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Cautious Fed Propels Markets Higher

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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

The Federal Reserve kept rates steady on Wednesday as the central bank continued its cautious monetary policy approach, though stopped short of ruling out further rate hikes. The decision came amid a backdrop of a growing economy, strong labour market, and inflation that is still well above the central bank’s target.

As widely expected, the Fed’s rate-setting committee unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%. This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 interest rate hikes since March 2023.

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Source: Federal Reserve Bank of New York

While Fed Chair Jerome Powell left the door open for another rate hike, he used a less hawkish tone than markets were anticipating, acknowledging that monetary conditions had tightened substantially in recent months, which raised hopes that the Fed isn’t likely to resume rate hikes.

Yet, the pick-up in economic activity remains a worry for the Fed as it threatens to boost inflation, clouding the Fed’s progress toward bringing down inflation. The U.S. economy accelerated to 4.9% in Q3, according to data released last week, marking the biggest rise in growth in nearly two years. The solid growth was underpinned by a still-strong labour market which has been supporting consumer spending. However, such a solid growth rate might not be sustainable moving forward.

The major question facing Fed officials is whether they will need to make one final rate increase in December, a possibility they left open on Wednesday. However, traders have taken Jerome Powell comments as a sign that the Fed is likely done with its rate hikes and now expect rate cuts by mid-2024.

Treasury yields retreated, after having previously climbed to levels last seen in 2007, while equity markets rebounded strongly. Although yields declined from their recent highs it is unlikely that they will return to pre-pandemic lows any time soon. For consumers, elevated yields mean financial pain, because itserves as a benchmark rate for a variety of consumer borrowings.

Over the past few months, inflation has been stabilizing, with annual consumer price growth falling to 3.7% from the 9.1% high reached last year, but the labour market has remained stubbornly resilient. The October ADP private sector payrolls came in at a lower than the expected 113,000 but is still stronger than the September reading.

The ADP data came ahead of Friday’s nonfarm payroll report, which will give the Fed a new detailed reading on the state of the still-tight labour market. Until the labour market has cooled substantially and inflation rates drop back to the Fed’s 2% target, the option of future rate hikes remains on the table.

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Source: TradingView

Continuing war between Russia and Ukraine, growing tensions in the Middle East, as well as souring U.S. and China relations are spurring fear among investors. Although immediate worries from the Middle East conflict appear to have subsided, investors remain on edge. Prolonged war could drive oil prices and inflation higher, which in turn would hurt economic growth.

While the strongly oversold U.S. equity index has rallied over the past four days, upside from here is likely to be limited and new fresh highs are unlikely. The economic impact from the Fed tightening is yet to materialise and, in our view, high borrowing costs could take down consumer spending or the job market soon. Therefore, while November and December could be favourable for the stock market, the current strength is unlikely to extend into next year.

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

Head of Communications and Strategy

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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