Last year, the US economy exceeded expectations and thwarted predictions of a looming recession. The recent release of the Q4 GDP figures confirmed a robust growth rate of 3.3% for the annualized 3-month period ending in December, surpassing economists' forecasts of 2%. This announcement concludes a year marked by positive surprises, showcasing the US's outperformance compared to the global economy.

The report had a "honeymoon" quality, with the stronger growth not being accompanied by a resurgence of inflation. The Q4 PCE price index rose by 1.7%, a decrease from the 2.6% recorded in Q3. Equities responded positively to this news throughout the week, approaching their record highs. The US dollar is poised for its fourth consecutive week of appreciation, notably strengthening against the euro, Australian dollar, Canadian dollar, and Swedish krona.

In the realm of fixed income, it is anticipated that 2- and 10-year US Treasury yields will decline this week due to expectations of lower inflation rates. However, the 30-year yield has surged approximately 33 basis points in January alone, reaching 4.350%. Despite the substantial amount of new debt issuance from the US government this year, the potential economic moderation and decreasing inflation rates may continue exerting downward pressure on yields. Investors are closely monitoring the upcoming US PCE release.

Forecasts indicate a decline in core inflation from 3.2% in November to 3% in December. This would position the Fed's preferred inflation gauge at its lowest rate since early 2021, affirming the continuation of a disinflationary trend at the close of last year. While market expectations suggest six rate cuts from the US central bank in 2024, there is uncertainty regarding the timing. Market sentiment fluctuates between the March and May meetings, with the probability of a March cut currently standing at precisely 50%.