Economic growth in the US economy during the first three months of the year was revised slightly downward in the government’s final GDP reading which was released on Thursday morning.
- The US GDP for Q1 was revised downward by 0.1% to 3.1% compared to a flat expected reading. 3.1% was the figure first reported after the first reading which was later revised upward.
- Though unexpected, the news had little impact on the financial markets.
Strong on paper, the Q1 GDP reading was widely regarded as anomalous and due to inventory selloffs made possible by the brief respite in the US/China trade war which remains ongoing. The conflict has escalated significantly since it began, with tariffs imposed by both nations which traditionally trade heavily in raw materials and agricultural produce.
The trade war negotiations are now suspended pending promises from the US to withhold tariffs on the next $300 billion worth of goods as well as to resume the sale of US technologies to Chinese companies such as Huawei. The Chinese government also stipulated that the US remove the latest 25% tariff and to have more decorum and respect when discussing the trade war in public.
If these conditions are not met, the trade war will enter what President Trump refers to as “Phase 2”, a move that will undeniably have a major negative impact on the US GDP moving forward, perhaps even prompting the Federal Reserve to implement up to three rate cuts in 2019.
US Q1 GDP growth (3rd est) was finalised at 3.1% annualised (exp 3.2%, prior 3.1%). Core PCE prices lifted to 1.2% in Q1 from 1.0%. pic.twitter.com/kQqxlu1NeU
— James Foster (@JFosterFM) June 27, 2019
A spokesman for the Chinese government said “We hope the U.S. side could drop its wrong practices, and we can solve the problems through equal dialogue and cooperation.”
The Foreign Ministry also released a statement saying “The U.S.’s threat to add tariffs cannot scare us. The Chinese people refuse to be misled and will not be intimidated. So I would like to offer a piece of advice to the U.S. -- starting a trade war and adding tariffs harms itself and others.”
Gold prices have undergone a significant correction following recent gains, with spot gold now down 0.61% and trading at $1,403.04/oz with a high of $1,413.31/oz and a low of $1,400.71/oz.
Gold seemed to benefit little from the weaker GDP reading or from the recent labor market report which shows an unexpected increase in layoffs.