US Stocks Rally As GDP Data Pushes Back Against Recession Calls

US Markets were lifted yesterday in response to better-than-expected data which appeared to push back against concerns over a potential US recession. Advanced Q4 GDP came in at 2.9% vs 2.6% expected, marking a softer-than-forecast dip from the prior quarter’s 3.2%. This data, along with a further drop in weekly unemployment claims, saw US stocks rallying yesterday led by gains in the Nasdaq. With the market now fully pricing in a smaller 25bps hike from the Fed next week, the current rally in stocks reflects growing optimism that the US economy will be able to avoid a hard landing this year. Attention today now switches to the upcoming US core PCE print, expected at 0.3% from 0.2% prior m/m.

Key Factors for Today

- USD better bid on back of upside GDP surprise – Core PCE on watch today
- US stocks rally on better US data – stock sentiment mostly positive elsewhere also
- JPY rallies on BOJ tightening speculation following record CPI
- Metals turn heavily lower – crude holding within recent range

Coming Up

- USD – Core PCE
- USD – Pending Home Sales
- USD – Revised UoM Consumer Sentiment

Equities Mostly Higher – Nikkei Tanks

Equities markets were mostly positive yesterday. The better performance came from US stocks which rallied on the back of better-than-forecast US data. In Europe, the Dax was seen reversing off the lows of the day and is attempting to push higher today, as is the CAC40. The FTSE traded in the green yesterday though gains have since been tempered across the European open today. Following a solid run of 5 consecutive bullish days, the Nikkei is turning heavily lower today following data overnight showing Tokyo CPI hit at 42-year high last month, fuelling expectations that the BOJ will be forced to tighten soon. US earnings season continues today with chevron and American Express the two big names to watch.

JPY Rallies on BOJ Tightening Speculation

JPY has unseated AUD as the strongest performing currency on Friday. Record high inflation in Tokyo is putting further pressure on the BOJ to tighten. Meanwhile, the IMF has warned that any sudden shift in Japanese monetary policy would have “meaningful spillover” effects on the global economy.

Metals Turn Lower – Crude Stands Still

In the metals and commodities space, gold and silver have both turned lower into the end of the week. An uptick in USD buying has curtailed demand for metals which have also come under pressure from the breakout in US stocks. Today’s PCE data has the potential to drive metals lower still if we see any upside surprise. Crude prices continue to tread water below recent highs as the market awaits the next catalyst for a bigger directional move. Better US data yesterday is offsetting some of the concern over global recession risks though for now, price action reflects the ongoing uncertainty in the market.