Summary

US: GDP Head Fake obscures otherwise intact fundamentals

  • In a week loaded with economic data, Thursday’s negative GDP growth took center stage. The US economy contracted at an annualized rate of 1.4% in Q1-2022. The weak overall figure raises concerns at first glance, but the details of the report suggest that underlying demand has remained intact.
  • Next week: ISM surveys (Monday and Wednesday), trade balance (Wednesday), non-agricultural payroll (Friday)

International: the Bank of Japan steps up its accommodating monetary policy efforts

  • The Bank of Japan maintained its monetary policy stance in this week’s announcement but, significantly, reinforced its pledge to cap any rise in Japanese bond yields. The central bank said it was ready to buy government bonds in unlimited amounts to prevent a rise in yields. In other central banking activities, the Swedish central bank raised its key rate by 25 basis points and announced several more rate hikes over the coming quarters.
  • Next week: Chinese PMI (Saturday), Brazil Selic rate (Wednesday), Bank of England key rate (Thursday)

Interest rate watch: How much will the Fed tighten next week?

  • Despite the 1.4% annualized rate of contraction in first quarter real GDP, we expect the Federal Open Market Committee to raise its target range for the federal funds rate by 50 basis points at next week’s meeting. A 50 basis point rate hike is fully priced into the markets.
  • We also expect the Committee to announce the start of balance sheet reduction, which would also act as a form of monetary tightening.

Topic of the week: The rise of single-family rental homes

  • Housing affordability is a growing concern for potential buyers, as strong home price appreciation and rapidly rising mortgage rates have already pushed many buyers away. As homes become harder to afford for traditional buyers, a growing share of investor buyers have encroached on the market by buying and renting single-family homes.

Full report here.

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