Durable Goods bounce but what’s next?


The 1.2% February US durable orders bounce beat estimates thanks to a 4.6% transportation gain, though orders ex-transportation fell -0.6% to modestly undershoot assumptions, and the equipment and inventory data were modestly disappointing. The aircraft data in both the orders and equipment components, alongside an 18.5% defense orders pop, provided the small upside surprises in a report that did little to change the outlook. The data predates the impact of the coronavirus on the US economy, and are consistent with the view that the US was on a firm trajectory until shutdowns began in mid-March. Expectations remain for no net revisions in the 2.1% Q4 GDP pace, followed by -0.5% growth in Q1, with the entire hit to Q1 growth coming in the second half of the final month of the quarter. For Q1 GDP, expectations are for a -13% contraction rate for real equipment spending after an estimated -4.8% (was -4.4%) Q4 pace. A -$15 bln Q1 inventory subtraction from GDP that leaves a $5 bln liquidation rate, with a big hit from reduced imports from China and consumer hoarding of supplies. Expectations are for a flat February factory inventory figure with a flat nondurable factory inventory figure as well, alongside a flat business inventory figure. Assumptions are for a 0.2% February factory orders gain and a flat factory shipments figure, given an assumed -0.8% drop for nondurable goods shipments and orders.

The Dollar was unmoved by the durables report, which was much better than expected. Incoming data continues to be ignored by markets, as for the most part, the releases so far, all capture conditions ahead of the virus spread. USDJPY idles near 111.40, with EURUSD is steady near 1.0820, whilst Cable had outperformed earlier rallying to 1.1972, it is now retesting day lows around 1.1750.


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Stuart Cowell

Head Market Analyst

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