US GDP came in at 1.6% annualised q/q in Q1, down from 3.4% the previous quarter and well short of the predicted 2.5% expansion. The slowdown was due in large part to imports, which weighed the most on growth since 2022, while personal consumption grew at 2.5%, down from 3.3% previously and lower than the predicted 3.0%. Personal spending was largely on services, especially health care and financial services. Stripping out inventories, government spending, and trade, then inflation-adjusted sales to domestic purchases expanded at a healthy 3.1%. Of interest to the Fed, the core PCE price index rose 3.7%, from 2.0% previously and higher than the predicted 3.4%, which reaffirms our recent adjustment to our rates forecast that the FOMC will not cut rates until September. Services-sector inflation was even higher at 5.1%, and markets will now be watching for the PCE inflation data due later today.
The Turkish central bank kept its one-week repo rate on hold at its MPC meeting yesterday, leaving the benchmark rate at 50.00%. A hold was expected by markets after the surprise 500bps hike implemented at the last meeting in March, especially given that the March meeting widened the interest rate corridor to 300bps below and above the benchmark rate, enabling the bank to adjust policy more dynamically. In stating its position, the CBRT explained that inflationary pressures were ‘alive’, and that it would maintain its stance until ‘a significant and persistent deterioration in inflation is foreseen’, remaining ‘highly attentive to inflation risks’. Annual CPI inflation was 68.5% in March, up from 67.1% in February and well above the 5.0% medium-term inflation target.
Today’s Economic Data and Events
16:30 US PCE core deflator, % m/m. Forecast: 0.3%
16:30 US PCE core deflator, % y/y. Forecast: 2.7%
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