On Track for GDP Upside Surprise
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Economics Research23 Feb 2024
  • US: Fed officials agree on rates peaking but caution against cutting rates too quickly
  • China: Sentiment remains weak as financial market stress persists
  • Singapore: Budget 2024 focuses on lifting capabilities to maintain global competitiveness
  • Thailand: Growth slowed to 1.9% in 2023 from 2022’s 2.5%, with a muted 4Q23 print of 1.7% y/y
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US: Cautious Fed minutes. Per the Federal Open Market Committee (FOMC) minutes for the 30-31 Jan meeting, most Fed officials agreed that the policy rate likely peaked for this tightening cycle but cautioned against lowering rates too quickly. Fed Governor Michelle Bowman said the time for a rate cut was “certainly not now”, echoing Fed Chair Jerome Powell’s view that such a move at the FOMC meeting on 20 Mar was not the base scenario. Powell will likely refer to the FOMC minutes during his semi-annual congressional testimonies on 6 Mar.

Incoming data crucial in shaping Fed projections. Overall, the committee agreed to pay attention to a wide range of information, including labour market conditions, inflation pressures and inflation expectations, and financial and international developments in assessing the appropriate stance of monetary policy. The incoming data will be important in shaping the Fed’s Summary Economic Projections at the Mar FOMC meeting. Next week’s PCE deflators (29 Feb release) should mirror last week’s CPI inflation surprises. Consensus expects the PCE deflator to increase to 0.3% m/m in Jan from 0.2% in Dec and PCE core inflation to double to 0.4% from 0.2%. The Conference Board’s consumer confidence index (27 Feb release), which hit its highest level since Dec 2021, will also be crucial.

US Treasury yields stayed buoyant amidst a relatively hawkish set of Fed minutes and weak 20Y auction. Although the FOMC meeting took place before the latest CPI and PPI prints that surprised on the upside, the language was probably skewed on the hawkish side to soften speculation of aggressive rate cuts and to forestall easing in financial conditions. The key takeaway from the minutes was that most officials were worried about the risks of easing policy too early. This turned out to be prescient amidst the string of firm US data in Jan.

Synchronised uptick for the US, Eurozone, and China. Data surprises have turned positive for the US, Eurozone, and China. While the strength in the US economy is widely reported, we are picking up improving production and factory order momentum in the Eurozone, whereas China’s trade data for Jan should reflect the already visible uptick in regional exports. A wide range of PMI readings from these areas suggest businesses see the year having begun on an upbeat note. The global economy is on course for a 1Q GDP upside surprise.

Figure 1: Economic Surprise Indices on uptick

Source: Bloomberg, DBS

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