker|
|McCormick & Co.|
|Arthur J. Gallagher & Co.|
|Fri 29 Jan||Eli Lilly|
|Simon Property Group|
|Church & Dwight Co.|
|Svenska Cellulosa AB|
|Booz Allen Hamilton|
Week Ahead: Big tech earnings to drive pre-election volatility
It’s set to be a volatile week for US markets as earnings season continues on Wall Street with Big Tech reporting. Apple, Amazon, Microsoft, Alphabet and Facebook are among the biggest names delivering their quarterly updates. Meanwhile central banks are in action aplenty with the Bank of Japan, Bank of Canada and European Central Bank all holding policy meetings. And we of course countdown to November’s US presidential election with all eyes on the Vix.
Big Tech Earnings
It’s a massive week for corporate earnings and the focus will undoubtedly fall on the FAANGs with Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) and Facebook (FB) all set to report quarterly earnings figures on Thursday. Earnings come amid scrutiny on big tech as the US Department of Justice opened an antitrust case against Google’s parent company, Alphabet, which focuses on agreements it has made with handset manufacturers and carriers to be the default search engine on new phones. Whilst investors have shrugged this off so far, earnings may well provide fuel for greater volatility in the stock.
Meanwhile there are fears that the case could create headwinds for Apple’s services business. The DOJ said Apple earns between $8 billion and $12 billion from Google, which would equate to between 17% and 26% of Apple’s revenues from Services last year. Apple recently released its iPhone12 but increasingly the reason for the stock’s higher multiples is about the ecosystem and Services revenues. Nevertheless, analysts remain bullish on these tech giants and they remain among the biggest winners YTD. Microsoft reports on Tuesday and there are dozens of large cap stocks reporting over the next few days.
With the euro gaining ground again versus the US dollar, attention in the FX markets will be on the European Central Bank (ECB) meeting on Thursday. Markets are increasingly betting on the ECB carrying out further easing in a bid to boost faltering economic growth and stagnant prices. The Eurozone slid into its second straight month of deflation in September and with further lockdowns being imposed across the bloc, the risks to the economic outlook have clearly deteriorated since the last meeting. The threat of a double dip recession is real, with Christine Lagarde saying recently that the resurgence of the virus is a clear risk to the economy. Given the murky outlook and dreadful inflation backdrop it seems all but certain the ECB will increase its bond buying programme by another €500bn by December.
To get a flavour of the mood in the ECB, the usually hawkish Austrian central bank head Robert Holzmann, said recently: “More durable, extensive or strict containment measures will likely require more monetary and fiscal accommodation in the short run.”
Meanwhile there are also meetings of the Bank of Japan and Bank of Canada taking place this week.
The advanced reading for US GDP growth in the third quarter will be the highlight as markets look for clues to the pace and sustainability of the recovery. The economy is expected growth in the region of 30% as businesses reopened following lockdowns. The Atlanta Fed’s forecast indicates the economy will have expanded by 35% on a quarterly basis – but this of course masks the real damage when it’s coming off the back of a 31% drop in Q2. The GDP reading comes at an opportune moment for Donald Trump who will be able to proclaim that the economy is on fire.
The final straight: polling data may not change much – the number of undecided voters has been small. Biden commands a strong national lead but in the key battlegrounds that will determine the result it’s tighter. We’re hosting a special pre-election live event on Nov 2nd to run through how the markets might react.
Top Economic Data This Week
Open the economic calendar in the platform for a full list of events.
