28 April 2023
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US economy slows in Q1

By Edward Bell

The US economy expanded by 1.1% annualized in Q1 2023, slower than market expectations of closer to 1.9% and a substantial slowdown from growth of 2.6% annualized in Q4 2022. Consumption increased by 3.7% in Q1 compared with a market expectation for closer to 4% growth while fixed investment dropped by 0.4%. A drop in inventories was a major drag on the first quarter performance. The Q1 GDP data affirmed that an economic slowdown is underway but didn’t flash overwhelmingly negative. The core GDP PCE price index increased in Q1 to 4.9% from 4.4% in the prior quarter which may set markets up for another strong print in the core PCE deflator out today. Overall, the Q1 GDP data will mean the Fed can carry on with another 25bps hike at the FOMC next week and then hold rates.

Initial jobless claims for the week ending April 22 came in at 230k, lower than the market had been expecting. Continuing claims for the prior week dipped to 1.858m supporting a narrative of a slowing but still well-performing labour market.

The Turkish central bank left the benchmark one-week repo rate on hold at 8.50% at its meeting yesterday, in line with expectations. This was the second meeting in a row where the TCMB left rates unchanged even as it reiterated the importance of keeping ‘financial conditions supportive to preserve the growth momentum in industrial production.’ The statement noted that economic activity in the region struck by earthquakes earlier this year have been recovering ‘faster than expected.’

Today’s Economic Data and Events

  • 11:00 TU trade balance Mar: forecast USD -8.6bn
  • 12:00 GE GDP q/q Q1: forecast 0.2%
  • 13:00 EC GDP q/q Q1: forecast 0.2%
  • 16:00 GE CPI y/y Apr: forecast 7.3%
  • 16:30 US personal spending Mar: forecast -0.1%
  • 16:30 US PCE core deflator y/y Mar: forecast 4.6%

Fixed Income

  • A rally in equity markets helped to push US Treasury yields higher overnight while persistently high measures of inflation will ramp up expectations of the Fed maintaining a hawkish posture. Yields on the 2yr UST rose almost 12bps overnight to 4.0682% while the 10yr yield rose 7bps to 3.5204%. the move lower in benchmark bonds was generally mirrored in European markets with bund yields higher by 6bps to 2.455% while the 10yr gilt yield added 6bps to 3.786%.
  • In locally currency markets Turkish 10yr bonds sold off with yields up 17bps to 12.07% while Indian 10yr yields closed essentially flat.


  • Currency markets showed little movement until late in the session overnight and then had a mixed reaction to the release of US Q1 GDP data. EURUSD broke lower, falling by 0.1% to 1.1028 while GBPUSD moved higher by the end of the day, up 0.4% at 133.97.
  • Commodity currencies got a general risk-on boost with USDCAD closing lower by 0.3% to 1.3592, AUDUSD up 0.4% to 0.6631 while NZDUSD rose 0.5% to 0.6148.


  • •Equity markets bounced back yesterday amidst positive earnings season results. In the US, the S&P 500 had its strongest day of the year so far as it added 2.0%, while the NASDAQ ended the day 2.4% higher. The Dow Jones was a comparative laggard but still gained 1.6% by the close.
  • •There were milder gains in Europe where the composite STOXX 600 ended up 0.2%. The DAX closed flat, the CAC gained 0.2%, and the FTSE 100 dropped 0.3%.
  • •Locally, the DFM and the ADX both closed 0.8% higher. In Saudi Arabia, the Tadawul ended the day down 0.3%


  • Oil prices recovered some ground overnight though not enough to offset the losses recorded earlier in the week. Brent futures added 0.9% to USD 78.37/b while WTI rose 0.6% to USD 74.76/b.

Written By

Edward Bell Head of Market Economics

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