US Q1 GDP disappoints as markets await FOMC decision

Wednesday, April 30, 2014

European equity markets struggled to climb higher today after posting stronger gains yesterday on earnings optimism. Major stock indices started the day tentatively, with London’s blue chip index trading as much as 0.3% higher after swinging the same magnitude in the opposite direction while the DAX and CAC both slipped into negative territory. Many investors opted to remain on the side-lines ahead of macro data, notably US Q1 GDP, ADP employment data and details from the April FOMC meeting.

First up in a US data intensive day were MBA mortgage applications, which declined by 5.9%  w/w, accelerating the slide from -3.3% the previous week. However, markets were reassured by the slight positive surprise in April’s ADP employment change, which indicated 220K roles were added, throughout the month, slightly above the 210K expected. Gold prices traded lower towards $1,285/oz immediately after the release as investors were reassured that the economic recovery remains on track.

However, one of the biggest surprises of the day was the slowdown in US Q1 GDP which saw spot gold prices recover sharply and swing to a slight gain. Resistance for the yellow metal held firm just below $1,300 and prices quickly reversed back towards $1,290/oz. Market participants had expected quarter-on-quarter growth of 1.2%, below the Q4 2013 growth rate of 2.6% q/q but were left disappointed after an advanced estimate from the Bureau of Economic Analysis showed growth slowed to 0.1% q/q in Q1. Although US GDP growth slowed during the first quarter of the year, market participants can take some solace from the steady improvement in personal consumption, which accelerated 3% q/q against expectations of a 2% increase. US benchmark indices opened slightly lower after the release and have since swung between gains and losses ahead of the FOMC rates decision expected later this evening which will round off a data heavy session.

Spot gold prices experienced sharp prices swings on the release of US economic data

XAU Curncy Gold Spot Oz 2014 04 30 15 45 26

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