OPINION
Market Rating Before FOMC MeetingJan 31
US Economy Contracted: Safe Haven Demand Likely to Increase
The pace of gross domestic product (GDP) growth contracted by 1.4 percent in the first quarter of 2022 compared to the previous quarter and increased by 3.4 percent year-over-year in the preliminary data released by the US Department of Commerce. During this period, the GDP forecast for the quarter indicated a 1.1 percent growth.
Looking at the details of the dataset published by the Bureau of Economic Analysis (BEA) office of the Department, GDP at current prices increased by 6.5 percent year-over-year in the first quarter to $ 24.38 trillion. In the quarterly decline, the decrease in net exports and inventories was the main factor. In addition, the decrease in federal government expenditures also had a downward effect on GDP. On the other side, the increase in the imports continued.
During this period, the gross domestic product price index grew by 8.0 percent in the first quarter of 2022 after an increase of 7.1 percent at the end of 2021, while personal consumption expenditures, which make up a huge part in economic activity, changed by minus 0.4 percent quarter-over-quarter and 2.7 percent year-over-year. The core personal consumption expenses price index (PCE), also known as price index excluding food and energy prices, also rose 5.2 percent.
The released data set shows that domestic demand in the US economy continues to be strong. However, due to the pressure created by the Russia–Ukraine war on foreign demand, there is a downward effect on export activities and the uncertainties have an impact on stock investments. Besides, Coronavirus shutdowns in China also caused supply chain disruptions, and inflation pressures somewhat reduced the purchasing power.
Dollar index, which reached 103.78 levels before the data release and renewed its 20-year peak, is going downwards. The pressure created by the dollar on developed country currencies eased somewhat due to the expectation that the Federal Reserve will continue the monetary tightening process more aggressively by increasing the policy interest rate by 50 basis points at its May meeting. In addition, concerns that the contraction in the world's largest economy will spread to European and Asian countries, which are important trading partners, demand for safe haven assets are likely to increase. Decline in the 10-year US treasury yields to 2.79 percent and the fact that the gold reached 1917 level and recovered the losses of about a week supports this idea.
Looking at the details of the dataset published by the Bureau of Economic Analysis (BEA) office of the Department, GDP at current prices increased by 6.5 percent year-over-year in the first quarter to $ 24.38 trillion. In the quarterly decline, the decrease in net exports and inventories was the main factor. In addition, the decrease in federal government expenditures also had a downward effect on GDP. On the other side, the increase in the imports continued.
During this period, the gross domestic product price index grew by 8.0 percent in the first quarter of 2022 after an increase of 7.1 percent at the end of 2021, while personal consumption expenditures, which make up a huge part in economic activity, changed by minus 0.4 percent quarter-over-quarter and 2.7 percent year-over-year. The core personal consumption expenses price index (PCE), also known as price index excluding food and energy prices, also rose 5.2 percent.
The released data set shows that domestic demand in the US economy continues to be strong. However, due to the pressure created by the Russia–Ukraine war on foreign demand, there is a downward effect on export activities and the uncertainties have an impact on stock investments. Besides, Coronavirus shutdowns in China also caused supply chain disruptions, and inflation pressures somewhat reduced the purchasing power.
Dollar index, which reached 103.78 levels before the data release and renewed its 20-year peak, is going downwards. The pressure created by the dollar on developed country currencies eased somewhat due to the expectation that the Federal Reserve will continue the monetary tightening process more aggressively by increasing the policy interest rate by 50 basis points at its May meeting. In addition, concerns that the contraction in the world's largest economy will spread to European and Asian countries, which are important trading partners, demand for safe haven assets are likely to increase. Decline in the 10-year US treasury yields to 2.79 percent and the fact that the gold reached 1917 level and recovered the losses of about a week supports this idea.
