blockworks.co
Crypto and equities markets whipsawed during Thursday’s session as traders leaned more risk-off and speculated what strong GDP numbers might mean for interest rates going forward.
Preliminary data shows economic growth remained stable during the last quarter of 2022, beating expectations and posting only a moderate decline from the previous period.
The US Commerce Department just reported initial gross domestic product (GDP) numbers, which showed a 2.9% annual rate of economic growth, adjusted for inflation. Several revisions to the data are expected in the coming months.
The Federal Reserve is expected to continue raising interest rates, although at a slower pace, delaying the shift in policy traders have been eyeing. As of Thursday afternoon in New York, markets were pricing in a 99% chance of a 25 basis point increase next month.
“The market’s obsession with rates and inflation, and their implications for the dollar, leads me to believe that this ultimately ends up bearish for asset prices,” Darius Tabatabai, CEO of decentralized exchange Vertex Protocol, told Blockworks. “A strong GDP print will serve as a warning around potential inflation risks, and most likely embolden hawks on the FOMC.”
Tom Siomades, chief investment officer of AE Wealth Management, agreed, noting that continued lagging unemployment is not helping the case for the Fed to pause interest rate increases anytime soon. The trend means investors will be more likely to allocate to safer investments, he added.
“Expect fixed income, quality and dividend paying stocks to do well as this tug of war between when the Fed stops and how high it may raise rates continues for the next few months,” Siomades said.
Downward trend for crypto still on the cards
Markets traded mixed on the GDP news, with the S&P 500 and Nasdaq Composite indexes initially falling before rallying around 0.5% and 1%, respectively, later in the session.
Bitcoin remained mostly flat, trading about 0.2% lower Thursday afternoon in New York, while ether lost around 1%. A downward trend for cryptos would not be surprising, analysts said.
“Given recent price action, we could see some reversal in the movements of the last few weeks – which would likely lead to crypto prices heading lower,” Tabatabai said.
“Indeed, this is already happening, and I’d expect rate sentiment to be hawkish for longer than the market expects; especially with the FOMC likely to favor inflation fears over recessionary concerns.”
Get the day’s top crypto news and insights delivered to your email every evening. Subscribe to Blockworks’ free newsletter now.
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from Blockworks Research’s Daily Debrief.
Can’t wait? Get our news the fastest way possible. Join us on Telegram and follow us on Google News.