Market Wrap – Debt and Fed focus

Markets remained fixated on the ongoing debt ceiling negotiations during the US trading session, however, we did see Q1 GDP second estimates and weekly jobs data.

GDP was revised higher, however, despite the upward revision, Q1 2023 GDP growth remains the weakest since Q2 2022. In a nutshell, the consumer was stronger than anticipated, leading to a higher revision.

The US economy grew by an annualized 1.3% on quarter in Q1 2023, slightly higher than 1.1% in the advance estimate and market forecasts of 1.1%. Private inventory investment subtracted 2.1 pp from the GDP, slightly less than a 2.3 pp drag in the advance estimate.

Also, consumer spending growth accelerated more than expected to 3.8% (vs 3.7% in the advance estimate) despite stubbornly high inflation. Upward revisions were also seen for non-residential fixed investment growth. Net external demand has also contributed positively to the GDP as exports rose more than imports.

Weekly jobs data showed that the number of Americans filing for unemployment benefits rose to 229,000 in the week ending May 20th, slightly up from an over two-month low of 225,000 the week before but well below market expectations of 245,000.

The latest data suggested that the labour market in the United States remains relatively robust and constrained, which could potentially result in upward pressure on wages and present an opportunity for the Federal Reserve to consider additional interest rate hikes as part of its measures to address inflation.

The four-week moving average, which removes week-to-week volatility, was unchanged at 231,750, also below forecasts of 258,900.

On a seasonally unadjusted basis, claims rose by 1.3 thousand from the previous week to 202,000, as considerable increases observed in Texas and Connecticut were partially offset by declines in Massachusetts and Michigan.