The US rate hike cycle is coming to an end, are you ready for the Year of the Rabbit?

The Lunar New Year is coming to an end. During the period when the Taiwan stock and foreign exchange markets are closed, what important data has been released in the market? How did the main stock markets and currency prices react? As we welcome the Year of the Rabbit, what issues should we pay attention to in order to navigate the new year smoothly and attract wealth?

Strong U.S. Economy, Continued Decline in Inflation

The U.S. Gross Domestic Product (GDP) for the fourth quarter of 2022 was announced on 1/26, showing a year-on-year growth rate of 2.9%, slightly higher than the expected 2.8%, with the actual year-on-year growth rate for the third quarter at 3.2%. This GDP growth reflects increases in private inventory investment, consumer spending, federal government spending, state and local government spending, and nonresidential fixed investment. The real GDP growth for 2022 was 2.1% from the annual level in 2021 to the annual level in 2022, with a growth rate of 5.9% in 2021.

The core Personal Consumption Expenditures (PCE) Price Index, which serves as an inflation indicator, rose by 3.2%, compared to a 4.3% increase the previous month. Excluding food and energy prices, the PCE price index rose by 3.9%, compared to a 4.7% increase the previous month. It is evident that inflation peaked at the end of last year and is gradually declining.

Trends During the Lunar New Year Period

During the ten-day Chinese New Year holiday in Taiwan, major international stock markets and cryptocurrencies experienced a significant surge.

Federal Reserve Interest Rate Decision Next Week

The U.S. Federal Reserve will announce its interest rate decision at 3 a.m. Taiwan time on 2/2. The market currently expects a one-notch rate hike, raising the benchmark interest rate to 4.5% to 4.75%. According to CME FedWatch, the market anticipates another rate hike in March, followed by maintaining the interest rate and even a possibility of a rate cut by the end of the year.

Focus on the Year of the Rabbit

It is worth noting that the U.S. Treasury yield curve, an indicator of economic recession, continues to invert, with long-term 10-year bond yields lower than short-term 2-year and even 3-month bond yields. Does the potential rate cut in the second half of the year imply a significant economic downturn requiring the Federal Reserve to cut rates to support the market quickly? In addition to following the overall economic and stock market trends, the trajectory of cryptocurrencies this year will also be focused on Ethereum's Shanghai upgrade, LTC halving, stablecoins, and even regulatory measures related to cryptocurrencies.

In a year filled with macroeconomic uncertainties, whether the market can smoothly bottom out and move towards another bull market cycle remains a subject of debate between the bulls and bears. In addition to staying informed about fundamental and technical developments, investors should work to accumulate more silver bullets and pay attention to asset allocation in order to smoothly ride the bull market when it arrives and reap the benefits of the next wave of gains.