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Stock markets muted despite surging US economy

Apr 26 2019 21:45
AFP

London - News that US economic growth had smashed expectations in the first quarter of 2019 failed to galvanise markets on Friday, with analysts warning of an economic divergence between the US and the rest of the world.

Even on Wall Street, the unexpected GDP growth surge was offset by a batch of mixed earnings from corporate titans, with disappointing results dragging down Exxon Mobil, Starbucks, Intel and American Airlines.

However it was not all bad news - Ford surged 10% after it reported better-than-expected profits.

Analyst Patrick O'Hare of Briefing.com said the reaction to the earnings parade had been mixed at best.

"Lots of company-specific responses, but no real market-moving thoughts in the responses other than perhaps the idea that the good news has been priced in to a large extent and that the bad news is presumably only temporary."

He added that although markets have been spinning their wheels, the US economy has shifted into a high gear.

US GDP expanded at an annual rate of 3.2% in the January-March period, smashing economists' expectations and surpassing the 2.2% growth in the final quarter of 2018, the government reported.

President Donald Trump quickly hailed the GDP growth, saying it was "far above expectations or projections".

However, economists warned that some of the factors that contributed to growth in the early part of the year will become a drag in the coming months.

Diane Swonk, chief economist at Grant Thornton, called the report a "head fake."

"This is one of the weakest three percent growth quarters I have ever seen," she said in a research note. "Underlying momentum in the domestic economy was particularly weak."

Wall Street, which hit new record highs earlier in the week, was largely unmoved, ticking up slightly around midday.

Fire and ice 

"While positive earning numbers have lent massive support to US equities, it's hard to ignore the inescapable fact that we are back to the divergent economic narrative where the US economy is on fire while ice water continued to pour over the rest of the globe," said Stephen Innes of SPI Asset Management.

In European deals on Friday, London stocks closed 0.1% down, hit by news of falling first-quarter profits at British state-rescued lender Royal Bank of Scotland.

Frankfurt gained 0.3% while Paris rose 0.2%.

In further signs of European weakness, the euro hit $1.1112, its lowest level against the dollar since May 2017, before rebounding.

"Currency traders are flocking to the perceived safety of the US dollar as the economic problems of the eurozone continues to play out," said CMC Markets analyst David Madden.

Oil prices meanwhile fell sharply, with the Brent and WTI benchmarks both dropping more than two percent, just one day after nearing six-month highs on tight supply concerns.

Fawad Razaqzada at Forex.com said that prices had been "overbought" and a "correction of some sort was imminent".

"It remains to be seen how far oil prices will fall given the still supportive market conditions, with the OPEC+ group of producers continuing to restrict supply and the US government tightening sanctions against Iran."

us markets  |  dollar  |  markets  |  us economy  |  gdp  |  stocks
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