GDP data suggests a significant risk of inflation rebound, potentially delaying interest rate cuts until December? Gold TD is slowly rising.

First Gold Gold News, April 26: Data released by the US Department of Commerce on April 25 showed that the US first-quarter real GDP annualized quarter-on-quarter initial value was 1.6%, lower than the expected 2.5%. In terms of prices, the core PCE price index, excluding food and energy, increased by 3.7% year-on-year and quarter-on-quarter, exceeding the expected 3.4%, marking the first quarterly increase in a year and indicating that core inflation remains stubborn. This data has once again impacted rate cut expectations, with the market predicting a delay until December.

On Friday (April 26), gold TD maintained a slight increase. As of press time, gold TD was priced at 550.96 yuan/gram, up 0.55%. On this trading day, gold TD opened at 548.45 yuan/gram, reaching a high of 551.5 yuan/gram and a low of 545.62 yuan/gram.

Market participants stated that, on the one hand, US economic growth was significantly lower than expected, and on the other hand, US prices rebounded beyond expectations. Based on quarterly data, the March core PCE month-on-month growth rate may be around 0.45%, significantly exceeding market expectations and the Fed's target, and the upward risk of US inflation has been confirmed again.

The macroeconomic team of China Merchants Securities pointed out that the initial value of the US first-quarter real GDP year-on-year growth rate was 1.6%, lower than the market expectation of 2.5%, mainly reflecting the slowdown in consumption growth and the drag of net exports turning into growth. At the same time, the core PCE price index rose beyond expectations to 3.7% year-on-year and quarter-on-quarter, causing the overseas market to shift from the expectation of a soft landing to the scenario of the Fed delaying rate cuts and stagflation risks.

The team believes that the first-quarter real GDP data once again confirms that the US economy after the epidemic is indeed a phenomenon of inflation. However, the US is a non-typical stagflation. Although the US economic data pays more attention to the year-on-year growth rate, the seasonally adjusted month-on-month data still fluctuates greatly. If changed to a year-on-year basis, the US real GDP in the first quarter was 2.97%, although lower than the previous value of 3.13%, it was the second highest since the second quarter of 2022. Overseas investors will not completely apply the logic of US economic stagflation to asset allocation.

Market participants pointed out that after the release of the above data, US Treasury yields rose sharply, US stocks fell, The US dollar index rose, and gold slightly corrected, showing that the market has begun to trade on the possibility of stagflation in the United States.

However, some analysts also stated that although the US GDP data reflects a marginal cooling of the US economy, from the current fundamentals of the US economy, it may not be considered a significant deterioration for the time being, and whether the US will experience stagflation in the future still needs to be observed.

After the release of the US GDP data, according to the CME Group's FedWatch tool, the probability of the Fed keeping interest rates unchanged in May is 95.4%, and the probability of a 25 basis point rate cut is 4.6%. The probability of the Fed keeping interest rates unchanged in June is 89.5%, the probability of a cumulative 25 basis point rate cut is 10.2%, and the probability of a cumulative 50 basis point rate cut is 0.3%. In addition, market forecasts for the probability of the Fed's first rate cut in September and the extent of rate cuts for the whole of 2024 have both decreased to some extent.

Market participants pointed out that the US economy shows signs of marginal cooling, while the upward risk of inflation has been confirmed again. It is expected that the probability of the Fed raising interest rates in the future will remain low. Currently, the market generally expects that the Fed may only cut interest rates once this year, and the time may be delayed until December, but the possibility of the Fed not cutting interest rates in 2024 cannot be ruled out.

CICC's research report pointed out that compared with the GDP data, the more critical issue is the unexpected rebound in core PCE inflation in the first quarter, which is the biggest hidden danger for the market. The elasticity of inflation will raise the threshold for the Fed to cut interest rates, allowing the US interest rate to remain at a high level for longer.

The report points out that excessively high inflation is still the main contradiction in the current US economy, and the Fed's work to combat inflation is not yet over. At the end of last year, the Fed prematurely gave guidance on interest rate cuts, which now seems more like a "policy mistake." Looking ahead, the Fed will maintain monetary tightening until the end of the year, and US interest rates will remain at a high level for longer. If sustained monetary tightening can slow inflation in the second half of the year, the Fed still has the opportunity to complete a rate cut in the fourth quarter of this year.

Gao Ruitong, managing director and chief macroeconomist of Everbright Securities, believes that from an economic perspective, the impact of the current high-interest rate environment on the US economy has already emerged, which will help the Fed turn dovish to protect the economy. Recently, some US economic data has weakened. If the economic data continues to decline in the future, it will prompt the Fed to turn dovish to protect the economy.

From the Fed's recent statements, Fed voters believe that there is no room for rate cuts in the short term, but the possibility of rate cuts in the second half of the year is still reserved. Specifically, on the one hand, Fed officials pointed out that the US job market and inflation are relatively strong, and all believe that there is no need to rush to cut interest rates in the short term, indicating that there is no possibility of rate cuts in the first half of the year.

On the other hand, Fed voters, including Fed Chairman Powell, still said that they would cut interest rates "at some point" this year, reserving the possibility of rate cuts in the second half of the year, guiding the market not to excessively delay expectations of rate cuts, preventing US Treasury yields from rising excessively, and amplifying the risk of financial system fluctuations. In addition, as the US election approaches, the Fed's willingness to protect the economy and the stock market is stronger, so the certainty of interest rate cuts this year is still high, and the period before the election may be a window for rate cuts.

The macroeconomic team of Kaiyuan Securities believes that the risk of a rebound in US inflation has increased. The timing of the Fed's rate cut may be further delayed, and there may be no rate cut in 2024, and US stocks may face continued adjustment risks. The increased risk of inflation rebound means that the Fed needs more data to judge the timing of rate cuts, and there is a high probability that there will be no rate cuts in 2024. Under this circumstance, US Treasury yields may further increase, and US stocks may face continued adjustment risks.