GOOD MORNING! The first estimate of the 1st quarter GDP shook up the markets on Thursday. Real GDP was reported to be 1.6% annualized quarterly increase, notable lower than the consensus estimation of 2.5%. A wider trade deficit with the stronger dollar hurting exports and strong consumer demand bolstering imports and less investment in inventories were drags on the number and masked underlying economic strength. Another factor was the increase in the price deflators that take nominal GDP down to ‘real’ GDP. Both the headline and core PCE Deflators increased more than expected. What caught the markets’ attention and caused them to puke were the headline PCE Deflator quarter-on-quarter change rising to 3.1% versus 2.0% in the 4th quarter of 2023 and the core increasing to 3.7% q/q annualized from 2.0% prior. Released at the same time, the latest weekly initial and continuing claims for unemployment benefits fell more than expected and later, March’s pending home sales rose more than expected. Stagflation chatter initially sunk stocks while Treasury yields roared higher on the accelerating inflation. The futures market pushed the Fed rate cuts further out in the future.
      US stock index futures are in the green in early morning trading on the back of better than expected earnings by some tech giants. Treasuries are narrowly mixed. In the currency market, the Japanese yen is trading at a fresh 34-year low after the Bank of Japan kept rates unchanged. Focus this morning will be on the release of March’s personal income, spending, savings and, mostly, on the associated PCE Deflators. A Bloomberg of economists show the best guess is for both headline and core PCE Deflators to rise 0.3%, putting the year-over-year rates at 2.6% and 2.7%, respectively. However, the PCE Deflator numbers in yesterday’s GSP report could likely result in higher numbers or upward revisions to prior ones. Also today the final April University of Michigan Consumer Sentiment Index will be reported. The preliminary showed the consumers’ expectations on inflation inched up. Then it will be about positioning for the weekend.