Here’s Andrew Hunter of Capital Economics on the downgrade to US growth last quarter:
The downward revision to Q4 GDP – which is now estimated to have expanded by 2.2% annualised rather than 2.6% – was mainly driven by weaker gains in consumption and business investment, underlining that domestic demand lost some momentum at the end of last year. We expect the personal income and spending data due on Friday to show that the economic slowdown continued into 2019, with a rebound in real spending in January unlikely to prevent consumption growth from slowing further over the first quarter as a whole.
Newsflash: German lightbulb maker Osram has issued a profits warning, adding to concerns that the global economy is slowing.
The Munich-based firm blamed the slowdown in the auto industry, which has hit demand for its car bulbs, adding:
“This has led to significant inventory build ups, particularly in China. In addition, business development is facing an ongoing impact by the general economic slowdown.”
Shares in Osram have slumped by 10% in late trading, with carmakers’ shares also weakening.
Back at the BCC’s annual conference, Legal & General CEO Nigel Wilson has declared he’s ready for Brexit…. whatever form it takes.
“We invest for the long term, Brexit is a noise on that very long journey. It’s not throwing us off course in any way whatsoever.”
“We’ve stressed everything so don’t worry. The one thing we’ve learnt from the financial crisis is how to stress things.”
But he’s not so confident about some other companies, particularly smaller firms…
“A lot of other people have had to work on their no-deal plans. Hopefully they’ll never come around. But you feel very sad for business that haven’t got the scale to prepare for it.”
Pound hits lowest level of the week
Brexit jitters are pushing sterling lower this afternoon, as the government prepares to hold another Brexit vote on Friday.
The pound has lost almost a cent against the US dollar, to below $1.31 for the first time since last Friday.
It’s not clear what MPs will vote on tomorrow, but apparently it won’t be the much-anticipated Third Meaningful Vote. It’s possible that Theresa May might try removing the Political Declaration section of the deal, in the hope of persuading House of Commons speaker John Bercow to allow a third run at victory.
Paul O’Connor, head of Janus Henderson’s UK-based Multi-Asset Team, says the ongoing impasse has left MPs gridlocked:
The clock is ticking and the pressure is building. If Parliament cannot establish support for either Theresa May’s plan or one of the other Brexit options in the days ahead, then the UK will need to request an extended delay to the Brexit process to avoid the alternative “no deal” Brexit on April 12.
Before granting a longer extension, the EU is likely to demand that the UK can identify some way of breaking the deadlock. A general election is a growing possibility here, although it is far from obvious why this will be an effective solution given how polarised and entrenched political opinion on Brexit is in the UK.
As the eight votes showed last night, it is not hard to get agreement on rejecting options for Brexit but establishing consensus for a way forward remains elusive.”
In better news, the number of Americans filing new claims for unemployment benefit fell last week, by 5,000.
Market analyst Fiona Cincotta of City Index says this is helping markets to recover:
The mood was positive across the board on Thursday with global shares climbing higher. A rebound in treasury yields, progress in US – Sino trade talks and better than forecast jobless claims have boosted sentiment, increasing demand for riskier assets. However a downward revision to US economic growth is keeping gains capped.
US jobless claims fell to their lowest level in 2 months last week. This offered traders some reassurances as to the health of the US labour market after February’s surprisingly weak jobs report. The news lifted spirits grabbing attention away from disappointing US GDP data.
Andy Bruce of Reuters makes a good point about today’s consumer confidence stats — Britons are gloomier, but it’s not hit spending.
Stock markets in Europe and America are shaking off today’s weak economic news, with some investors pinning their hopes on a breakthrough in the US-China trade talks.
Mike Loewengart, vice president for investment strategy at E-Trade Financial Corp, says traders should heed today’s downgraded US growth report:
He says (via Marketwatch):
“Global growth is stagnating both at home and abroad, and this kind of GDP read may flash as a warning signal to market watchers that there is more turbulence ahead,”
“Some may see this as a data point confirming their worries that we are headed to the end of the business cycle, especially after the inverted yield curve news last week.”
“That said, there are a fair amount of positive indicators out there—strong jobs numbers, an uptick in wages, and a solid earnings season—to pump some confidence back into the market.”
Another slowdown signal: fewer Americans bought houses last month.
The National Association of Realtors reports that homebuyers signed 1% fewer contracts to buy existing homes in February compared with January. On an annual basis, these pending home sales have fallen by almost 5%.
As you can see, there was a surge in pending home sales in January – but the longer-term trend looks weak.
Lawrence Yun, chief economist for the Realtors, says:
“In January, pending contracts were up close to 5 percent, so this month’s 1 percent drop is not a significant concern.
As a whole, these numbers indicate that a cyclical low in sales is in the past, but activity is not matching the frenzied pace of last spring.”
Financial analyst Paul Sommerville thinks America’s economy is underperforming, given the boost from Donald Trump’s tax cuts:
Today’s GDP report further muddies the water about whether Donald Trump achieved his target of 3% growth last year, or not.
The Commerce Department estimates that GDP rose by 2.9% in 2018, just shy of Trump’s 3% target.
However, it also reckons GDP was 3% higher in Q4 than in Q4 2017 — which the president could chalk up as a win.
Either way, if the economy does keep slowing, Trump will take some blame.
The New York Times says:
Economic data suggests that slowdown is already underway in the first quarter. Manufacturing is losing some of its steam from last year’s rapid growth, and job creation is also moderating.
Chief executives of some of the nation’s biggest companies see investment, hiring and sales growth all slowing this year. Three-quarters of business economists say they are more worried about growth undershooting their forecasts than overshooting it, and half have revised those forecasts downward for this year.
Here’s some instant reaction to the US GDP report.
Marketwatch’s Jeffry Bartash highlights why growth has been revised lower:
Guy LeBas of Janney Capital Management argues we shouldn’t panic about it:
US growth revised down
Newsflash: America’s economy grew more slowly than previously thought in the last three months of 2018.
Newly revised data shows that US GDP only expanded at an annualised rate of 2.2% in October-December. That’s down from a previous estimate of 2.6%, and slower than the 3.4% annualised growth recorded in the third quarter of 2018.
That’s the equivalent of a quarter-on-quarter growth rate of 0.55% — still faster than the UK or the eurozone, which both only expanded by 0.2% in Q4.
The Commerce Department revised down its earlier estimate after concluding that corporate profits were only flat in the last quarter, after growing by 3.5% in Q3.
Consumer spending was also weaker than previously thought, at 2.5% compared to 2.8% estimated before.
Business spending and investment was also revised down.