US DATA: Q1 GDP Tracking Slashed On Tariff Front-Running And Weak PCE
- The Atlanta Fed’s GDPNow for Q1 has been slashed to -1.5% from 2.3% annualized in the Feb 19.
- It was primarily driven by the net trade contribution being revised down from -0.4pp to -3.7pps after the huge trade deficit in signs of tariff front-running.
- This would mark a sharp trade drag after a largely neutral contribution in Q4 (seen adding just 0.04pps in the second Q4 release), but if it’s tariff front-running it should be reversed in due course.
- Real personal consumption tracking was also cut sharply though, revised down from 1.3% to 2.3% after a notably weaker than expected January PCE print.
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FED: US TSY 17W BILL AUCTION: HIGH 4.190%(ALLOT 70.05%)
- US TSY 17W BILL AUCTION: HIGH 4.190%(ALLOT 70.05%)
- US TSY 17W BILL AUCTION: DEALERS TAKE 33.46% OF COMPETITIVES
- US TSY 17W BILL AUCTION: DIRECTS TAKE 7.36% OF COMPETITIVES
- US TSY 17W BILL AUCTION: INDIRECTS TAKE 59.18% OF COMPETITIVES
- US TSY 17W BILL AUCTION: BID/CVR 3.10
CANADA: BoC Presser Highlights: BoC Downplayed CPI Trim Strength
Q: There were some economists talking about a hold this month. What discussions and considerations went into this area?
Macklem: We said we would be considering further rate cuts and would be taking a gradual approach (it was more gradual as we cut 25bp instead of 50bp).
Rogers: On the core measures of inflation, we use them to gauge underlying inflation and the direction it’s going. There’s a whole basket of measures that we look at that are useful at different times. Core measures are a little bit above headline inflation. There are some particularities, particularly trim and how it’s calculated that led us to not put a lot of weight on what it suggests for underlying inflation at this point in time. The chart that is most useful for us on inflation pressures is the heat map (chart 9 in MPR).
CANADA: BoC Presser Highlights: Tariff Threats Reinforced Today's 25bp Cut
Q: Have you tried to factor in the tariff threat in today’s decision?
Macklem: The forecast assumes there are no new tariffs. Whilst it does include a modest effect of the uncertainty from the threat of tariffs, mainly via investment, we’re effectively assuming the threat of tariffs dissipates and we don’t have to deal with it. We do of course look at the tariff scenarios in the report, but that is not a forecast.
Re the decision itself, the forecast is an input but we weigh up risks as well. Inflation has remained pretty close to 2% since last summer and underlying inflation looks like it’s running around 2%, not seeing broad-based inflationary pressures. Softness in the economy is putting downward pressure on inflation. We want to see growth pick up and we are starting to see that, but it needs to be sustained. A further cut made some sense. Looking forward, tariff threats reinforced the decision to cut the policy rate by 25bps from a risk management angle.
