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US Growth and Inflation in Focus 

Thought for Thursday, markets look towards US GDP data release this afternoon, nationalisation of UK railways announced by Labour, and release of US PCE inflation data.

Thought for Thursday

“The difficulty lies not so much in developing new ideas as in escaping from old ones.”
― John Maynard Keynes

All Eyes on US GDP Figures

At 1330 attention will shift to the release of fresh US GDP data as markets look to see the extent to which the largest economy in the world has grown in the first quarter of 2024. The market consensus is currently pointing to an annualised print of 2.5% marking a slowdown from Q4 2023’s growth of 3.4% and Q3 2023’s figure of 4.9%.

US economic growth since the start of the pandemic has far exceeded that of economies including the UK, Germany, France and Japan. For example, the US economy grew 8% between Q4 2019 and Q4 2023 against the aforementioned countries whose GDP grew less than 2% over the same time period.

This comes as the US labour market continues to remain tight while productivity and demand outpaces the lions share of the rest of the world’s major economies. In March, the Capitol Hill also approved a partial budget worth almost half a trillion dollars to funds a number of programmes including agriculture, housing and energy until September 30 which avoided a partial government shutdown.

Nevertheless, the US economy may not be out of the woods just yet. For example, following the release of US PMI data on Tuesday, the Chief Business Economist at S&P Global Market Intelligence said that “The US economic upturn lost momentum at the start of the second quarter, with the flash PMI survey respondents reporting below-trend business activity growth in April. Further pace may be lost in the coming months, as April saw inflows of new business fall for the first time in six months and firms’ future output expectations slipped to a five-month low amid heightened concern about the outlook.”

While April’s business activity will not be captured today’s Q1 2024’s GDP print such comments are indicative of how the outlook remains uncertain notwithstanding how US growth far outweighs that of its counterparts.

Labour’s Pledge to Renationalise the Railways

Labour have announced this morning that it is to renationalise the railways within five years, if the party is elected at the next general election. According to the BBC, Labour will nationalise railway services once existing contracts expire through setting up a publicly owned Great British Railways entity. Though the full announcement is expected to come later today, Labour’s transport policy chief Louise Haigh said that it will be “the biggest overhaul to our railways in a generation”.

Automatic refunds and internet connections also set to be key targets for improvement.

According to a YouGov Poll cited by Reuters “70% of voters support bringing train operators back into public ownership permanently” while “fewer than 10% opposed it”. This comes as train cancellations run at their highest level since recent records began in 2018 and strikes continue to impact travellers across the country.

The plans represent one of the most significant announcements for Labour who currently lead the Conservative party by around 20 percentage party in opinion polling.

US PCE Inflation Data

Preliminary US PCE inflation data is also released alongside todays GDP print at 1330. Given that this is one of the Federal Reserves preferred methods for gauging the rate of inflation, the prints outcome could weigh heavily on the markets’ view over what the central bank will do at their next policy meeting.

Persistent inflationary pressures, a robust labour market and strong growth has seen markets downwardly revise their expectations on the extent to which the Fed will cut rates this year. For example, going into the year markets were implying that policy makers would make as much as six 25bps cuts by the end of 2024, though this has been sharply reduced to around one or two since then.

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