Dow recovered on hopes of Israel-Hamas truce; gold slips

On Friday, Wall Street Futures stumbled on risk aversion (Israel-Hamas geopolitical tensions) and the concern of higher borrowing costs for longer. Gold and oil surged on simmering Middle East geopolitical tensions as Israel launched/prepared a major military operation to re-control/re-occupy the Gaza Strip. On Friday, Wall Street Futures were initially boosted by better-than-expected report cards from banking majors Citi, JPM, Wells Fargo, and BlackRock, but stumbled on risk aversion and the concern of higher borrowing costs for longer. Although Fed’s Harker almost confirmed a Fed pause not only in November but also in December, Wall Street Futures and gold were also undercut by hotter-than-expected US inflation expectations and softer-than-expected consumer sentiment.

The market is concerned as Israel launched a major ground offensive to reoccupy the Gaza Strip, which may cause wider military conflict in the Middle East involving almost ten countries/militant organizations on five fronts Iran, Syria, Jordan, Egypt and Lebanon. But on early Monday Asian session, Wall Street Futures got some boost, while gold and oil slipped on hopes that Israel may not eventually launch such a major military offensive to reoccupy the Gaza strip after U.S. President Biden warned Israel against such extreme step after a tense weekend, but Biden notably did not say it was time for a ceasefire.

Biden said in an interview Sunday:

·         What happened in Gaza, in my view, is Hamas and the extreme elements of Hamas don’t represent all the Palestinian people--- it would be a big mistake for Israel to reoccupy Gaza

·         There needs to be a humanitarian corridor to help civilians trapped amid the fighting and Israel will abide by the rules of war

·         I’m confident that Israel is going to act under the measure … the rules of war---

·         There are standards that democratic institutions and countries go by

·         I’m confident that there’s gonna be an ability for the innocents in Gaza to be able to have access to medicine food and water

·         I do not anticipate American troops engaging in combat in the area as Israel readies its ground counterattack

·         The US will provide Israel with everything they need

On Sunday, in another interview, Herzog, the Israeli ambassador to the U.S., said Israel does not intend to occupy Gaza after the conflict ends: “We have no desire to occupy or reoccupy Gaza. We have no desire to rule over the lives of more than 2 million Palestinians. Look, there’s a fundamental difference. Israel is going after a group of people who have engaged in barbarism that is as consequential as the Holocaust. So I think Israel has to respond. They have to go after Hamas. Hamas is a bunch of cowards. They’re hiding behind the civilians-- The Israelis are gonna do everything in their power to avoid the killing of innocent civilians.”

On Monday, risk trade sentiment was also supported by the report that Russia, Iran, Egypt, and Saudi Arabia are also trying for a diplomatic solution to the Israel-Hamas conflict. Israel is now also under great pressure from the U.S./G7 not to launch such a major military operation to reoccupy the Gaza strip and is being encouraged to find a long-term sustainable diplomatic solution for this legacy issue. On Monday, US Secretary of State Blinken again arrived in Israel to discuss a potential diplomatic solution.

As a reminder, Hamas may be termed as a Frankenstein militant organization originally supported by Israel/present government and the U.S. to confront another militant organization Hezbollah. The popularity of Present Israeli PM Netanyahu, who was already running a minority government, was at rock bottom due to various issues such as corruption and economic issues before the Hamas incident of rocket fires on 8th October.

Netanyahu's admin and the national intelligence agency Mossad may allow Hamas to launch such horrendous acts as the subsequent military action by Israel and the wave of nationalism may help Netanyahu to gain political mileage. Thus there are various issues of domestic political compulsions apart from diplomatic issues. Iran’s Finance minister warned the country will not remain an observer if Israel's ‘crimes’ in Gaza continue-- 'tomorrow will be too late'-- if the scope of Gaza war widens, heavy losses will be inflicted on the U.S.

