First Look at US Q4 GDP Disappoints

Economic Data

- (RU) Russia Central Bank (CBR) cut its 1-week Auction rate by 200bps to 15.0%
- (BR) Brazil Dec PPI Manufacturing M/M: 0.6% v 1.1% prior; Y/Y: 4.4% v 4.5% prior
- (PT) Portugal Dec Retail Sales M/M: -3.8 v +2.5% prior; Y/Y: +1.2% v -0.7% prior
- (PT) Portugal Dec Industrial Production M/M: -3.0% v -0.5% prior; Y/Y: -3.5% v -1.7% prior
- (IN) India Q1 GDP Annual Estimate Y/Y: % v 4.5% prior
- (PL) Poland Central Bank (NBP) Jan Inflation Expectations Survey: 0.2% v 0.1%e
- (BR) Brazil Jan CNI Consumer Confidence: 104.2 v 109.2 prior
- (US) Q4 Advance GDP Annualized Q/Q: 2.6% v 3.0%e; Personal Consumption: 4.3% v 4.0%e
- (US) Q4 Advance GDP Price Index: 0.0% v 0.9%e; Core PCE Q/Q: 1.1% v 1.1%e
- (US) Q4 Employment Cost Index (ECI): 0.6% v 0.6%e
- (CA) Canada Nov GDP M/M: -0.2% v 0.0%e; Y/Y: 1.9% v 2.1%e
- (US) Jan ISM Milwaukee: 51.60 v 58.00e
- (US) Jan Chicago Purchasing Manager: 59.4 v 50.0e
- (US) Jan Final University of Michigan Confidence: 98.1 v 98.2e

Equity markets are not far off their lows as of midday, with all three US indices and all S&P segments seeing losses. Equities are headed for their fourth weekly loss out of the last five week. The miss in GDP is depressing sentiment, while some mixed corporate earnings are not helping things. As of writing, the DJIA is down 0.93%, the S&P500 is off 0.75% and the Nasdaq has given up 0.44%.

The first look at fourth quarter US GDP was mixed but not terrible. The headline figure was half the gain seen in the final November reading, declining to +2.6% from +5.0%, but nobody expected the economy to grow again at that high a rate. Personal consumption remained strong and beat consensus expectations. Exports flagged and government expenditures dropped sharply.

In a TV interview, Fed moderate Bullard said it would be reasonable to expect a rate hike in June or July and said the +2.6% reading in GDP was just fine as revisions higher are likely. Bullard reiterated that the interest rate at zero is not right for the economy and would rather see rates off zero sooner as it would give the Fed more flexibility.

Fixed income continues to digest the Fed decision on Wednesday in light of today's data. The US 10-year yield fell to new 2015 lows below 1.70%, levels not seen since 2002. The 30-year is below 2.25%. Banks remain under pressure with the XLF down more than 1%, weighed upon by the continued flattening of the US curve. Fud fund futures continue to push back expectations of the first rate hike later into the second half of the year.

The Russian central bank surprised markets with a 200-bps interest rate cut this morning, taking back some of the recent hikes made to stem the collapse of the ruble. In its statement, the bank said the currency was showing signs of stabilization, however after the decision USD/RUB was back around 70, not far from its worst levels in mid-December. The move was seen as blatantly politicized, after the government very recently installed a new head of monetary policy at the bank, under heavy pressure from industrialists and commercial bankers.

Looking Ahead

- 12:45 (US) Fed's Tarullo (voter) on macroprudential policy
- 15:00 (AR) Argentina Dec Construction Activity M/M: No est v -1.0% prior; Y/Y: No est v 0.1% prior
- (CO) Colombia Central Bank Interest Rate Decision: Expected to leave Overnight Lending Rate unchanged at 4.50%
- (MX) Mexico Dec YTD Budget Balance (MXN): No est v -461.3B prior

Weekend

- 19:00 (KR) South Korea Jan Trade Balance: $2.0Be v $5.8B prior; Exports Y/Y: -2.8%e v +3.7% prior; Imports Y/Y: -6.1%e v -0.9% prior
- 20:00 (CN) China Jan Manufacturing PMI: No est v 50.1 prior
- 20:00 (CN) China Jan Non-manufacturing PMI: No est v 54.1 prior