Strong GDP, steady claims

US GDP robust but misses estimate

A lot of the optimism has been priced in, so financial markets were unfazed with the robust growth in the first quarter and a drop with initial jobless claims.  The economy grew at 6.4%, a miss of the 6.7% consensus estimate, and well above the 4.3% prior.  The whisper numbers for first-quarter growth were closer to 7%, but the slight GDP miss will only mean the second quarter will be that much stronger.  The second-quarter GDP reading will see forecasts in double-digit territory and that should keep risk appetite healthy.  The US economy is going to enjoy a few more months of tremendous data releases on vaccinations, stimulus checks, and pent-up consumer demand.  The second half outlook is up in the air, but for now, everyone wants to ride this last big wave of growth.

Jobless claims fell to 553,000 from an upwardly revised prior reading of 566,000.  The dip in claims was a fresh pandemic low, while continuing claims edged higher to 3.66 million.

Pricing pressures were apparent due to the rise in oil prices, but still came in hotter than expected.  The advance first-quarter GDP price index jumped 4.1%, higher than the 2.6% estimate and 2.0% prior.

US March pending home sales increased 1.9% on a monthly basis, but clearly shows the peak in sales has been put in place.  The February drop of 10.6% was revised lower to -11.5%.  Rising mortgage costs and the return to normal for big cities should mean the housing market will now cool.

Treasuries/FX

The bond market had to send Treasury yields higher now that inflation is here, the case for higher wages is strong and on the lingering prospects of more stimulus.  The economy is going to run hot these next couple of months and the bond market selloff will return and could make Treasury yields attempt to test the end of March highs.  The inflation debate will last months, so the April surge with bond prices will take a break and we probably have seen the bottom with Treasury yields.

The dollar and 10-year Treasury yields rose on expectations US growth exceptionalism will hit peak levels over the next quarter.

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