|Oct 26th||German Ifo business climate|
|Oct 26th||UK Nationwide house price index|
|Oct 26th||US new home sales|
|Oct 26th||SNB Chairman Jordan speaks|
|Oct 27th||BoJ core CPI|
|Oct 27th||US durable goods, core durable goods|
|Oct 27th||US CB consumer confidence|
|Oct 28th||Australia CPI inflation|
|Oct 28th||Bank of Canada rate decision|
|Oct 28th||EIA crude oil inventories|
|Oct 28th||FOMC member Kaplan speaks|
|Oct 29th||Bank of Japan policy statement & economic outlook|
|Oct 29th||German preliminary CPI inflation|
|Oct 29th||UK mortgage approvals & lending figures|
|Oct 29th||US advanced GDP – Q3|
|Oct 29th||US weekly jobless claims|
|Oct 29th||ECB policy decision & press conference|
|Oct 29th||US pending home sales|
|Oct 29th||US natural gas storage|
|Oct 30th||Tokyo core CPI|
|Oct 30th||Japan industrial production|
|Oct 30th||French flash GDP|
|Oct 30th||German preliminary GDP|
|Oct 30th||Eurozone CPI flash estimates|
|Oct 30th||Canada GDP|
|Oct 30th||US personal spending & core PCE price index|
|Oct 30th||Chicago PMI|
|Oct 30th||UoM consumer sentiment|
Top Earnings Reports This Week
Don’t forget to tune into our Daily Earnings Season Specials on XRay for more updates
|26-Oct||SAP SE||Q3 2020 Earnings|
|27-Oct||Microsoft Corp.||Q1 2021 Earnings|
|27-Oct||Pfizer Inc.||Q3 2020 Earnings|
|27-Oct||Ping An Insurance Co.||Q3 2020 Earnings|
|27-Oct||Merck Co.||Q3 2020 Earnings|
|27-Oct||Novartis AG||Q3 2020 Earnings|
|27-Oct||Eli Lilly and Co.||Q3 2020 Earnings|
|27-Oct||3M Co.||Q3 2020 Earnings|
|27-Oct||AMD (Advanced Micro Devices) Inc.||Q3 2020 Earnings|
|27-Oct||Caterpillar Inc.||Q3 2020 Earnings|
|27-Oct||HSBC Holdings plc||Q3 2020 Earnings|
|27-Oct||S&P Global Inc||Q3 2020 Earnings|
|27-Oct||BP plc||Q3 2020 Earnings|
|28-Oct||Visa Inc.||Q4 2020 Earnings|
|28-Oct||MasterCard Inc.||Q3 2020 Earnings|
|28-Oct||United Parcel Service Inc. (UPS)||Q3 2020 Earnings|
|28-Oct||Amgen Inc.||Q3 2020 Earnings|
|28-Oct||ServiceNow Inc||Q3 2020 Earnings|
|28-Oct||Boeing Co.||Q3 2020 Earnings|
|28-Oct||Sony Corp.||Q2 2020 Earnings|
|28-Oct||GlaxoSmithKline plc (GSK)||Q3 2020 Earnings|
|28-Oct||Gilead Sciences Inc.||Q3 2020 Earnings|
|28-Oct||Anthem Inc.||Q3 2020 Earnings|
|28-Oct||Equinix Inc||Q3 2020 Earnings|
|29-Oct||Apple Inc.||Q4 2020 Earnings|
|29-Oct||Amazon||Q3 2020 Earnings|
|29-Oct||Alphabet||Q3 2020 Earnings|
|29-Oct||Facebook Inc.||Q3 2020 Earnings|
|29-Oct||Samsung||Q3 2020 Earnings|
|29-Oct||China Life Insurance Co Ltd (A)||Q3 2020 Earnings|
|29-Oct||Comcast Corp. (Class A)||Q3 2020 Earnings|
|29-Oct||Shopify Inc (A)||Q3 2020 Earnings|
|29-Oct||Sanofi S.A.||Q3 2020 Earnings|
|29-Oct||AB InBev SA-NV (Anheuser-Busch InBev)||Q3 2020 Earnings|
|29-Oct||American Tower Corp.||Q3 2020 Earnings|
|29-Oct||Starbucks Corp.||Q4 2020 Earnings|
|29-Oct||Shell (Royal Dutch Shell)||Q3 2020 Earnings|
|29-Oct||Volkswagen (VW) St.||Q3 2020 Earnings|
|29-Oct||Stryker Corp.||Q3 2020 Earnings|
|29-Oct||China Petroleum & Chemical (Sinopec) (A)||Q3 2020 Earnings|
|29-Oct||China Life Insurance Co. Ltd.||Q3 2020 Earnings|
|30-Oct||China Construction Bank Corp.||Q3 2020 Earnings|
|30-Oct||AbbVie Inc||Q3 2020 Earnings|
|30-Oct||ExxonMobil Corp. (Exxon Mobil)||Q3 2020 Earnings|
|30-Oct||Chevron Corp.||Q3 2020 Earnings|
|30-Oct||Honeywell||Q3 2020 Earnings|
|30-Oct||PetroChina Co Ltd (A)||Q3 2020 Earnings|
|30-Oct||Postal Savings Bank of China Registered Shs -A-||Q3 2020 Earnings|
|30-Oct||TOTAL S.A.||Q3 2020 Earnings|
|30-Oct||AUDI AG||Q3 2020 Earnings|
|30-Oct||Altria Inc.||Q3 2020 Earnings|
|30-Oct||Colgate-Palmolive Co.||Q3 2020 Earnings|
|31-Oct||Berkshire Hathaway Inc.||Q3 2020 Earnings|
|31-Oct||Industrial and Commercial Bank of China Ltd (A)||Q3 2020 Earnings|
|31-Oct||Industrial & Commercial Bank of China Ltd.||Q3 2020 Earnings|
