LGT Navigator

US economic growth slows as inflation rebounds

Data showing weak economic growth in the US could not keep markets down on Thursday, as traders interpreted the data to mean the Federal Reserve may be closer to ending its restrictive monetary policy. US gross domestic product increased 1.1% on the year in the first quarter, much slower than the 2.6% increase in the last quarter of 2022. Economic growth was dragged down mostly by low private-sector investment and shrinking inventories. Meanwhile, the Bank of Japan kept interest rates unchanged, but slightly adjusted its guidance.

Shane Strowmatt, LGT
Reading time
5 minutes
NYSE building
© Shutterstock

While the slower economic growth data signals that the US central bank may be coming to the end of its rate hiking cycle, inflation data released Thursday suggested otherwise. The personal consumption expenditures (PCE) price index rose to 4.2% in the first quarter of 2023 from 3.7% in the previous quarter. Core PCE, which excludes food and energy prices, also rose to 4.9% from a previous 4.4%. The Fed follows PCE closely to measure price increases in the US economy.

Equity markets in New York made solid gains on Thursday after two weak trading sessions the days before. The Dow Jones Industrial jumped 1.57% to end the day at 33,826.16 points and the S&P 500 gained 1.96% to close at 4,135.35 points. The tech-heavy Nasdaq indices were up almost 3%. 

Meta became the next US big tech firm to see its stock soar this week with shares surging nearly 14% on Thursday. The stock has roughly doubled in value so far this year. A day earlier the company reported strong ad sales figures for the first quarter, providing revenue to funnel into its artificial intelligence and metaverse businesses. Amazon stock was also up 4.6% after the e-commerce firm reported a 3.2-billion-dollar profit in the first quarter of the year, showing that its recent cost-cutting measures are beginning to bear fruit. The company, like other US tech firms, has recently laid off staff and cancelled some of its more speculative projects in order to contain costs.

The positive sentiment in the US spilled over to Asian stock markets on Friday. The Bank of Japan kept its ultra-loose monetary policy unchanged, but modified its guidance on the future policy path and removed a pledge to keep interest rates at "current or lower levels." Instead, the BOJ said it will "patiently continue with monetary easing" given "extremely" high uncertainty surrounding the economy. The central bank announced plans to review its broader policies under new Governor Kazuo Ueda, raising questions about the future of the bank’s yield curve control and other policies. In Tokyo, the Nikkei reacted with a 1.13% rise while the Japanese yen slid versus the dollar 0.7% to 134.9. South Korea’s Kospi was marginally higher. Hong Kong’s Hang Seng Index gained 0.72% and the Hang Seng Tech index put on a solid 1.25%. In mainland China, the Shanghai Composite and Shenzhen Component were both up around 0.7%.

In Europe, the Swiss National Bank (SNB) said Thursday it made a profit of 26.9 billion Swiss francs in the first quarter of the year. The gain came mostly from the increasing value of its foreign currency positions and gold holdings. Last year, the central bank posted a loss of 132.5 billion francs, the largest in the bank’s history.

Corporate news in focus: Q1 figures from Merceds-Benz, Svenska, Chevron and Exxon.

Economic data in focus: Bank of Japan interest rate decision, Switzerland's KOF Economic Barometer for April (09:00 CET), German Q1 gross domestic product (10:00), SNB general meeting of shareholders (10:00), German Consumer Price Index for April (14:00), Core PCE price index for March (14:30), University of Michigan Consumer Sentiment Index for April (16:00).

LGT helps you make informed investment decisions

All about global economic and market trends at a glance

You can also follow us on Facebook or LinkedIn – or visit Insights and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.

Contact us