Kristian Rouz — US GDP data arrived early Wednesday morning to a shocking surprise, indicating the world's biggest economy grew by only 0.2% in Q1 2015, as compared to the previous consensus estimates of 1%. Wall Street futures slumped overnight, and Wednesday trading is anticipated to open in the red. Consequently, the Fed is now certainly expected to take a dovish stance amidst its two-day policy meeting still underway, with the rate hike not coming until September.
The Fed is now not expected to increase its base interest rate at least until September. Consequently, investors are bearish, and overnight the S&P 500 futures shed 13 points toward the lower open, while the Dow futures declined 127 points and Nasdaq futures slid 26.25 points.
In Q1, the S&P 500 posted unprecedented gains, while the real economy approached a stall. The most dramatic negative trend of the quarter had been a decline in fixed investment. According to some estimates, the underinvestment bit some 0.4% off the potential Q1 expansion in the US GDP. US fixed investment slid 0.6207% in Q1, the worst since Q4 2009.
The massive crude oil stockpiles the US has accumulated amidst lower fuel prices, contributed some 3% of the Q1 GDP growth, meaning without the shale oil boom in North America the US economic growth would have accounted for some minus 2.8%.
However, this is not the dramatic news, as the Q1 2014 US GDP growth was 2% negative.
Today's data is a negative sign for stocks. However, the US dollar resumed its advance against its major peers in early hours trading on Wednesday, while gold tumbled, as did 10-year Treasuries. The US GDP reading is not that bad, but still shocking if compared to previous expectations. Markets are yet to reassess the aggregated effect of the soft data, but obviously dollar liquidity will remain ultra-cheap for some more time — bad news for Japanese and European exporters.
