Markets:
- Gold up $5 to $2017
- US 10-year yields down 5 bps to 4.12%
- WTI crude oil up $2.20 to $77.28
- S&P 500 up 0.4%
- CAD leads, CHF lags
There was plenty to digest today with the ECB and US GDP report along with a handful of other releases. The picture in the US was favorable with another US GDP beat led by a good consumer, stronger-than-expected trade, still-high inventories and government spending.
On the face of it, the numbers were hawkish and they should have pushed back the timeline for Fed cuts but the inflation number in the report was particularly now and it comes ahead of tomorrow’s PCE report. The read-through is that headline tomorrow will be soft and there could have been some front-running of that in bonds. In any case, it didn’t derail the US dollar much as it made gains against the yen, pound and euro.
The latter was facing its own crosswinds though I struggled to find anything to change my view on the ECB. Lagarde stressed data dependence and a leak later said the ECB won’t even start talking about cuts until March. However 50 bps of cuts are priced in and Europe data isn’t exactly sparkling. Lagarde pointed to better PMIs but that’s not much to hang a forecast on, especially with growth close to zero this year.
The euro may be getting to the point (similar to CAD) where hard landing risks outweigh the dovish impulse from cutting. The thinking is that an unnecessary recession will bring more cuts later even if it delays them for a few months now. I can get behind that and wonder if it contributed to the steady 45 pip selloff in the euro today.
On the upside, the loonie rebounded today as oil hit a seven-week high. The combination of a stronger China outlook, good US growth and tension in the Middle East is finally giving crude a lift.