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According to data from the Bureau of Labor Statistics on Wednesday, the annual U.S. Consumer Price Index rose 4.9% in April, vs. expectations of a 5% increase. The lower-than-expected reading raised hopes that the Federal Reserve’s interest rate hiking cycle might be close to an end.
The core reading, which strips out volatile items like food and energy and is closely watched by the Federal Reserve, eased to 5.5% year-on-year from 5.6% in March. On a month-on-month basis, both the headline and the core inflation figures increased by 0.4%, which according to the Bureau of Labor Statistics was due to an uptick in costs for shelter and used cars.
The inflation data is indicating that inflationary pressures are easing, which suggests the Federal Reserve would be at the end or near the end of its interest rate tightening cycle. The initial market reaction was positive despite inflation being well above the Fed’s target rate of around 2% to achieve stable and sustainable growth.
Following a 25-basis point hike last week, the Federal Reserve’s benchmark interest rate is now at a range of 5% – 5.25%, up from almost zero at the beginning of last year. The Fed has indicated that it may pause on the tightening campaign in June, however it left the door open, with Fed Chair Jerome Powell noting that is “prepared to hike more” if further tightening of monetary conditions is necessary.
Futures markets are pricing in the Federal Reserve to start rate cuts this summer. While inflation is clearly decelerating, it’s not decelerating fast enough to justify cutting the Fed funds rate before the last quarter of 2023.
Complicating the decision-making process for the Fed is the resilience of the U.S. labour market, despite the aggressive rate hikes over the past year. The U.S. economy added 253,000 jobs last month, beating projections of 180,000, while the unemployment rate edged down to 3.4%, near a 50-year low.
The labour market remains tight, with 1.6 job openings for every unemployed person in March, which is well above the 1.0-1.2 range that is perceived as not generating much inflation.
Inflation is likely to continue to decline over the next few months but given the resilience of the labour market it could take awhile to fall back to the Fed’s 2% target. While the U.S. labour market is starting to lose momentum as more workers than expected apply for first-time unemployment benefits, it is still a long way from achieving the type of softening needed to sustainably bring inflation to Fed’s desired level.
The Labor Department data showed on Thursday that initial unemployment claims increased by 22K to 264K in the week ended May 6. Applications for U.S. unemployment benefits rose to the highest level since October 2021, showing that the labour market is gradually cooling.
A deterioration in the labour market would be evident when unemployment benefits claims rise to the 270K-300K range, with economists expecting these levels to be reached in the second half of the year.
Last week’s surge in jobless claims could mark the start of an upward trend as the cumulative and lagged effects of the Fed’s rate hikes transpire into the economy. Layoffs, which were initially concentrated in the technology and housing sectors, appear to be spreading to other industries as companies gear for weaker demand.
Source: Tradingview, S&P 500 Index Yearly Chart
The Fed is hoping to achieve a soft landing — lowering growth just enough to bring inflation under control without causing a recession. However, economists are sceptical, with many expecting the U.S. to enter a recession later this year.
Signs of an economic slowdown across the globe, lingering worries over the U.S. debt ceiling and fears of a deepening banking sector crisis have kept investors risk averse and on the side-lines over the past month.
The U.S. benchmark index continues to lack direction and trades in a narrow range reflecting the overall investor’s mood. The index has been fluctuating between 4,048 and 4,186 for four weeks in a raw showing a great deal of indecision among market participants. While the up-trend line on the RSI indicator still holds, readings remain below 70%, suggesting that the rally from the October 2022 low may be part of a wider trading range. Therefore, until key resistance of 4,325 is decisively cleared, we can not declare the bear market is over.
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This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
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Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
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Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
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Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.