According to preliminary estimates, the growth rate of the US economy in 4Q GDP was seen to be better than forecasts, amounting to 6.9% q/q (annualized) compared to the expected 5.5% q/q (2.3% in 3q21). Annual rates also increased to 5.5% against 4.9% a quarter earlier. Overall, the economy grew by 5.7% in 2021, the highest growth since 1984. After falling 3.4% in 2020, the strongest in 74 years, a significant reversal occurred in Q3 and Q4 last year which was fueled by massive fiscal stimulus as well as low interest rates. Strong growth GDP for 2021 supports the Fed’s rhetoric regarding interest rates in the assessment. S&P500 (SPX) settled down at 0.54% to 4325.50, NASDAQ (NDX) fell 1.20% to 14003.11, US 10Y yield settled down at 3.72% to 1,803%.
At the same time in Europe, UK CBI higher than expected, French GDP grew 0.7% in 4Q (est. +0.5%). The markets showed limited response to the Fed’s January meeting. Bund yields were generally higher, up by almost 3bps on the 2yr to -0.622% while the 10yr added less than 2bps to -0.06%. For gilts the moves were generally wider: 2yr gilt yields rose almost 5bps to 0.959% while the 10yr added 3bps to 1.228%. EURUSD settled down at 0.85% to 1.1145 and it is lowest level so far in 2022 and indeed it is weakest level since June 2020. GBPUSD fell 0.6% overnight, closing at 1.3383 even as markets have raised the chances of the Bank of England raising rates at its February meeting.
Meanwhile, the South African Reserve Bank raised rates by 25bps to 4% in line with market expectations and it is the second increase in a row. Like to other markets, inflation in South Africa has risen sharply thanks to high energy costs. The governor of the SARB, Lesetja Kganyago, noted that he is expected to see price gains beginning to fade later this year, however. South African 10yr bonds not showing much response to the SARB’s decision to hike rates.
Oil prices weren’t immune to the broader sell-off overnight as Brent futures retreated from having pushed up to USD 91/b at one-point mid-day. Brent settled down 0.7% at USD 89.34/b while WTI fell 0.9% to USD 86.61/b. Looks like the market will be focusing on next week’s OPEC+ meeting where consensus is for another monthly increase of 400k b/d for March. However, OPEC members may face additional pressure to increase production by a larger amount, given geopolitical risks (including a potential war between Russia and Ukraine).