USAGOLD/Peter A. Grant/01-27-17
Gold rebounded from earlier losses and is presently trading near unchanged on the day. Disappointing economic data this morning seems to have put the recent stock market rally on hold for the time being and raised some doubts about the likelihood of multiple Fed rate hikes this year.
Advance Q4-16 GDP came in below expectations at 1.9%. That’s nearly a 50% drop from the 3.5% growth pace seen in Q3. That suggests that the Fed did indeed hike into weakness this past December, just as they did in December of 2015.
After the 2015 rate hike, it was revealed that growth had slowed from 2.0% in Q3 to 0.9% in Q4 and so it ended up being a full year until the Fed pulled the trigger again. While 1.9% is certainly not as bad as 0.9% the percentage drop is similar. Will it be another year until the next rate hike? Those that bought into the dot-plot inspired notion that there would be three rate hikes this year are likely re-calibrating.
Significantly, net trade was a major drag on the economy late in the year, subtracting 1.7 points. This is likely attributable to the dollar reaching 14-year highs into year-end.
Additionally, durable goods orders fell 0.4% in December, well below expectations of +3.0%. November was negatively revised to -4.8%.
A pretty bad set of numbers to be sure. However, University of Michigan consumer sentiment for January was revised higher to 98.5, from the preliminary print of 98.1 and 98.2 in December. Consumers remain optimistic, which tempered the negative reaction to the earlier numbers somewhat.
The Fed meets next week. They are widely expected to hold steady, but we’ll see if the statement takes a more dovish turn in light of today’s data.