Dow slips as Ukraine hits Russia with US ATACMS missiles

·   ·      Gold got some boost on escalated Ukraine war (WW-III) tensions, while Nasdaq surged on hopes of a blockbuster report card from AI Chip King Nvidia

·         Wall Street also recovered early Wednesday as Putin is now ready to resume negotiations with Ukraine but without a ceasefire

·         October US retail sales details show the continuing goldilocks nature of the US economy

·         Fed may pause in December as US core disinflation almost stalled in Q3, while the employment situation remains stable and economic activity resilient

·         Fed also needs to evaluate the actual policy of the incoming Trump admin, especially on immigration and deportation, which may affect the US labor market and also inflation trajectory

·         Looking ahead, the Fed may cut from March’25 every alternate meeting (QTR end) @25 bps each at least eight times in 2025-26

Wall Street Futures were almost flat Monday on fading hopes of a Fed rate cut in December and escalating Ukraine war tensions; Gold and Oil got a boost, while Tesla helped Nasdaq (NQ-100) as Trump may ease automobile self-driving rule, which will eventually help Musk owned Tesla and other similar automatic (driverless) cars and even busses and o’s proximity with India’s Modi, Musk’s ‘X’ group is also very close to Trump; Tesla already jumped almost 40% in November after Trump wins, in which Musk has a major contribution in terms of funding and influencer.

On Friday (15th November), Wall Street stumbled from a post-election life time high area on fading hopes of a Fed rate cut in December’24 as Fed’s Chair Powell and also other Fed policymakers virtually poured cold water on market expectations; the implied probability of a December’24 rate cut tumbled from around 83% before Powell’s Thursday speech to around 65% Friday. Almost all prominent Fed speakers (policymakers) are now providing media bytes overtime to talk down the implied probability of a December’24 rate cut at least below 50% and to almost 10-5% by 1st week of December, before the official Fed blackout period begins after 6th February (Friday).

On Friday (15th November), some focus of the market was also on US retail sales as consumer spending is the backbone of the US economy and the Fed also watches this data closely for an assessment of overall economic activities along with GDP data. On Friday, the CB flash data (SA) showed U.S. retail sales (Goods only) for October’24 were around $718.9B against 716.0B sequentially (+0.4%) and 700.0B yearly (+2.7%); i.e. the U.S. retail sales increased around +0.4% in October’24 sequentially (m/m), against +0.8% in the prior month and higher than the market consensus +0.3% increase, while surged by +2.7%. annually (y/y).

In October’24, the US retail sales were boosted by electronics & appliance stores (+2.3%); auto dealers (+1.9%); food services & drinking places (+0.7%); building material & garden equipment (+0.5%); non-store retailers (+0.3%); general merchandise store (+0.2%); food & beverage stores (+0.1%); and gasoline stations (+0.1%), while dragged by miscellaneous store retailers (-1.6%); furniture stores (-1.3%); sporting goods, hobby, musical instrument, & book stores (-1.1%); and clothing (-0.2%).

Meanwhile, US retail sales excluding food services, auto dealers, building materials stores, and gasoline stations, which are used to calculate PCE of GDP, the so-called US super core retail sales (used in real GDP calculation-consumer spending) decreased -0.1% in October’24 sequentially, indicating US real GDP growth may be flat. The US Retail sales data is not adjusted for inflation and includes mostly goods, not services, while the US economy is primarily service-oriented.

Overall, after the latest revisions the average/month retail sales are now around $706.5B in 2024 (YTM) against an earlier average of $705.2 in the prior report and the 2023 average of $692.6B (still revising even after one year!). The current 2024 (YTM) US retail sales nominal growth is now around +2.3% against the 2023 rate of +3.7%. The US retail sales growth although cooled, remained strong despite higher borrowing costs and higher cost of living as the broader labor market is still robust. Adjusted inflation (CPI), the underlying real retail sales have contracted around -0.5% in 2023 against +1.2% in 2022, while remaining around -0.7% in 2024 (YTM).

In 2024 (6MRA), the real retail sales contracted by around -0.4%; i.e. real US retail; sales are still negative while continuing to hover around 29% of nominal GDP as overall, the goldilocks nature of the U.S. economy remains intact. The 3M rolling average of US retail sales is now around $714.977B and $699.101B yearly; i.e. grew by around  +2.3%, while the 3MRA core retail sales (w/o food and fuel) grew +3.3% annually.

On Tuesday, the Kansas City Fed President Schmid again popped up and said:

·         Coming tariff and immigration policies will be relevant to the Fed if they impact employment and inflation

·         Until policy is enacted, it is not important to Fed discussions

·         Rates are still somewhat restrictive, but not overly so

·         It is not my expectation that we'd see pre-pandemic rates

·         I see full employment, inflation trending lower, and solid growth

·         Now is the time to dial back the restrictiveness of policy

·         Remains to be seen how far interest rates may fall

·         Large fiscal deficits will not cause inflation because the Fed will prevent it, though that could mean higher interest rates.

