Markets

Stocks rally despite the threat of a US recession as the economy slows

Stocks rose even though the US economy posted a lower-than-expected 1.1% annualized growth in the first quarter as higher interest rates hit GDP and the risk of recession eased.

After the news, Bitcoin (BTC) dropped briefly to $28,748 before bouncing back to $28,934.06. Ethereum (ETH) dropped from $1,883 to $1,869.53, and later rose to $1,883.40.

Stocks rise as recession threatens the US economy

Major US stocks reacted positively to the news, with the Dow Jones rising 0.3%, the S&P 500 up 0.6%, and the Nasdaq Composite up 0.9%.

Buoyed by the positive earnings news, Meta stock is up about 14%, while Amazon, which issues its earnings call after the market closes, is up 3% on the day.

Consensus expected GDP growth of 2.2% as traders adopted a dovish stance, pricing in three interest rate cuts by the end of 2023. GDP has also fallen significantly since last quarter – 2.6%.

Earlier this week, analyst Noelle Acheson noted that the 10x1m yield curve has become inverted. An inverted curve is one of the indicators of recession.

While bitcoin traded mostly flat after the news, K33 Research indicates that it will line up with US stocks in the coming weeks amid a series of international bank holidays.

BTC-30 Day Correlations | source: K33 research

The dollar index, which measures the dollar’s strength against other major currencies, has fallen 12% since October 2022.

With the exception of cryptocurrency market events, a stronger dollar in 2022 has occasionally been associated with a decline in the price of bitcoin. After the Fed announced more rate hikes in August, the dollar index rose, while bitcoin fell 11%.

Before the GDP data was released, the 90-day correlation between bitcoin and the US dollar was -0.7%. Prior to that, the dollar index recorded a decline of 12% since October.

This relationship indicates that any further decline in the dollar after the GDP results could benefit Bitcoin.

The Fed expects two more rate hikes

Markets will also be watching an indicator of personal consumption expenditures in the United States, due on Friday, which the Federal Reserve will use to assess the effectiveness of policy rate hikes on the economy. The central bank will announce the next rate hike on May 3.

On Thursday, Federal Reserve Chairman Jerome Powell proposed two more increases of 25 basis points for scammers impersonating Ukraine’s Volodymyr Zelensky.

He said a recession is “almost as likely as very slow growth”.

“What we need is a period of slow growth for the economy to calm down, for the labor market to calm down, for wages to calm down. That’s how inflation goes down. That’s the only way we know to bring inflation down. And it might be painful, but we don’t know any way.” Painless for low inflation.”

Source: Zerohedge

CME target rate
CME FedWatch Target Rate Projections | source: CME Group

CME FedWatch Agree assigns an 87.4% probability of an upcoming 25 basis point increase.

For a recent Be (In) Crypto Bitcoin (BTC) analysis, click here.

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