Tags: fed | hike | rates | gdp

Fed Might Hike Rates Twice in Wake of Strong GDP

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Friday, 01 March 2019 09:29 AM Current | Bio | Archive

Yesterday, we had the publication of stronger than expected fourth quarter GDP data that increased 2.6 percent, which is, when one goes into the details of the GDP data, very important for investors to make investment decisions.

Current dollar GDP increased 4.6 percent.  The PCE price index increased 1.5 percent, down from 1.6 percent in the third quarter. Excluding food and energy prices, the PCE price index increased 1.7 percent, up from 1.6 percent in the third quarter. 

Current-dollar personal income increased $225.1 billion in the fourth quarter, up from an increase of $190.6 billion in the third quarter. Disposable personal income increased $218.7 billion, or 5.7 percent, in the fourth quarter, up from an increase of $160.9 billion, or 4.2 percent, in the third quarter. Real disposable personal income increased 4.2 percent in the fourth quarter, up from an increase of 2.6 percent in the third quarter. Gross Domestic Income (GDI) was “revised” up to 4.6 percent from 4.3 percent before in the third quarter.

For 2018 as a whole, real GDP increased 2.9 percent (from the 2017 annual level to the 2018 annual level), up from 2.2 percent in 2017. Current-dollar GDP increased 5.2 percent, up from 4.2 percent in 2017. The price index for gross domestic purchases increased 2.2 percent in 2018, up from 1.9 percent in 2017. The PCE price index increased 2.0 percent, up from 1.8 percent in 2017. Excluding food and energy prices, the PCE price index increased 1.9 percent, up from 1.6 percent in 2017.

Investors could do well taking note of the components of the GDP data (yes, there are a lot of them) as they make it easier to understand why these latest GDP numbers certainly represent a solid support for the U.S. financial markets as well as for the dollar going forward and why we shouldn’t be surprised the Fed could hike interest once or even twice later this year.

Kevin Hassett, Chairman of the Council of Economic Advisers told reporters yesterday that the White House is confident about achieving economic growth in the 3 percent range again this year. No, I don’t think this is wishful thinking.

It’s a fact that the U.S. economy completed one of the best years of a nearly decade long expansion, growing at a modest pace in the fourth quarter despite slowdowns elsewhere in the world, turbulent financial markets, trade disputes with China and a partial government shutdown late in the year, The Wall Street Journal commented

U.S. equities didn’t move much yesterday notwithstanding President Donald Trump cut short his summit meeting with North Korean Leader Kim Jung-on.

U.S. ended the day with the S&P 500 down 0.28 percent or 7.89 points to 2784.49, the Dow down 0.27 percent or 69.16 points to 25916 and the Nasdaq down 0.29 percent to 7532.53.

This morning, futures indicate higher U.S. equity prices at the moment of this writing (7:10 am NY time) with the S&P 500 up 0.75 percent at 7155, the Dow up 0.69 percent at 26089 and the Nasdaq up 0.74 percent at 7156.

The year-to-date performance of equities remains for all components positive with: Conglomerates +18.6 percent, Industrial Goods +18.4 percent, Services +14.2 percent, Technology +13.3 percent, Basic Materials +12.1 percent, Financial + 11.1 percent, Consumer Goods +9.1 percent, Utilities +8.7 percent and Healthcare +7.1 percent.

The dollar index or DXY traded yesterday within the range from 96.2120 to 96.3860. If the market breaks above 96.25, that could lead to a move to 96.70 or even higher in the short-term. A break below 96.10 could see a drop to 95.90 or even lower in the short-term.

So far, I still don’t expect a significantly weaker dollar, which of course doesn’t support for example a stronger gold price.

Yesterday the spot price of gold traded between $1,306.20 and $1,315.28 per ounce. At the moment of this writing, spot gold quotes $1308.54 per ounce.

Here I would like to add that gold is at the moment under bearish pressure with a key resistance zone at $1302 per ounce. A break through that $1302 per ounce zone could bring the spot gold price down to $1280 per ounce or even lower in the short-term.

On the other side, the spot gold price has key upside resistances at $1330 and $1360 per ounce, which at the moment don’t seem to be broken over the short-time.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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HansParisis
The GDP numbers certainly represent a solid support for the U.S. financial markets as well as for the dollar going forward and why we shouldn’t be surprised the Fed could hike interest once or even twice later this year.
fed, hike, rates, gdp
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2019-29-01
Friday, 01 March 2019 09:29 AM
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