·         Rate cuts are an acknowledgment of the Fed's confidence inflation is on a path to the 2% target.

Conclusions:

The projected Fed rate cut of 25 bps in Dec’24 may not be assured as US core disinflation may have stalled in Q4CY24 too, while average unemployment remains around 4.0%; Fed may also give a pause in Dec’24 even after favorable data for any cuts as Fed may also want to see Trump 2.0 policies, especially immigration and threatened deportations, which may again tighten labor market and boost inflation. But Powell may not take such a huge risk and irritate Trump by going for a pause in December’24. Thus Fed may cut in December’24 and may continue to cut every alternate meeting (QTR end with a fresh SEP/Dot-plots) in 2025-26 to H1CY27 for a longer-term terminal repo rate around 3.0% against projected core inflation (CPI+PCE) around 2.0% for a real REPO rate +1.0%. If the Fed doesn’t cut in December’24, then it may shift that to March’27 after cutting 100 bps each in 2025-26.

The market is now concerned about a mini WW-III amid escalating Russia-Ukraine war tensions:

On Monday, Wall Street Futures slid early European session after six Ukraine strikes inside Russia with US-made ATACMS (ballistic) missiles for the first time after the Biden admin (US) and also Germany; France permitted Ukraine to use such long-range missiles for an attack inside Russia. The Ukraine strike targeted one of Russia's main military sites but reportedly failed to cause any major damage as Russia claimed to have intercepted most of those missiles.

Meanwhile, Russian President Putin has also approved updates to the country's nuclear doctrine in new rhetoric to ‘bulk’ Ukraine or even NATO if needed. But the US chose not to give any importance to it and even ‘assured’ Russia that the US had no intention to cause any harm to Russia. The White House criticized Russia's ‘irresponsible bellicose rhetoric’ and pointed out Putin’s nuclear narrative was just more of the same rhetoric seen over the past two years.

The Russian Security Council Deputy Chairman Medvedev said Biden provoking WWIII by letting Ukraine hit Russia: "The use of alliance missiles in this way can now be qualified as an attack by the bloc's countries on Russia. In this case, the right to retaliate with weapons of mass destruction against Kiev and major NATO facilities, wherever they are located, arises. And this is already WWIII---Biden may have decided to destroy a significant part of humanity as his term is coming to an end”.

On the other side, Ukrainian President Zelensky said, while addressing the European Parliament on Tuesday on the 1,000th day of Russia's invasion:

·         We must push Russia to a just peace

·         Ukraine and its allies must push Russia to a just peace

·         Moscow will not agree to negotiations without a firm stance from the West.

·         Together we have accomplished much but we must not fear doing even more

·         Even with North Korea's Kim Jong-un by his side, Putin remains smaller than the united strengths of Europe,"

·         The number of North Korean troops is currently around 11,000 but it could grow to 100,000

·         We need new sanctions against Russia

·         Oil is the lifeblood of Putin's regime and the more time he has, the worse the conditions become

On Tuesday, Zelensky also slammed G20 leadership for being silent even after Russian Putin approved changes to the country's nuclear doctrine and other Russian leaders were issuing nuclear (nuke) threats. Zelensky expressed disappointment over G20 countries not creating a ‘strong strategy’ against Russia or ‘butcher’ Putin:

·         Today, G20 countries are sitting in Brazil. Did they say something? Nothing

·         Kiev will use all the long-range capabilities it possesses

·         Ukraine has long-range drones in its production.

·         We now have long Neptune missiles and we have ATACMS.

·         We will use all of this.

On Tuesday, G-20 (Brazil) ends with a whimper without any official closing amid sharp divisions within G20 over the Russia-Ukraine and also Gaza war. Outgoing US President Biden also left Rio without commenting on a sharp escalation in tensions between Russia and Ukraine, after Kyiv launched missiles into Russia’s Bryansk region and Moscow updated its nuclear doctrine. Also, Chinese President Xi was silent about Russia and Ukraine. Xi, like many other leaders in Rio, focused instead on Trump, before the US president-elect took office in late January’25.

Overall, G20 Brazil failed to resolve geopolitical issues as it seems almost all G20 leaders are waiting for Trump to resolve Ukraine and Gaza war issues as senile Biden is now almost a lame-duck US President, being controlled by so-called deep state (military-industrial and CIA lobby). Trump may be an exception in that sense to some extent and prefers trade & tech war with the enemy or even allied countries rather than a cold/proxy war.

