US OUTLOOK/OPINION: Gold-Adjusted GDP Tracking Eyed
Mar-17 15:18
GDP tracking has been even more closely watched ever since a surge in the January goods trade deficit saw a huge import drag on implied GDP growth, with questions over the extent to which this was driven by gold imports that won’t filter into GDP data. Ahead of today’s GDPNow update, a post from Atlanta Fed’s GDPNow has already suggested Q1 GDP was more recently tracking at -1.6% rather than -2.4% in the last main update, or +0.4% on a gold-adjusted basis.
- The advance trade report on Feb 28 suggested industrial supplies were the culprit behind the import surge before the full release on Mar 6 showed it was specifically driven by another jump in imports of “finished metal shapes” (to $34.2bn from $13.75bn in Jan and $4.6bn in Dec for almost 10x recent averages).
- Gold is assumed to have played a large role here, with the category including gold bars as opposed to the separate category of non-monetary gold within industrial supplies (which was elevated by recent standards at $3.8bn in January but only increased from $3.25bn in Dec).
- This is backed by the surge seen in imports from Switzerland, which Bloomberg (see here) has linked to gold traders scrambling to send gold to New York depositories, reflecting arbitrage and unlikely to be used in production, which won’t impact GDP data. As for why the gold shows as coming from Switzerland: “That’s because in London, 400-ounce bars are the standard. So traders who have to deliver physical bullion to Comex in New York need to first ship the gold to Switzerland. There, refiners melt it down and recast into the 100-ounce bars required by the US commodities exchange.”
- The last GDPNow update on Mar 6 put Q1 real GDP growth at -2.4% annualized although a post from Atlanta Fed’s Patrick Higgins suggests this would have been -0.4% on a gold-adjusted basis.
- The same post suggested that this would have been -1.6% or +0.4% gold-adjusted if publicly adjusted after payrolls on Mar 7, with the next public update due later today to reflect retail sales and business inventories data.
- As for today’s update, GDPNow updates will continue as normal but “will add at least some occasional updates from the gold adjusted version as well.”
- Of course, whilst 0.4% gold-adjusted GDP growth in Q1 is far stronger than the -2.8% originally tracked after that trade hit, it would still mark a significant pullback after 2.35% in Q4 and 3.1% in Q3, or more broadly 2.5% in 2024 and 3.2% in 2023.
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US TSYS: Yields Pull Back Again With Consumer Growth Story In Question
Feb-14 21:08
Treasuries outperformed global counterparts Friday, fully completing a reversal from a midweek selloff.
- A large miss in January retail sales (-0.9% M/M vs 0.7% prior, -0.2% consensus) represented the biggest sequential drop in 22 months, with a similarly weak "control group" figure leading to a 0.5pp downgrade to the Atlanta Fed's GDP nowcast (to 2.3% GDP growth in Q1, i.e. no acceleration from Q4).
- That was enough to see the 10Y Treasury yield drop 7bp in the subsequent half hour, continuing the downtrend seen beginning in the immediate aftermath of Wednesday's hot CPI release. 10Y yields dropped over 21bp from the Wednesday high to Thursday's low, ultimately ending a tumultuous week 1.5bp lower.
- Yields ticked a little higher in afternoon trade Friday but the curve leaned bull steeper on the day, with the belly outperforming: 2-Yr yield is down 4.6bps at 4.261%, 5-Yr is down 5.7bps at 4.3328%, 10-Yr is down 5.1bps at 4.4782%, and 30-Yr is down 3.9bps at 4.6982%.
- In futures: Mar 10-Yr futures (TY) up 9/32 at 109-08 (L: 108-26 / H: 109-15.5).
- Other data (industrial production mixed, import prices soft) had little lasting impact.
- The coming week’s data schedule is relatively light, due in part to Monday’s Presidents Day holiday (SIFMA recommends bond cash close, equities closed), with initial jobless claims, February prelim PMIs, and regional Fed manufacturing surveys among the highlights. Supply includes 20Y Bond and 30Y TIPS auctions.
- We also get plenty of Fed communications including the January meeting minutes, and speaking appearances by both doves (Gov Waller) and hawks (St Louis Pres Musalem).
USDCAD TECHS: Bear Cycle Extends
Feb-14 21:00
- RES 4: 1.4948 High Mar 2003
- RES 3: 1.4814 High Apr 2003
- RES 2: 1.4503/1.4793 High Fb 4 / 3 and key resistance
- RES 1: 1.4380 High Feb 10
- PRICE: 1.4175 @ 16:54 GMT Feb 14
- SUP 1: 1.4107 50.0% retracement of the Sep 25 ‘24 - Feb 3 bull cycle
- SUP 2: 1.4011 Low Dec 5 ‘24
- SUP 3: 1.3944 61.8% retracement of the Sep 25 ‘24 - Feb 3 bull cycle
- SUP 4: 1.3894 Low Nov 11 ‘24
USDCAD broke lower Thursday, breaking out of a tight trading range this week and remains soft. A key support at 1.4261, the Jan 20 low, has been cleared and this signals scope for an extension of the current bear cycle - a correction. Scope is seen for a move towards 1.4107, a Fibonacci retracement. Initial firm resistance to watch is 1.4380, the Feb 10 high. A break would highlight an early bullish reversal signal.
OPTIONS: Mixed SOFR Rates Trade To Cap Week
Feb-14 20:47
Friday's US rates/bond options flow included:
- SFRH5 95.62p, traded half in 2k.
- SFRH5 96.93c, traded 0.25 in 4k.
- SFRH5 95.75/95.62ps 1x2, Traded 3.75 in 3k.
- SFRK5 97.00c, traded for 0.75 and 1 in 3k.
- SFRU5 95.93/95.81/95.68p fly, traded 1 in 1.5k
- SFRU5 96.50c, traded for 6.5 in 1.5k.
- SFRU5 95.87^, traded for 36 in 5k.
- SFRJ5 95.87/95.75/95.68p fly 1x3x2 with SFRK5 95.81/95.68/95.62p ladder 1x3x2, bought for 10 in 2k.
- SFRM5 95.68p, sold at 2.5 in 10k.
- 0QH5 96.00c, bought for 13 in 3k.
- TYH5 107p, bought for 11 in 15k
- TYJ5 107p, bought for 11 in 17k total.
- TYJ5 107/106ps, bought for 7 in 15k total.
