U.S. factory orders undershot estimates in January
U.S. factory orders undershot estimates in January, with declines of -0.5% for the headline and -0.1% ex-transportation, alongside a -0.1% factory inventory drop. Note that this report reflects the period prior to the spread of Covid-19 or Coronavirus.
The undershoot reflected declines of -0.8% for nondurable shipments and orders, and -0.2% for nondurable inventories, after downward December revisions, with a headwind for both from energy prices.
The equipment data from the durables report were revised modestly lower, alongside slight downward tweaks in the December levels for orders, shipments, and inventories.
The data still show encouraging January gains for most of the equipment data despite downward bumps, but lean shipments and inventory data, with January pull-backs for transportation and defense after December gains.
Analysts still expect a Q4 GDP growth boost to 2.2% from 2.1% but with -$1 B revisions for both factory inventories and equipment spending.
Analysts expect GDP growth of 2.0% in Q1, with a -5% (was -4%) Q1 contraction rate for real equipment spending after an estimated -4.8% (was -4.4%) Q4 pace. Analysts expect a -$20 B Q1 inventory subtraction that leaves a $9 B liquidation rate, with a big hit to inventories from reduced imports from China.
Analysts assume a -0.1% (was flat) January business inventory drop after a flat (was 0.1%) figure in December.
Earlier, we had a blog regarding slow down in truck sales was flashing an economic slowdown on the horizon. Read the blog here.
Fed funds futures have continued to rally as the market prices in another 25 bps of easing at the upcoming March 17, 18 FOMC, on top of this week’s 50 bp reduction.
The market is also supported from flight from risk with declines of over 2% on Wall Street in pre-open action.
The futures are now fully priced for a 25 bps easing in two weeks, to be followed by another 25 bps at the April 28, 29 FOMC with about 75% risk, while June is now seeing about a 50-50 bet for yet one more 25 bp cut at the June 9, 10 FOMC.
That would see the policy band at 0% to 0.50%. Analysts continue believe the Fed and the markets are over-reacting and analysts doubt the economic impact of COVID-19 will be as disastrous as the market’s are pricing in.
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