Investment Banks Reduce Optimistic Economic Forecasts for US GDP Expansion
American investment banks are busy lowering expectations for US economic expansion after the economy recorded the weakest start to a year in recent memory according to fundamental data points. Led by Goldman Sachs, long-term growth estimates are forecasting growth at 1.75% on a longer-term annualized basis versus the 2.25% that was previously anticipated. GDP expansion is stagnating as evidenced by the Atlanta Federal Reserve GDP model which shows second quarter growth substantially lower than sell-side estimates which have been overly optimistic about the economic rebound. The weakness in initial jobless claims saw a dollar selloff late in the session despite stronger than expected gains in pending home sales which are projected to translate to improving existing home sales in next month’s reading. The dollar continues to give up ground against peers as fears about the recovery reversing remain pervasive.
Conflicting inventory data for crude oil stockpiles saw WTI and Brent prices rise, rebounding from recent losses after breaking key technical support levels. The move is curious considering the dramatic rise in US production, which rose by over 200,000 last week as producers raised output to take advantage of higher prices. The drill rig count drop has also decelerated in a major way, declining by only one rig in the latest reporting period as producers focus on exploiting the most efficient projects. Nevertheless, the drawdown in inventories according to EIA statistics released yesterday has been the driver behind the latest rebound in prices, with WTI rising 1.09% in today’s trading. Oversupply continues to be a major concern considering the additional American output coupled with rising production across the Middle East as tanker rates rise in conjunction with the growing yield.
Warnings about the inflationary outlook from the Bank of Japan have come to fruition according to the latest data released by the Central Government. According to the national CPI figures, core CPI dropped to 0.30% while regular CPI fell to 0.60% with both measures previously printing over 2%. This highlights the tumultuous effect of weaker energy input prices as the Bank of Japan struggles to meet its longer-term inflation targets. The economy continues to prove mixed as improvements in unemployment and industrial production are offset by the declining internal fundamentals. Household spending figures released overnight showed that the measure slumped by -5.50% versus the prior month and fell at a -1.30% annualized pace. USDJPY continues to benefit from the recent figures, with the pair trending back towards multi-year highs reached during yesterday’s session.
USDCHF Upward Trending Channel Trading Opportunity
Swiss gross domestic production numbers released earlier today confirmed suspicions that the stronger Franc would drag on economic expansion with the nations quarterly GDP slipping into negative territory, printing at -0.20%. Even after pulling back modestly against peers, the US dollar has reversed course higher against the Franc as the weak GDP figures drag on CHF. The upward trending channel pattern that has been forming since the middle of the month continues to foretell further upside in the USDCHF pair as stronger US data coupled with a weakened outlook for Switzerland propels the currency pair higher. Ideal long positions initiated at the lower channel line are targeting the upper channel line. Fighting the uptrend with short positions is not suggested considering the worsening risk-reward characteristics.