US equities rallied on Thursday, boosted by a decent rally in Tesla and Chevron stocks, and a better-than-expected GDP read in the US.
The latest US GDP update was a strong beat. The US economy grew 2.9% in Q4, down from 3.2% printed a month earlier, but significantly better than the 2.6% penciled in by analysts.
But be careful! The US growth number was good, but not necessarily for good reasons.
Inventory adjustments and government spending were the main boosters of the GDP in the latest quarter, while domestic purchases increased just around 0.2%, down from 2% printed in Q1.
Plus, the housing sector took a massive 27% hit on annual basis, business inventories grew around 0.6% versus 6% printed a quarter earlier, and trade with other countries was good, but not because Americans exported more, but because they imported less.
In summary, the latest GDP data was boosted by government spending and inventory adjustments, but the growth engines, which are consumption and investment – that hint at the health of the future economy did quite poorly.
So what do you make of the data?
In one hand, slowing demand is great news for the Fed because their aggressive tightening policy hammers demand, and that should further ease inflation and further soften the Fed’s policy. And all that, with the weekly jobless claims headed further down as a sign that the jobs market is still not feeling the pinch of the higher rates and the slower demand – although IBM announced it will cut 3900 jobs, and SAP 3000 this week. But oops, IBM is down 4.5% after the news. Too bad.
On the other hand, weaker demand is not great news, as it means that your favorite companies will be selling less stuff and will be making less money.
But there is always this hope that the Chinese could fill in the gap this year, thanks to the pandemic savings that will be flowing into the stuff that Chinese like to buy the most in the coming months. In this sense, Burberry and Swatch shares look nothing less exciting than the tech stocks during the pandemic. And that despite the war and a global cost-of-living crisis.
Focus on US PCE
The US will reveal another gauge of inflation, the PCE data, that is closely watched by the Federal Reserve (Fed). A slower than expected core PCE would be a cherry on top for closing a week where the S&P500 rallied past its 2022 bearish trend top, and which could soon confirm a cup and handle pattern above the 4100 mark.
But beware, Intel slumped 10% in the afterhours trading after revealing a worse-than-expected quarterly loss due to a steeper than expected fall in PC chip sales, and giving a weaker-than-expected forecast for the current quarter.
Aussie shines
The US dollar is better bid on the back of a strong GDP report, while gold is down from the $1950 resistance.
The EURUSD is again below the 1.09 mark, while Cable consolidates below 1.24, with a clear resistance forming into the 1.2450 mark.
The AUDUSD on the other hand extends gains above 71 cents level as the heated inflation report this week boosted the Reserve Bank of Australia (RBA) hawks. The 50-DMA crossed above the 200-DMA, confirming a golden cross formation on the daily chart, while the market remains strongly short the Aussie, meaning that if the Aussie gains further momentum to the upside, we could see a short covering that could further emphasize the bullish trend.
