Finimize - 📓 A test for the US economy

🔍 The focus this week: US economic heft

Investors will get an early look at how the world’s biggest economy is performing this year, with the US scheduled to release its first-quarter growth figures on Thursday. Economists are predicting, on average, that economic output rose at a modest annualized 2% rate from the three months before. But those forecasts could prove to be overly gloomy, just like they were last time around when the consensus expected 2% growth but the economy blasted higher by 3.4%.

There’s another reason why the US might shoot the lights out once again: consumer spending. It’s by far the biggest driver of the economy, and the country’s hot labor market has bolstered wages and encouraged Americans to keep on spending, despite higher borrowing costs and consumer prices. Case in point: data out last week showed retail sales jumped 0.7% in March from the month before, more than double what economists were expecting. What’s more, February’s figure was revised upward to 0.9%. The blowout report prompted some investment banks to upgrade their first-quarter economic growth figures. Goldman Sachs, for example, boosted its estimate to an annualized 3.1% rate from a 2.5% pace.

That leaves America on track to be a standout performer again this year, playing a major role in driving global growth. In fact, the US economy is set to expand at double the rate of any other G7 country this year, according to recent calculations by the International Monetary Fund (IMF). But that stellar performance could make America’s inflation problem harder to solve, pushing the Federal Reserve to keep interest rates higher for longer.

📅 On the calendar

• Monday: China’s central bank one-year loan prime rate announcement, eurozone consumer confidence (April). Earnings: Verizon.
• Tuesday: US, UK, and eurozone PMIs (April), US new home sales (March). Earnings: Tesla, General Electric, Visa, General Motors, PepsiCo, Philip Morris International, Spotify.
• Wednesday: US durable goods orders (March). Earnings: Meta, Boeing, Ford, IBM, Thermo Fisher Scientific.
• Thursday: US economic growth (Q1). Earnings: Alphabet, Microsoft, Intel, Caterpillar, Merck.
• Friday: Bank of Japan interest rate announcement, eurozone M3 money supply (March). Earnings: Chevron, ExxonMobil, AbbVie.

👀 What you might’ve missed last week

Global

• The IMF raised its global growth forecast, thanks to a resilient world economy.
• Bitcoin miners braced for steep revenue losses after the “halving”.

Europe

• UK inflation fell by less than expected in March.

Asia

• China announced faster-than-expected economic growth in the first quarter.

🤔 Why it matters

The IMF adjusted its global growth forecast upward by just a tick, now expecting the world economy to expand by 3.2% in 2024 – in line with last year’s growth. The revision reflects the economy's surprising resilience over the past few months, even with lingering inflationary pressures and high interest rates. But despite that rosier outlook, global growth remains low by historical standards, mostly because of weak productivity growth and increasing geopolitical fragmentation. And the IMF doesn’t see that improving a lot: its forecast for world growth five years from now, at 3.1%, is the lowest in decades.

Bitcoin’s long-awaited “halving” event took place on Friday. The once-every-four-years software update chops in half the reward miners get for running the powerful computers that process bitcoin transactions and secure the blockchain. The latest “halvening” cut the number of bitcoins miners can earn per day from 900 to 450. And based on bitcoin’s current price, that could spell revenue losses of around $10 billion a year for the industry as a whole. Anticipating those declines, traders have started to bet big that crypto mining stocks will fall.

The UK’s annual inflation rate slowed to 3.2% in March, reaching a low not seen in two and a half years. But it was still slightly above the 3.1% pace that economists and the Bank of England (BoE) had predicted. The data comes a week after higher-than-expected inflation figures in the US led traders to slash their bets on how sharply central banks might lower rates this year. And following the UK report, traders reduced their bets even further, now wagering on just one or two cuts from the BoE this year. That’s a stark change from just a few weeks ago when two or three cuts were on the table.

China’s economy expanded by a healthy 5.3% in the first quarter compared to a year ago, marking a slight acceleration over the previous three months but handily surpassing forecasts of just 4.6%. The strong start to the year puts the country on track to meet the government’s 2024 growth target of about 5%, which is the same goal it set last year. But much of the bounce came in January and February. In March, retail sales growth slumped, and industrial output fell below forecasts. And that suggests it might not be smooth sailing ahead. What’s more, the strong headline result carries the risk that authorities could get too comfortable and opt not to follow through with much-needed stimulus.