U.S. equities finished lower, as a stronger-than-expected Q4 GDP report was overshadowed by more discouraging Chinese manufacturing data and disappointing earnings results from HP and L Brands. Adding to the downbeat sentiment, a summit between North Korea and the U.S. was cut short without a deal, causing geopolitical tensions to reemerge. Treasury yields finished higher following the domestic output report, as well as a large jump in Chicago manufacturing activity, while crude oil prices were mixed, gold declined and the U.S. dollar was nearly unchanged.
The Dow Jones Industrial Average (DJIA) declined 69 points (0.3%) to 25,916, the S&P 500 Index dipped 8 points (0.3%) to 2,784, while the NASDAQ Composite decreased 22 points (0.3%) to 7,533. In heavy volume, 1.3 billion shares were traded on the NYSE and 2.6 billion shares changed hands on the NASDAQ. WTI crude oil increased $0.28 to $57.22 per barrel and wholesale gasoline was down $0.01 to $1.75 per gallon. Elsewhere, the Bloomberg gold spot price traded $5.96 lower to $1,313.90 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.2% at 96.18.
The first look (of two) at Q4 Gross Domestic Product the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 2.6%, after the unrevised 3.4% expansion in Q3, and north of the 2.2% growth forecasted by Bloomberg. Personal consumption gained 2.8%, below forecasts of a 3.0% rise, and following the unadjusted 3.5% increase recorded in Q3. The report was delayed due to the government shutdown and combines the advance and secondary estimates.
Along with personal consumption, nonresidential fixed investment, exports, private inventory investment and federal government spending were positive contributors, partially offset by negative contributions from residential fixed investment, state and local government spending and a rise in imports. For 2018, real GDP increased 2.9% y/y, compared to the 2.2% expansion seen in 2017.
On inflation, the GDP Price Index came in at a 1.8% rise, above expectations of a 1.7% gain and matching the unrevised increase seen in Q3, while the core PCE Index, which excludes food and energy, moved 1.7% higher, north of expectations to match the unadjusted 1.6% advance in Q3.
Weekly initial jobless claims rose by 8,000 to 225,000, versus forecasts calling for an increase to 220,000, with the prior week’s figure being upwardly-revised to 217,000. The four-week moving average fell by 7,000 to 229,000, while continuing claims rose by 79,000 to 1,805,000, north of estimates of 1,737,000.
The Chicago Purchasing Managers Index jumped to 64.7 in February, from 56.7 in January, and versus expectations of 57.5, with a reading above 50 denoting expansion. This was the highest pace of expansion since December 2017, as new orders, employment, production and order backlogs all rose at faster paces, while inventories fell and growth in prices paid accelerated.
The February Kansas City Fed Manufacturing Activity Index unexpectedly declined to 1, from January’s unrevised level of 5, and versus forecasts of 6, but a reading above zero denotes expansion.
Treasuries were lower, as the yields on the 2-year note and the 30-year bond rose 2 basis points (bps) to 2.52% and 3.08%, respectively, while the yield on the 10-year note was 4 bps higher at 2.72%. Bond yields added to a weekly gain, while the U.S. dollar reversed course and was flat on the data and in the wake of this week’s Congressional monetary policy testimony by Fed Chairman Jerome Powell, in which he reiterated the Central Bank’s recent pivot to a more dovish stance.
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