- Dow Jones backslides over 500 points as investors balk at inflation complications.
- US GDP eased quicker than expected, jostling risk appetite.
- Equity recovery is under way, but remains limited.
The Dow Jones hit its lowest bids in a week after US Gross Domestic Product (GDP) figures missed forecasts and US Core Personal Consumption Expenditures (PCE) inflation came in higher than expected. Slowing growth is a boon for investors seeking an accelerated path towards rate cuts from the Federal Reserve (Fed), but sticky inflation continues to vex hopes for an early Fed rate trim.
Read more: US GDP expands less that expected in Q1
US GDP for the annualized first quarter grew by 1.6%, well below the forecast decline to 2.5% from the previous 3.4%. It represents the slowest pace of GDP growth since September of 2022, but an uptick in Core PCE in Q1 kicked the legs out from beneath rate cut hopes. Q1 Core PCE rebounded to 3.7%, climbing over the previous 2.0% and overshooting the forecast 3.4%. Headline PCE inflation also overshot, printing at 3.4% versus the previous 1.8% as inflation remains hotter than investors hoped.
Dow Jones news
The Dow Jones plunged into negative territory for the week, knocking below 37,800.00 and declining over 550 points on the sour US data prints. A slow, grinding equity recovery is underway in the US trading session, but the Dow Jones remains firmly off of the day’s early peak bids near 38,450.00.
Around two-thirds of the individual securities that comprise the Dow Jones are in the red on Thursday, with International Business Machines Corp. (IMB) leading the charge down. IBM is down over 8% at the time of writing, declining to $168.77 per share. IBM is closely followed by Caterpillar Inc. (CAT), down around 6.5% on the day and trading near $340.12. The DJIA’s top gainer on Thursday is Merck & Co Inc. (MRK), climbing nearly 3% to trade into $130.63 per share.
Dow Jones technical outlook
The Dow Jones declined 1.82% top-to-bottom on Thursday, hitting a seven-day low of 37,745.54 and turning negative for the week. Despite the major equity index reclaiming nearly half of the day’s declines, the DJIA remains well back from the day’s peaks at 38,446.43.
Despite the Dow Jones on pace for a second down day in a row, the index is still firmly planted in bull country, trading well above the 200-day Exponential Moving Average (EMA) at 36,700.41.
Dow Jones five-minute chart
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