|31-Oct||China Merchants Bank Co Ltd.||Q3 2020 Earnings|
|31-Oct||Bank of China Ltd||Q3 2020 Earnings|
Trump suggests delaying US Presidential Election, US GDP better than expected
US President Donald Trump has tweeted that the US Presidential Election 2020 should be delayed beyond November. US stock market futures paid little attention to the comment, but the Dow was 300 points in the red anyway after US growth and jobs data. Trump claimed, without providing any evidence, that November’s ballot would be “the most inaccurate & fraudulent election in history”.
With Universal Mail-In Voting (not Absentee Voting, which is good), 2020 will be the most INACCURATE & FRAUDULENT Election in history. It will be a great embarrassment to the USA. Delay the Election until people can properly, securely and safely vote???
— Donald J. Trump (@realDonaldTrump) July 30, 2020
Can Trump delay the US 2020 Presidential Election?
The president has long taken issue with mail-in ballots, and has claimed before that they pose a high risk of fraud. Many states have already taken the decision to open mail-in ballots to all voters for safety reasons given the huge number of coronavirus cases in the United States.
As Helen Thomas pointed out in our earlier election coverage, “recent electoral results have indicated that expanding vote-by-mail favours Democrats, as the easy access to the ballot has increased turnout in their favour”.
US GDP better than forecast, but jobless claims rise
Markets were little cheered by the latest US economic data, despite a smaller than expected decline in Q2 GDP. The economy shrank by -32.9% between April and June, compared to forecasts of a -34.1% drop. The decline is still the largest drop in output since the Second World War.
Jobless claims figures published alongside the latest US growth data pointed to a small uptick in claims. 1.434 million Americans filed for jobless benefits in the week ending July 25th, up from 1.416 million the previous week. The four-week average has risen from 1.360 million to 1.368 million, and the number of continuing claims rose from 16.2 million to 17 million – a much larger increase than had been forecast.
Stocks edge further into negative territory
European stocks and US futures slowly drifted further into negative territory after the data, with Wall Street going on to open around -1% lower. Equities had been languishing in the red ever since this morning’s European data, which showed a larger-than-expected drop in Q2 GDP for Germany and a rise in Eurozone unemployment.
Week Ahead: Massive week for earnings, Federal Reserve meeting on tap
Coming up this week – will the Federal Reserve lean on bond yields, and can Amazon, Alphabet, Apple and Facebook meet lofty expectations for earnings?
Investors are becoming increasingly concentrated in a handful of big names, especially the very popular tech sector. The concentration is so large that the biggest five stocks make up almost a quarter of the total market capitalisation of the S&P 500. These stocks have returned 35% YTD, while the remaining 495 stocks have declined –5%. With such a high concentration in big tech, earnings updates from four of the five this week are going to be critical for the market’s direction.
Facebook (FB), Amazon.com (AMZN), Apple (AAPL), and Alphabet (GOOGL) are all due to report earnings this week. This will provide the market with an important steer on the resilience of earnings among the largest-cap stocks as well crucial guidance on the coming quarters. Read our preview to the Amazon earnings.
In a very busy week for earnings, Royal Dutch Shell and AstraZeneca are the biggest UK stocks to report, whilst luxury comes in for scrutiny with results due from Hermes and LVMH.
Federal Reserve meeting – leaning on the front end?
