US: We anticipated a rebound in growth in Q2 after a weak Q1 - Lloyds

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 19, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Analysts from Lloyds Bank point out that employment growth remained solid in Q1, but with limited upward pressure on wage growth and also noted that economic indicators point to a weak Q1 GDP growth.

    Key Quotes:

    “In contrast, indicators of output and expenditure suggest a somewhat weaker print for Q1 GDP than had been previously expected, with a significant risk of a lower outturn than the annualised rate of 1.4% seen in Q4. Despite further improvements in the labour market, consumption appears to have weakened over the quarter.”

    “With Q1 growth expected to be disappointingly weak, policymakers will be looking closely for evidence of a strong rebound in Q2. A number of business surveys point to a firmer end to Q1. The ISM manufacturing index in March, for example, increased above the key 50 level separating expansion and contraction for the first time since August, while the non-manufacturing index was also firmer than expected, rising to a three-month high of 54.5. For the year as a whole, we have revised down our growth forecast for 2016 to 2.2% from 2.4%, which would be a shade weaker than last year.

    “An April rate rise is unlikely, but June remains on the cards. Financial markets are pricing in only about an evens probability of one quarter-point hike this year, in contrast to the latest Fed median ‘dot plot’ which show policymakers anticipating two hikes. Our own view is for two hikes this year in June and December.”

    “Indications of weak Q1 GDP and uncertainties about the sustainability of recent stirrings of higher inflation mean that policymakers are unlikely to raise rates at the 27th April meeting. Nevertheless, we believe the underlying US economy remains sufficiently strong to warrant a quicker pace of tightening than markets are currently expecting. Employment growth remains strong, which should eventually lead to higher wage growth, while we anticipated a rebound in growth in Q2.”
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