US Economy Finished 2023 Strong

For the week ending 28 March 2024

As of midday Thursday, global equities were near record-high territory as upward momentum remained strong. The yield on the benchmark US 10-year note was little changed at 4.22% while the price of a barrel of West Texas Intermediate crude oil was steady around $82.40. Volatility, as measured by the Cboe Volatility Index (VIX), was unchanged at 12.9. 

MACRO NEWS

Q4 US growth revised up

The US economy grew faster than expected in the final quarter of 2023, according to Thursday’s upward revision to a 3.4% annual growth rate from an earlier 3.2% estimate. Strong personal consumption was a key factor behind the revision, rising 3.3%, up from an initial reading of 3%. Gross domestic income rose a robust 4.8% after lagging GDP for several quarters. Corporate profits rose 4.1% in Q4, the most since mid-2022, while nonfinancial corporate profit margins remained historically elevated at 15.1%. For the full year 2023, US real GDP increased 2.5%. Nowcast models from the Federal Reserve Banks of New York and Atlanta suggest that the growth rate should moderate to about 2% in the first quarter of 2024.

CBO chief warns on US debt trajectory

In an interview with the Financial Times, US Congressional Budget Office Director Phillip Swagel said that US government debt is on an unprecedented trajectory that could cause a bond market backlash similar to the one that engulfed the United Kingdom 18 months ago. The annual issuance of US Treasuries has nearly doubled since the beginning of the pandemic as the debt pile grew to $26.2 trillion, or 97% of gross domestic product, as of the end of 2023.

Xi woos US CEOs

China’s President, Xi Jinping, met with US business leaders this week on the sidelines of the China Development Forum, an annual conference in Beijing. China has sought to foster a more welcoming environment for international businesses in recent months after foreign direct investment fell to its lowest level in decades last year. China’s economy is showing signs of stabilizing, with industrial profits up 10.2% for the January to February period from a year earlier, according to official statistics released Wednesday, although this was partially thanks to a low base in 2023.

QUICK HITS

The US bond market will be closed for Good Friday (29 March), when important inflation data will be released. The Fed’s preferred inflation gauge, the core personal consumption price index, is expected to rise 0.3% month over month and 2.8% year over year.

The Case-Shiller US National Home Price Index rose 6% year over year in January. 

On Tuesday, Hungary’s central bank cuts its base rate 0.75% to 8.25%, as expected. 

The US Federal Reserve reported this week that it posted an operating loss of $114.3 billion in 2023. 

Italy’s finance minister sees 1% growth this year, potentially making it the fastest of the three large eurozone economies.

Despite the Bank of Japan’s recent move to end negative interest rates, the yen weakened to a 34-year low of 151.97 to the US dollar on Wednesday. Japanese authorities expressed their disapproval of the recent moves, calling them disorderly. 

Preliminary US durable goods orders rose 1.4% in February while nondefense capital goods orders ex aircraft rose a more modest 0.7%.

Atlanta Fed President Raphael Bostic said he expects just one FOMC rate cut in 2024. 

S&P Global this week downgraded five US regional lenders to negative from stable over their exposures to commercial real estate. The credit rating agency said it downgraded First Commonwealth Financial, M&T Bank, Synovus Financial, Trustmark and Valley National Bancorp.

The collapse of a bridge struck by a container ship in Baltimore, Maryland could trigger a fresh bout of supply chain disruption. The port is an important hub for the US auto industry, with motor vehicles and parts accounting for 42% of all the imports passing through it. US coal exports are also expected to be impacted, as least temporarily. 

China filed a complaint with the World Trade Organization over US subsidies to electric vehicle manufacturers. The complaint alleges that the Inflation Reduction Act is discriminatory and distorts supply chains. 

The Canadian economy grew 0.6% month over month in January after contracting 0.1% in December. On a year-over-year basis, Canada grew 0.9% from a year ago in January. 

Bloomberg reports that the United States is asking allies to impose restrictions on maintaining chipmaking equipment in China as the Biden administration seeks to thwart Chinese efforts to produce advanced semiconductors. 

US pending home sales rose 1.6% month over month but fell 2.2% year over year.