Markets will look towards the US today as a set of data is expected to be released with Q1 GDP likely showing decent growth. Markets estimate a GDP increase of 0.9%. But when looking deeper at the fundamentals, the economic recovery may not be as strong as it seems.
April's durable goods orders are also expected to take a hit at -1.5% from March when data had been revised higher at 1.7% m/m. Inventories have also declined in April and the trade deficit has widened. Exports of goods declined in April while imports grew. First quarter personal consumption data is also going to be released today and should show a continued increase but far from the Q4 level when it increased by 3.5%. EUR/USD is still trending higher and has broken 1.1200. Equity markets are still on the rise, the S&P 500 is trading at all-time highs. The bullish breakout needs to show some follow-through though. Despite the economic uncertainty, we believe there is now room for dollar strengthening.
In our view, investors’ sentiment is more correlated to the equity markets (and central banks underpinning stocks with free money) than the real economic fundamentals which are showing softness in the recovery.
By Yann Quelenn