Commentary:
The first estimate for 1Q 2024 US GDP growth was reported well below consensus forecasts at an annualized rate of 1.6%, a pace approximately half of that in 4Q 2023. However, the slowdown was predominantly a result of the volatile components of inventories and trade, while consumption and investments continued to grow (excluding volatile components, GDP grew by a strong pace of 3.1%). Therefore, the growth slowdown was less dramatic than what the headline figure would suggest.
On the inflation front, March PCE price index also delivered an unpleasant surprise, with core PCE remaining at 2.8% and headline figure rising from 2.5% to 2.7%.
Importantly, markets were unfazed by negative macroeconomic surprises, with all major global equity indices rallying and yields remaining largely unchanged throughout the week. This was primarily due to the favorable quarterly earnings results from S&P 500 companies, as proportion of companies exceeding expectations together with the size of positive surprises were historically high. Lastly, markets are expecting less volatility in both US equity and bond markets, as demonstrated by decline in VIX and MOVE indices throughout the week.
