US Preliminary GDP Falls

US Q1 2022 Advance GDP

Wednesday 26^th May 2022 saw the release of US Advance GDP data for the first quarter of 2022, calculated on an annualized basis. An annualized decline of 1.3% had been expected by most analysts, but the data came in slightly worse, indicating a decline of 1.5%. It is also a slight downward revision on the earlier estimate released, which had shown a decline of 1.4%.

This is the first quarterly decline in US GDP reported since the coronavirus panic in Q2 2020, although of course it is Advance data which has not yet been finally confirmed.

The data follows yesterday’s FOMC Meeting Minutes release which indicated that the Federal Reserve is likely to hike rates by 0.5% twice, next month in June, then again in July. The minutes also suggested that the Fed could hike rates to a “restrictive” level should it be required.

These items represent a mildly hawkish tilt and could be expected to trigger at least mild selling in stocks and other risky assets, and to firm the US Dollar.

Market Impact

Two and a half hours after the Preliminary GDP data release, the following price changes were observed in key market barometers:

• US Dollar Index                              +0.01%
• US 2-Year Treasury Yield              +0.33%
• S&P 500 Index                               +1.48%
• Bitcoin/USD                                    +0.88%

These initial market reactions are all small, and the risk assets have risen, not fallen. Even more interestingly, stock markets are higher than they were before the FOMC Meeting Minutes were released. This suggests that the market was not impressed by the Fed, or the slightly higher than expected decline in US economic growth. The Federal Reserve will be pleased by this.

This is good news for traders in a sense, as it seems clear that for the next few days, prices will be driven more by sentiment and technical factors than any fundamental tilts. Traders will likely be wise to not pay much attention to the data.

The firm rise in the S&P 500 Index to well above the big round number at 4,000 suggests that there was long-term buying as the price hit a 20% decline from its record high a few days ago, and the US stock market continues to be bid up from that area.