Daily Market Color

Stong Earnings, but is Economy Slowing?

Consumer Spending Pullback Hurts GDP

GDP annualized QoQ beat expectations but was dragged down by limited growth in consumer spending, the largest part of the economy.  While GDP surprised to the upside (2.3% realized vs. 2.0% expected), the story on the GDP growth QoQ was mixed as the prior period saw growth of 2.9%.  Consumer spending met the low estimates of 1.1% growth, but was down from the prior quarter where consumer spending was 4.0%.  Additionally, the consumer spending number was the lowest gain since 2013.  While this was the best first quarter GDP number since 2015, the first quarter is typically weaker compared to other quarters (has been the weakest quarter in 5 of the last 8 years), and may be the result of “residual seasonality”.  Business spending was strong with investment on equipment up 4.7% and investment in nonresidential structures such as office space and manufacturing locations was up 12.3%.  President Trump has set 3% sustained GDP growth as the goal for the US economy, and despite all of the reasons not to panic over today’s report, it may reflect how challenging that goal may be to achieve.



Iran Sanctions Deadline Looms   

Oil traded in a tight range on the uncertainty around President Trump’s willingness to reimpose sanctions on Iran, as a May 12th deadline for sanctions looms.  WTI Crude oil futures traded in the narrowest range since January this week as the price hovered around $68/barrel (oil closed down $0.09 at $68.10/Barrel).  The general reason for this narrow range is as sanctions against Iran may be reinstituted, oil traders will not accept contracts from Iran after the May 12th deadline.  Today President Trump met with German Chancellor Angela Merkel, his second meeting with a major European leader this week, and the Iran deal was front and center.   President Trump is adamant that Iran “doesn’t get close” to nuclear capability, but Merkel echoed sentiment that the Iran deal is part of a broader strategy for the region.


Equity Markets Unchanged

Major US stock indices were mostly unchanged on the day on the challenge of reconciling stronger corporate earnings with early signs that economic growth may be slowing.  The DJIA was down 0.05% on the day, while the S&P and the NASDAQ were up 0.11% and 0.02% respectively.  The 10-year UST rallied about 2.5 basis points on the day closing at a yield of 2.96%, right about  where it began the week, though yields did reach 3.03% mid week.  The swap curve continues to be historically flat with the difference between the 2 year and the 10 year swap rates at an anemic 25 bps.  The US Dollar (USD) was  down 0.2% vs the Euro (EUR) and down 1.0% vs the Pound (GBP).

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