Talk of yield curve control is keeping Treasury rates low and weighing on real rates, but it is unclear whether the Federal Reserve will seek to lean any more on the front end of the curve when it meets on Wednesday. Chair Jay Powell has stressed that the Fed isn’t even thinking about thinking of raising rates, whilst the decline in US real yields to record lows is a sign perhaps that the market believes the Fed may do more.
No policy change is expected at this week’s meeting, but it the talks are likely to set the stage for a move in the autumn to inject further support after last month the Fed said that highly accommodative policy was likely to last many years. At the last FOMC meeting, it was agreed that officials need more analysis of yield curve control but there was agreement on the need for more explicit forward guidance on interest rates, perhaps tying it to concrete targets for inflation or employment levels. This could further anchor the front end of the yield curve, acting as a de facto control mechanism.
GDP figures – how bad was it?
After the Fed, Thursday sees the release of the advanced US GDP reading for Q2. The Atlanta Fed’s GDPNow model indicates the world’s largest economy shrank by around 35% in the second quarter. However, we already know that the June quarter was terrible – the backwards-looking data may prove less instructive than the now hot-ticket US weekly jobs report, also due on Thursday. Ahead of these and before the European session opens the latest German GDP numbers will be released.
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|07.15 UTC||Daily||European Morning Call|
|12.00 UTC||27-Jul||Master the Markets|
|From 15.30 UTC||28-Jul||Weekly Gold, Silver, and Oil Forecasts|
|17:00 UTC||30-Jul||Election2020 Weekly|
|19.30 UTC||30-Jul||Daily FX recap|
Top Earnings Reports this Week
Here are some of the biggest earnings reports scheduled for this week:
|30-Jul||Procter & Gamble|
Key Events this Week
Watch out for the biggest events on the economic calendar this week:
|08.00 UTC||27-Jul||German Ifo Business Climate|
|12.30 UTC||27-Jul||US core durable goods orders|
|07:00 UTC||28-Jul||Spain unemployment rate|
|14:00 UTC||28-Jul||US CB consumer confidence|
|01.30 UTC||29-Jul||Australia CPI inflation|
|14:00 UTC||29-Jul||US pending home sales|
|14.30 UTC||29-Jul||US EIA Crude Oil Inventories|
|18.00 UTC||29-Jul||Federal Reserve statement + press conference|
|06:00 UTC||30-Jul||German preliminary GDP|
|12.30 UTC||30-Jul||US Weekly Jobless Claims|
|12:30 UTC||30-Jul||US advanced Q2 GDP|
|14.30 UTC||30-Jul||US EIA Natural Gas Storage|
|01.00 UTC||31-Jul||China PMIs|
|12:30 UTC||31-Jul||US core PCE inflation, spending|
Markets jump on Gilead news
European stocks added to gains and US futures extended higher after a report indicated positive results from Gilead’s drug trials for treating Covid-19.
Gilead said it was aware of positive data emerging from the National Institute of Allergy and Infectious Diseases’ (NIAID) study of its antiviral drug remdesivir for the treatment of Covid-19. Gilead will share additional data on its own trials in due course, stating in a PR: ‘This study will provide information on whether a shorter, 5-day duration of therapy may have similar efficacy and safety as the 10-day treatment course evaluated in the NIAID trial and other ongoing trials. Gilead expects data at the end of May from the second SIMPLE study evaluating the 5- and 10-day dosing durations of remdesivir in patients with moderate COVID-19 disease.’
This is undoubtedly positive for risk – the closer you get to treatment or a vaccine the quicker we reopen the economy and the lower the risk of a 2nd, 3rd wave outbreaks. Rumours of positive results from Gilead a week ago helped lift spirits and this is yet more encouraging news. We are also hearing that there will be a press conference later today with Dr Fauci on the NIAID results, which may offer further details for markets.
The FTSE 100 extended gains to take out 6060, whilst the DAX moved aggressively back to with touching distance of 11,000. The S&P 500 headed to open up at 2920, with the Dow seen up +400 points at the open around 24,540.
Meanwhile, after some delay and an initial misprint we learned US GDP contracted 4.8% in the first quarter. The usual caveats pertain – it’s backward-looking data and the worst of the damage will be done in Q2, but nonetheless it was worse than the –4% expected.