MICA RESEARCH】U.S. Stocks Switch to Recession Topics, Crypto May Be Affected

A. December 14, the U.S. CPI annual increase of 7.1%, the FOMC interest rate meeting will be held today

Last night, the U.S. Department of Labor released its latest price index report, which showed an overall monthly increase of 0.1% and an annual increase of 7.1%, which is lower than the expected 7.4%, with the core price index increasing 0.3%, significantly lower than the previous month's 0.6%. The US economy has not yet fallen into recession, and risk assets are soaring.

However, as the market interprets the inflation data, it will find that the main reason for the slow growth of the price index is nothing more than a sharp decline in gasoline prices and used car prices, other commodity prices still maintain the growth trend, meaning that the overall economic inflationary pressure is still in, coupled with the FOMC interest rate resolution will be held tomorrow, is expected to raise interest rates by two yards, making the benchmark interest rate to 4.25% to 4.50%, although a two-yard increase in interest rates is expected. However, the market is now too optimistic about the trend of interest rate hikes, and it is likely that the Fed's speech will break the market's expectations, and the US stock market will experience a decline in the latter half of the rally.

B. December 15 Fed decision to raise interest rates by two yards, next year is expected to rise even higher

Early this morning, the Fed announced that the December interest rate resolution is to raise interest rates by two (0.5%), the benchmark interest rate will be adjusted to 4.25% to 4.50%, in line with market expectations, but the market pays more attention to the Fed's views on next year's terminal interest rate, the results show that the directors of the interest rate for 2023 and 2024 views are different, the dot plot shows that the terminal interest rate may climb to 5.1%, the overall rate of climb more than the market expectations, resulting in some funds from the market This will cause some capital to retreat from the market, causing U.S. stocks to further reduce their gains.

However, the Fed does not think the U.S. economy will recession, the GDP growth rate is expected to be 0.5% this year and next year, which means the Fed still believes that a soft landing is possible, due to the high base period next year, inflation is likely to return to 2% in the second half of next year, approaching the long-term inflation target set by the Fed.

Although the terminal rate is set at 5.1%, this is only the expectation of the Board of Governors, and judging from the trend of inflation, it is unlikely that there will be any more aggressive rate hikes after this one, and at least the market can make the next round of valuation adjustments based on a rate of around 4.25%.

C. December 16 U.S. Retail Sales Index Down 0.6% in November, Risk Asset Prices Fall

In the evening, the U.S. Department of Commerce announced that the retail sales index fell 0.6% in November, the largest decline this year. The Commerce Department said that with the Christmas holiday approaching, consumers are reducing spending on holiday-related gifts, home repairs and new car purchases.

After the release of the retail data, U.S. stocks sank, and the crypto market was also affected, with bitcoin sliding from $17,800 to $17,300, down 2.5%.

In addition, the stock market has fallen because the benchmark interest rate has climbed to 4.5%, coupled with weak retail and manufacturing data, inevitably risky asset prices are affected, which also promotes the Fed to slow down the rate of interest rate hikes, the top 2 to 3 cents next year, maintaining the terminal interest rate of about 5% until 2024, waiting for inflation to return to 2% before considering a rate cut.