Daily Market Color

GDP Data Reveals Slowdown in Growth as Political Relationships Remain in Focus

Highlighting Friday’s economic data, the Commerce Department released its initial estimate of fourth quarter GDP for 2016.  The report presented a 1.9% annualized rate of growth in gross domestic product, below expectations of 2.2% and a significant decline from the prior quarter’s 3.5% gain.  The largest factor weighing on the figure was exports, which subtracted 1.7% from the quarter as a result of a sharp decrease in soybean exports that had previously been supported by elevated demand in Argentina and Brazil following a poor harvest in the third quarter.  On the positive side, business investment rose 2.4%, marking its third consecutive quarter of growth, and residential investment climbed 10.2%, rebounding from two prior quarters of declines.  Personal consumption, the largest part of the economy, reported a strong growth pace of 2.5% that was in line with median forecasts, albeit a slowdown in previous quarters of 3.0% and 4.3%.  The personal consumption expenditures price index increased at a 2.2% annualized pace while core inflation rose at a modest 1.3% rate.      

In a separate report, orders for durable goods decreased 0.4% during the month of December where a 2.6% rise was expected.  The headline figure was largely affected by orders for defense capital goods, an often-volatile category, which reported a 33% decline last month, the biggest one-month drop since May 2014.  Core capital goods, excluding aircraft and defense, increased a steady 0.8% along with November’s figure being revised upwards to +1.5%.  This measure represents the stability in business investment that was observed in the GDP report and bodes well for growth heading into 2017, especially if corporate regulation becomes more friendly as pledged under the Trump administration.  In support, consumer confidence towards economic growth reported a rise during January 2017.  The University of Michigan released its consumer sentiment index today, presenting a 98.5 level for this month, a 0.3-point improvement from December to a 13-year high.  Noted in the report were improvements in respondents’ financial projections of income, stock and home values.

Theresa May Visits White House
In his first meeting with a foreign leader since becoming president, Donald Trump sat down with British Prime Minister Theresa May this afternoon.  Following the sit-down, Trump and May hosted a brief news conference at the White House explaining their expectations for a “fantastic” relationship as each nation heads into a period of significant policy restructuring.  Referring to the Brexit, Trump stated that immigration curbs and trade relationship restructurings would be a “wonderful thing” for the U.K.  The only area referenced where there was a slight disparity in opinion was the treatment of Russia, in which May believed that sanctions should persist until Vladimir Putin complies with the cease-fire agreement dating back to 2014 in Minsk.  Trump is set to speak with Putin over the phone tomorrow, and when asked of his relationship with the Russian President he stated, “I hope we have a fantastic relationship. That’s possible and it’s also possible that we won’t.”      

All three major US stock indices traded near flat for the second day in a row, as the DJIA (-0.04%) and S&P 500 (-0.09%) edged lower while the Nasdaq finished marginally higher (+0.1 %).  Treasurys gained on the day, with yields/swap rates falling 1-2bps across the curve, pushing the yield on the 10-year note to 2.484% to finish the week.
 
Have a great weekend.

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