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GDP Growth in U.S. Revised Higher, Prompting Rise in Stocks as Treasurys Fall

US economic data reporting on the day began with the final revision of Q4 2016 GDP.  The latest revision was 0.2% higher than the prior estimate, and increased the annualized GDP growth figure to 2.1%. Contributing to the increase, consumer spending rose by 3.5% rise (+3.0% previous estimate) as surging confidence and a firming labor market support growth in consumption.  Also highlighted in the report was a 9.3% increase in corporate profits YoY, representing the largest annual growth since 2012.  An upward revision to the negative trade gap stood out as one of the main negatives in the release, caused by a $5.4 billion decrease in net exports.  

    

In a separate report from the Labor Department, initial jobless claims for the week ended March 25th totaled 258,000, representing a 3,000 decline from the previous week vs. median forecasts which had called for a 14,000 decline.  The four-week average increased to 254,250, its highest level of the year but still comfortably below the 300,000 threshold associated with a healthy labor market.  Continuing claims for the week prior increased by 65,000 to 2.05 million. 

Abroad, inflation data in Germany and Spain reported lower than expected growth in consumer prices for March.  German inflation grew at an annualized 1.5% over the past 30 days, significantly below expectations of 1.9% and below February’s 2.2% reading.  In Spain, the cost of living advanced at a 2.1% pace, down 0.9% from February and representing the first drop in the index since April 2016.  With consumer price data cooling in two of the five largest economies in the EU, expectations for a near term tapering of the stimulative ECB monetary policy are themselves tapering, leading to a further divergence in interest rate outlooks between the US and EU.  The euro fell 0.7% against the dollar on the day.  

All three major stock indices finished roughly 0.3% higher on the day, led by gains in financial shares.  Treasurys sold off throughout the session following a combination of positive economic data, hawkish Fed speak, and rumors of a potential revival of Trump’s healthcare bill.  Treasury yields/swap rates are currently 1-6 bps higher across the curve in a bear steepening pattern.  The yield on the 10-year note climbed more than 4 basis points to 2.42%.  Crude oil continued to rally as a barrel of West Texas Intermediate topped $50 for the first time in three weeks after it was reported that nations not participating in the OPEC production-cutting agreement were also curbing supply.

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