US consumer sentiment rises to highest level since July 2021

The revised reading of the University of Michigan sentiment survey rose sharply, increasing to its highest level since July 2021. The headline sentiment index rose to a value of 79.4 in March, up from a preliminary reading of 76.5, and a value of 76.9 in February. There were improvements in both the current conditions and expectations sub-components. Inflation expectations also fell in the final March print, with 1-year ahead expectations falling to 2.8% from 2.9% previously.

Fourth quarter US GDP was revised to 3.4% q/q on an annualised basis in the third estimate, up from 3.2% in the previous print. The upward revision was driven by stronger growth in household demand and business investment. Household consumption, which accounts for over two-thirds of GDP was revised to 3.3% q/q from 3.0%; while non-residential fixed investment rose markedly, up to 3.7% q/q from 2.4%.

US initial jobless claims fell marginally in the week ending 23 March, dropping to 210k from 212k the week prior. Claims data remains at very weak levels, although other leading indicators – such as google searches for “layoffs” and layoff announcement in the Challenger jobs report - point to a likely rise in future.

German retail sales volumes declined sharply in February, falling 1.9% m/m in February, well below both consensus expectations for a rise of 0.4% and the 0.3% m/m decline recorded in January. There were sizeable declines in food and tobacco, as well as online sales on the month.

The second estimate of Q4 2023 GDP data confirmed that the UK tipped into recession last year, with growth declining 0.3% q/q. The latest figures confirmed that investment, trade and weaker household spending all acted as a drag on growth in the fourth quarter of last year. There are however signs that household consumption expenditure will support growth in Q1 2024, as real disposable incomes rise.

The unemployment rate amongst Saudi nationals fell to 7.7% in Q4 2023 from 8.6% in Q3 2023. The decline was entirely driven by a reduction in the unemployment rate of Saudi women, with their unemployment rate dropping to 13.7% in Q4 2023 from 16.3%.

Consumer price inflation – excluding fresh food – in Tokyo fell to 2.4% y/y in March from 2.5% in February, with durable goods and processed food inflation acting as a drag on the headline. Despite the marginal tick down in core inflation, the measure remains some way above the 2% target. The Tokyo measure is a leading indicator of the national CPI, due out on 19 April.

Today’s Economic Data and Events

• 11:45 FR CPI EU harmonized (Mar) forecast: 0.6% m/m
• 14:00 IT CPI EU harmonized (Mar) forecast: 1.4% m/m
• 16:30 US personal income (Feb) forecast: 0.4% m/m
• 16:30 US personal spending (Feb) forecast: 0.5% m/m
• 16:30 US core PCE deflator (Feb) forecast: 2.8% y/y

Fixed Income

• US treasury yields rose on Thursday, on comments from Fed official, Christopher Waller, suggesting that there was “no rush” to cut rates, given current “disappointing” data. The 2yr yield gained 5bps to 4.6200%, while the 10y yield rose marginally, gaining 1bps to 4.2003%.
• There were also gains in bond yields across most major European markets on the day, with Italian 10yr bonds gaining almost 7bps to 3.676%. In contrast, gains in both the 10yr Bund and Gilt yields were significantly smaller, with both increasing by less than 1bps.

FX

• The dollar strengthened against a basket of major peers on Thursday, with GDP data revisions continuing to point to a resilient US economy. EURUSD fell 0.36% to 1.0789, while GBPUSD declined by 0.13% to 1.2624.
• AUDUSD fell 0.29% to 0.6516, NZDUSD declined by 0.52% to 0.5973, while USDCAD fell 0.21% to reach 1.354.

Equities

• The upward revision to Q4 2023 US GDP data was generally positive for US equities with the Dow Jones gaining 0.12% and the S&P 500 increasing by 0.11%, on the last trading day of March. While the NASDAQ fell 0.12% on the day, it nonetheless gained as much as 13.6% q/q. The Dow Jones and S&P 500 also rose on a quarter-on-quarter basis, up 12.5% and 11.2% respectively.
• European equity markets also gained on Thursday, albeit marginally. The Euro Stoxx 50 rose 0.03%, the CAC 40 gained 0.01% and the DAX increased by 0.08%. The FTSE 100 rose by 0.26%.
• Locally, the DFM gained 0.03% and the ADX declined 0.19%.

Commodities

• Oil prices rose on Thursday on the back of upward US GDP revisions. Brent futures gained 1.61% to USD 87.48/b and WTI rose by 2.24% to USD 83.17/b.