The extent of U.S. economic outperformance, underlined by March retail and industry soundings this week that put the Atlanta Fed’s ‘GDPNow’ estimate for first-quarter growth just shy of 3%, was highlighted by the International Monetary Fund’s latest global forecasts.
The Fund now expects the U.S. economy to expand 2.7% this year – some 1.2 percentage points higher than it forecast six months ago.
The Fed’s so-called ‘Beige Book’ of the latest economic conditions is due for release later on Wednesday. And news on Tuesday of a sharp drop in housing starts last month cut through the heat registered elsewhere.
With first-quarter corporate earnings streaming in, U.S. stocks largely took the Powell punch on the chin so far too.
The S&P500 closed in the red for the third straight session and hit its lowest in almost two months – but the decline on the day was a modest 0.2% and futures are slightly firmer ahead of today’s bell.
The Dow Jones Industrial Average actually rose on the day as UnitedHealth’s upbeat quarterly results lifted its stock more than 5%.
But, even with eyes back on regional bank earnings again on Wednesday following last year’s disturbance, implied stock volatility captured by the VIX slipped back a tad to 18.
Although Middle East tensions loom large in the background, U.S. crude oil prices remained steady at $85 per barrel.
The dollar has been a big beneficiary of the Fed rethink in recent weeks – but it too fell back a touch from five-month highs overnight.
One driver of the dollar was the idea that other central banks would go ahead and ease policy anyway, regardless of Fed hesitation. European Central Bank boss Christine Lagarde, for example, seemed to double down on Tuesday on plans for June ECB cut.
But above-forecast British inflation for March – even though core inflation rates there did fall to their lowest in more than two years – may provide some notes of caution from the Bank of England.
Overseas stocks were mixed on Wednesday, with China’s bourses outperforming in Asia as the nation’s top securities regulator clarified the new delisting rules to calm the market. The China Securities Regulatory Commission said late on Tuesday that tighter rules would not spark a wave of delistings.
The yuan also firmed up from Tuesday’s 2024 low.
In Europe, ASML dropped 4.8%, steering a 1.8% decline in the technology sector, after the Dutch firm reported weaker-than-expected new bookings in its first-quarter earnings. But LVMH rose 2% after the world’s largest luxury group’s quarterly sales rose 3%.
