The dollar has weakened today, dragged lower by revised GDP data that showed the US economy contracted for the first time in nearly three years.
By Peter Martin
Friday, May 30, 2014
As always, the GDP data was far from timely, but this latest estimate does show the economy was even harder hit by bad weather in the first quarter than previously thought, shrinking an annualized 0.1% in Q1. The last time we saw a contraction in GDP was back in Q3 of 2011.
The advance estimate given last month was for 0.1% growth, though analysts had expected that to be revised down to -0.5%. Looking beyond the headline weakness, the data isn’t quite as bad as it sounds though. Much of the downward revision was on account of lowered inventories, which could bode well for Q2 GDP, while personal consumption expenditures, a major driver of US economic growth, were actually revised higher. Nevertheless, the report is likely to weigh in favour of the Fed maintaining its accommodative stance and this has contributed to the dollar’s weakness today. USD/JPY fell 0.13% by mid-afternoon in New York, while the euro rose 0.1% against the dollar, though the dollar had recovered substantially from the day’s lows.
Other economic data today was more upbeat, with a marked drop in jobless claims last week and a steady advance in the number of pending home sales in April. Initial jobless claims improved from 327,000 to 300,000 for the week ending May 24, while continuing claims dropped 17,000 to a new recovery low of 2.631 million. The four-week moving average for initial jobless claims declined to 311,500, also a recovery low, and suggests the labor market continues to recover despite some recent volatility. The National Association of Realtors’ pending home sales index rose to 97.8 in April, up from 97.4 in March, a solid result given how the index had surged in March, suggesting that spring weather continues to provide support to the housing market.
While the prospect of extended accommodation suggested by the weakness in the GDP data has hurt the dollar, it has proven supportive for the stock market, which advanced moderately on Thursday, pushing the S&P 500 index to a new record high. The Dow Jones Industrial Average rose 0.28% or 47 points to 16,680 and the S&P 500 climbed 0.47% to 1918.75, extending its gains as the afternoon wore on and setting a new intraday record for a third consecutive trading session.
The Energy Information Administration (EIA), the reporting arm of the Energy Department, said that crude oil inventories rose 1.7 million barrels last week, with the increase driven by a jump in crude oil imports. Recent declines in supplies have contributed to gains in the last three weeks, but today’s news of the stockpile swelling failed to stop the price rising, perhaps because inventories of both gasoline and distillate fuels declined, with distillate inventories lying below the lower limit of the average range for this time of year. Crude oil futures climbed 0.87% to $103.61 per barrel. Refineries operated at 89.9% of capacity last week. As we head into the US driving season, that percentage would be expected to rise. Supplies at Cushing, Oklahoma fell from 23.2 million barrels to 21.2 million, having declined 16 times in the last 17 weeks thanks to the effect of the southern leg of the Keystone XL pipeline which began pumping oil from the hub to refineries on the Gulf Coast in January. Cushing is significant as it is the price settlement point for WTI crude oil futures.
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