US and UK initial estimates for Q1 GDP and Eurozone HICP in focus this week - BBH

The analysis team at BBH points out that the economic data highlights for the week includes the flash HICP measure of inflation for the Eurozone and the US and UK initial estimates for Q1 GDP.  

Key Quotes

“The Eurozone inflation is expected to have ticked up in April after falling in March.  The Easter holiday is generating some noise, but Draghi's assessment seems fair.  The headline rate is expected to rise to 1.7% from 1.5%.  The core rate can rise to 0.9% from 0.7%.  It averaged 0.9% in 2016 and 0.8% in 2014 and 2015.”

“The UK is expected to have grown around 0.4% in Q1, decelerating from 0.7% in Q4 16.  It has averaged 0.5% over the past four, eight and 20 quarters.  The market impact is likely to be marginal. The dismal March retail sales report failed to spur a serious pullback in the sterling.  Sterling's sharp advance seemed more about positioning, and the prospects of a softer Brexit, and reduced risk of no agreement rather than economic support.”

“The 10-year gilt yield is hovering a little above 1.0%, the lows since last October.  A convincing break gives immediate potential to 90-95 basis points. Similarly, the implied yield of December short-sterling future is near 40 bp, which is also near the least in six months.  It has fallen around 15 bp over the past month and is just below the 200-day moving average.”

“The median forecast in the Bloomberg survey puts Q1 US growth at 2.0% annualized.  We think the risk of disappointment is palpable, but outside of a knee-jerk reaction, we do not see it impacting the Fed's forward-looking decision in June.  Consumers took the quarter off, it would seem, after a strong 3.5% rise in Q4.  It is difficult to see the other sectors that will offset the pullback in consumption.”

“Still, with income and savings increasing in Q1, and the distortions caused by the warmer weather and lower utility consumption, recession fears are likely exaggerated.  For reasons that are not particularly clear, the US economy has typically underperformed in the January-March period since the Great Financial Crisis ended.”