On the other side, another report suggested if Hezbollah attacks Israel from Lebanon on any larger scale, the U.S. will engage them from one of the aircraft carriers stationed off the coast. On Monday, the Israel Military said:

·         Hezbollah is escalating the situation on Lebanon's border to hinder Gaza offensive

·         Israel is prepared to fight on two fronts, and even more, if required

·         More than 600,000 Gazans have relocated southward, and evacuations continue

·         Air strikes designed to hit 'maximum terrorists, minimum civilians'

·         155 captives are held by Hamas in Gaza

·         Israel's PM Netanyahu warns Iran and Hezbollah "not to test us" on Israel's northern border

Late Monday, there was a report that Hamas may be ready to release all foreign hostages, while the U.S. Foreign Secretary Blinken and Netanyahu are continuing discussions for a possible diplomatic solution rather than an all-out war in the Middle East. The Hamas Military Wing said: “We have captives of other nationalities, who are guests and will release them when circumstances allow us.” On Monday, U.S. Defense Secretary Austin said: “The U.S. has put in ‘be ready to deploy’ orders for a select number of American troops should Israel need them”. The US Senate Majority Leader Schumer also confirmed: “In the coming weeks, the US will help Israel every way we can”. Biden may also soon visit Israel to announce a possible diplomatic solution between Israel and Palestine.

On Monday, Wall Street Futures were also boosted by hopes of improved U.S.-China relations. The U.S. Treasury Secretary Yellen said:

·         The US and EU collaboration also crucial regarding economic ties with China, including restrictions on outbound investment

·         The US and EU must work together constructively to strengthen critical supply chains, including critical minerals

·         Higher interest rates may persist, but that is not clear

·         The US economy is in a good place

·         It's too early to speculate whether there will be significant economic consequences from the Israel-Hamas conflict

On Monday, Fed’s Goolsbee said:

·         The fall in US inflation is not just a blip

·         Housing costs are a negative surprise but the trend is still down for prices

On Monday, Fed’s Harker again popped up and reiterated:

·         The Fed is likely to be done with rate hikes

·         I see ample evidence many do not want to sell homes with low mortgage rates

·         The Fed should hold rates steady absent a turn in data

·         There should be an ebbing in inflation in the coming days

Market wrap:

On Monday, Wall Street Futures surged on hopes of an Israel-Hamas truce rather than an all-out war; gold and US bond slips Wall Street was also boosted by hopes of a Fed pause/pivot. Blue Chip SJ-30 surged +1.12%, broader SPX-500 gained +1.02%, while tech-savvy NQ-100 jumped around +1.22%.

On Monday, Wall Street was boosted by consumer discretionary, communication services, utilities, industrials, real estate, financials, techs, consumer staples, materials, healthcare, and even energy despite oil sliding on ease of Israel-Hamas tensions and US sanctions on Venezuela. Dow Jones was boosted by Nike, Travelers, Salesforce, Verizon, Home Depot, Goldman Sachs, Intel, Walt Disney and Microsoft, while dragged by Boeing (another manufacturing defect), Apple (subdued sales for iPhone15 in China), JPM, United Health and Walgreens Boots.

Technical trading levels: DJ-30, NQ-100 Future, Gold and oil

Whatever may be the narrative, technically Dow Future (34159) now has to sustain above 34300 levels for a further rally to 34375/34450-34555/34650 and further to 34825-35070/200-415/850 levels; otherwise, sustaining below 34250, Dow Future may again fall to 34150/34000-33900/33700 and further to 33600/33450-33200-32950 and 31700-31500 levels in the coming days.

Similarly, NQ-100 Future (15295) now has to sustain over 15500 levels for a further rally to 15750/900-16000/655 in the coming days; otherwise, sustaining below 15450/400-15300/200, may again fall to 15000-14700, and further to 14500-14300/175-100/13890 and 13650-13125 levels

Gold (XAU/USD: 1919) now has to sustain above 1935-1940 for any further rally to 1955/1975-1990/2020 and 2080 levels; otherwise, sustaining below 1930-1925, may again fall to 1918/1910-1900/1895 and 1885/80 -1870/60-50/40 and 1825/1810-1798*/1770 level in the coming days.

Similarly, oil (85.85) now has to sustain over 89.00 for a further rally to 92.00/95.00-100.00/105.00; otherwise sustaining below 88.50, the oil may again fall to 85.00/82.00-80.50/77.75 in the coming days.