GDP Rises But Misses Estimates

The latest US economic data released yesterday came in as a slight disappointment to USD bulls. 1st quarter GDP was seen printing 6.4%, mildly undershooting the 6.8% the market was looking for. While still a firm improvement on the 4.3% recorded in Q4 2020, showing that the economy is rebounding firmly, bulls were disappointed not to see a stronger print. Overall, however, there were a lot of positives in the data.

Consumer Spending Surged

Looking at the breakdown of the data, consumer spending was seen rising by 10.7% over the quarter, a firm jump on the 2.3% rise seen a quarter before. Spending on goods was the star in this category, rising by 23.6%. Durable goods in particular (appliances and long-lasting goods) were seen higher by over 40%. Spending on services was also seen increasing, albeit by a much lower 4.6%. Services spending has been the main laggard over recent months, so signs that spending in this category is starting to increase is particularly noteworthy.

Stimulus Impact Noted

The main driver behind the jump in spending over the quarter was the double injection of stimulus with $600 cheques in January and $1400 cheques in March. However, spending over the quarter wasn’t necessarily as high as many were predicting with the household savings rates surging from 13% in Q4 2020 to %21.

Imports Rose Again in Q1

Elsewhere, the data showed that imports were higher again by 5.7% over the quarter while exports dropped by 1.1%, one of the weaker areas of the report. Government spending and investment rose by 6.3%, including a 14% jump in federal spending and an almost 2% increase for state and local entities.

Finally, inventories were also seen dropping heavily over the quarter which likely accounted for the GDP miss. This was mostly down to the increased spending underway in the US when compared with its key trading partners. However, the near-term negative impact is likely to result in longer term gains leading to a faster recovery over the second half of the year.

Weekly Jobless Claims Miss Targets

The weekly jobless claims hit a fresh pandemic low at 553k. however, this was slightly above the 545k the market was looking for while the trailing indicator, continuing claims, was seen rising 50 3.67 million. In all, the data largely confirmed what the Fed was saying on Wednesday: that the recovery is underway, and the outlook is improving but there is still a way to go.

Technical Views

USDCAD

The sell-off in USDCAD has seen price trading down to test the bottom of the bear channel, just ahead of the 2018 lows at 1.2243. there is scope for a bounce here though, while price holds below 1.2368 level, the channel has room to continue further down to the next bear target of the 2017 lows at 1.2068.

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