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Fed Dovish Pivot lifts markets

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

– Dow hits record high, S&P just a few percentage points shy of its all-time high

– Fed plays catch up to the market

For a third consecutive meeting, the Fed left its main policy rate unchanged in the 5.25% to 5.5% range.

US Central Bank finally let the genie out of the bottle as it pivoted to a rate cut scenario, making a significant turn on its policy rate decision, essentially admitting that the rate hiking cycle is over.

Dec 1: “It would be premature to … speculate on when policy might ease.”
Dec 13:Rate cuts are something that “begins to come into view” and “clearly is a topic of discussion.”

What a difference 12 days (and one inflation report) can make.

That clear dovish shift from Chair Powell caused markets to rejoice. The DJIA broke 37k for the first time ever.

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The S&P 500, a broader and more representative index, also a more widely used gauge for equities, climbed to only a few percentage points away from its highest level on record.

On the back of lower Energy prices, cooling inflation dynamics prompted the Fed to signal that future inflation should decline faster than expected.

Core-CPI-ex Shelter inflation, a lagging indicator that wildly understated true housing inflation, came at 1.4% (below the 2% target by the Fed).

The Lower inflation forecasts will drive the lower Fed Funds Rate for 2024.

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Policymakers’ projections of the “dot plot” showed about three 25 basis points (bps) cuts in 2024, but traders are even more aggressive, betting on over twice that many cuts (or 165 bps in total).

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Source: The Daily Shot

The Fed capitulates to the markets?

The markets are front-running the Fed. Look at the incredible decline in the 10Y Bond Yields from 5% to 4% in the last weeks.

This caused financial conditions to ease dramatically, which, in turn, turbo-charged equities.

Fixed-income traders also rejoice, sending bond prices up and yields down, with the short end outperforming.

The 2Y Treasury Yield plunged over 30 basis points, the largest drop since the SVB fiasco in March.

Latest Producer Price Index (PPI)

The softer PPI reading confirms the lower trend we’ve witnessed over the past months as the two major indices, the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) index, continued their downward path.

Moderating producer costs could also offer support for future CPI and PCE inflation reports; producers are not facing sharply spiking (input) costs that typically pass on to retailers and, ultimately, the consumer.

Key takeaway:

Inflation has eased faster than expected, opening the door for a more aggressive cutting cycle than initially expected.

However, the magnitude of rate cuts that the market wants are consistent with a possible recession ahead.

The bond market seems to agree with that notion as the yield curve continues flattening, a dynamic that precedes the incoming recession.

Investors can long the S&P 500 using our 3x US 500 , 5x US 500 .

Alternatively, investors can short the S&P 500 using our -3x US 500 .

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Oktay Kavrak

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Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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