Article Highlights

  • U.S. final Q4 GDP reading upgraded from 1.9% to 2.1% vs. 2.0% forecast
  • U.S. initial jobless claims at 258K vs. 244K consensus
  • Fed official Mester: Growth above 2% next year, further hikes needed
  • FOMC member Kaplan: Three hikes this year is a base case outlook
  • FOMC member Dudley: Risks to U.S. economy are tilted to the upside
  • Dudley: 2% inflation is not a ceiling, gradual rate hikes appropriate
  • New Zealand building consents rose 14% in Feb, 2.1% previous
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Dollar bulls woke up on the right side of the bed, thanks to the Q4 GDP upgrade, upbeat remarks from a few Fed officials, and a new record high for the Nasdaq.

Major Events:

U.S. Q4 GDP upgrade – The New York session was off to a running start as Uncle Sam reported a positive revision for its Q4 GDP reading from 1.9% to 2.1%, outpacing the consensus at 2.0%.

Components of the report revealed that the upgrade was due to higher consumer spending levels than initially reported, as this was revised from 3.0% to 3.5% instead of being kept unchanged as expected. On the other hand, business investment was downgraded from 1.3% to 0.9%.

Revisions were also seen for the core PCE price index, which was upgraded from 1.2% to 1.3%, and the PCE itself, which was changed from 1.9% to 2.0%, a notch short of the projected 2.1% reading.

Exports were revised to show a larger 4.5% drop compared to the initially reported 4.0% decrease while imports were upgraded from 8.5% to 9.0%.

Hawkish Fed remarks – Yet another batch of Fed officials stepped up to the podium to give testimonies, with a couple of FOMC voting members affirming that three rate hikes are in the cards this year.

For FOMC member Kaplan, three rate hikes for the year is actually just the base case outlook, which suggests that he’s open to the idea of tightening at a much faster pace.

However, he did warn that improving consumer confidence has yet to translate to increased consumer activity and that a slowdown in China could bring financial instability to the rest of the world.

He also shared that he’s worried about slow workforce growth, pointing out that migration helps in this aspect and that U.S.-Mexico ties could bring more jobs as well.

As for FOMC member Dudley, risks to U.S. growth and inflation are tilted to the upside.

In the Q&A, he even mentioned that 2% inflation is not a ceiling, which means that the economy can overshoot this level and that gradual rate hikes are appropriate in keeping price levels in check.

He also said that fiscal policy is likely to stimulate growth and that easing financial conditions were among the factors that encouraged the committee to vote for a March hike.

Fed official Mester, who is not a voting member, also echoed this sentiment in saying that further hikes will be needed this year but not at each meeting.

She also sees a sustained return to 2% inflation and below 5% unemployment for two years, adding that any weakness in the first quarter of this year is likely to be transitory.

Trump talks tough to currency manipulators  – Hint hint, China. Headlines indicating that the Donald is seeking ways to “penalize currency manipulators” in an effort to spur fair trade led to some volatility among the majors.

Recall that the U.S. President has promised to label China as a currency manipulator since the start of his stint at the White House, with a couple of insiders sharing that the administration is looking at the Trade Enforcement and Facilitation Act to impose penalties on nations that have devalued their currencies and gotten a large current account surplus as a result.

This law can allow the government to block future contracts with these countries and urges the IMF to have stricter surveillance on these matters.

Major Market Movers:

USD –  The scrilla bounced back to action, boosted by upbeat U.S. data and hawkish Fed rhetoric.

U.S. markets also recovered with the Nasdaq closing at 5,194.34 (+0.28%) and the S&P 500 index up to 2,386.06 (+0.29%).

EUR/USD plummeted from a high of 1.0754 to a low of 1.0671, USD/JPY popped up from 111.22 to 111.95, USD/CHF advanced from .9957 to 1.0014, and AUD/USD turned from a high of .7675 to drop to .7638.

Watch Out For:

  • 1:30 am GMT: Australia private sector credit (0.5% expected, 0.2% previous)
  • 2:00 am GMT: Chinese official manufacturing PMI (51.7 expected, 51.6 previous)
  • 2:00 am GMT: Chinese official non-manu PMI (54.2 previous)