MACRO COMMENTARY
In with a bang and out with a whimper. That is how the expectations for US economic activity went in the first quarter….again. We are getting a serious case of déjà vu as we have seen this movie before – in fact twice before. Is the US developing some sort of seasonality where the first quarter is weak only to be lifted up throughout the rest of the year? In the competition of which Federal Reserve statistical forecaster is the best (since the introduction in April of a competing model by the NY Fed), it seems Atlanta has one the first round. The last forecast by the Atlanta version (called GDPNow) was 0.6%, just a little higher than the official advanced estimate of 0.5% released this week. That beat out NY on the margin who had a forecast of 0.7%. Going into the official announcement, it was Atlanta’s model ratcheting up while the NY model ratcheted down to converge closer. Looking towards the second quarter, the roles are reversed with Atlanta on the high side (1.8%) and NY with a more pessimistic view (0.8%).
While nobody was expecting much from the US Federal Reserve meeting this week, many investors found silence from the Bank of Japan as a bit stunning. Breaking market expectations for additional stimulus, BoJ Governor Kuroda’s decision to do nothing caused the yen to appreciate further still. Japanese equity markets fell on Thursday when the news was announced but was closed on Friday for a holiday. Is Kuroda trying to keep an element of surprise in their actions so as to retain their effectiveness, or are they finally reaching a point where the central bank either cannot or will not take further action. Our guess is, there is still more up their sleeve.