Overall, it seems Zelensky and US/NATO are trying to pressure Putin/Russia to come to the negotiation table with Ukraine. Also, Biden is trying his best to trouble Trump ahead of the 20th January inauguration. The US political/electoral system of a very long period of transition of power after an election is unusual and creates geopolitical & policy issues for President-Elect Trump. As a mere caretaker government, the Biden admin should not take any major political/administrative/military decision that does not cause any national security issues for the US at least till Trump takes charge.

Although Trump is trying his best for the Ukraine and Gaza war ceasefire in his capacity as President-Elect, the Biden admin may be causing problems for the incoming Trump admin after being defeated in the recent election, in which the Ukraine and Gaza war was one of the primary issues against Biden. The US general public thinks that instead of spending trillions of borrowed money on these geopolitical issues in foreign (allies) soil thousands of miles away from America, US politicians and policymakers (both Democrats and Republicans) should invest the same in the US economy to resolve growing jobless and homeless issues, which is making the US a nation of drug addicts, crimes and guns.

China is now far more secure and developed than the US in terms of social and traditional/transport infra, having almost no street crimes, drug addicts and homeless people on open streets. Also, illegal immigration is a major issue for ordinary Americans now as it’s costing their job security. The high cost of living and higher input costs for MSME business was also a major anti-incumbent issue worked against the Biden-Harris admin.

After the 2020 COVID, China is now trying to boost its economy through EVs, green energy and automation/innovation as it did with HSR (High-Speed Railways) after the 2007-08 global financial crisis (GFC) led by the US Subprime meltdown. Whenever any global financial crisis hits the US/Europe/Asia and the rest of the world, China always provides fiscal stimulus not only domestically, but also globally to some extent through developing infra and new business, rather than too much dependency on Western countries.

Market Impact:

On early Tuesday Wall Street Futures slumped, while gold surged on escalated Russia-Ukraine war and mini-WW-III tensions, but soon revered as an overall war of words may be indicating Biden/Zelensky may want to bring Putin on the negotiation table rather than waiting for Trump. And Biden may be also trying to complicate these issues for incoming Trump. Overall, the market is now on the toe and Santa Rally may be in jeopardy.

On Tuesday, Wall Street closed mixed as broader SPX-500 edged up +0.4% and the tech-savvy NQ-100 surged +1.0%, while blue-chip Dow Jones (DJ-30) slipped =120 points. Nvidia led the Nasdaq's rally on hypes of a blockbuster report card to be released Wednesday. Techs outperformed, boosted by Tesla, Amazon and Alphabet. Wall Walmart also surged on earnings and guidance beat. Boeing, IBM and Microsoft also helped, while United Health, 3M, Nike, Caterpillar, Goldman Sachs and JPM dragged.

On Tuesday, Wall Street was boosted by techs, communication services, utilities, real estate, consumer discretionary, and consumer staples to some extent, while dragged by energy, banks & financials, healthcare, materials, and industrials to some extent.

In the early Wednesday European session, Wall Street Futures got some boost, while Gold slipped after the Kremlin said President Putin is ready to resume negotiations with Ukraine:

·         The president (Putin) has indeed repeatedly - or rather, constantly - stated that he is ready for contacts and negotiations

·         But a freeze of the conflict along the existing frontlines is not an option for Moscow---

·         Russia is committed to achieving its special military operation

·         Outgoing US President Joe Biden's administration is determined to fuel the conflict in Ukraine; it is doing everything to continue the war.

Putin may be now under huge pressure on siding currency as the Rubble breaks 100 levels against the USD and the domestic stock market as well as the economy tumbled as a result of the lingering Ukraine war.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 44000) now has to sustain over 44800 for any further rally to 45000/45200-45500/46000 in the coming days; otherwise sustaining below 44750-44650, DJ-30 may again fall to 43900/43300-42600/41600 in the coming days.

Similarly, NQ-100 Future (21150) has to sustain over 21500 for a further rally to 21700/21900-22050/22500 and even 23000 levels in the coming days; otherwise, sustaining below 21450-21350, NQ-100 may again fall to 20950/20850-20500/20300 and 20000/19800-19650/19350 in the coming days.

Technically, SPX-500 (5750), now has to sustain over 5725 for any recovery to 5935/5950*-5975 and further rally to 6000/6050-6100/6150 in the coming days; otherwise, sustaining below 5700, may again fall to 5675/5650*-5600/5575*-5550/5500-5475/5450 and 5425/5390-5370/5300* and 5250/5100* and further 5050/4950*-4850/4750 in the coming days.

Technically, SPX-500 (CMP: 6000), now has to sustain over 6100 for any further rally to 6150/6200-6350/6500 in the coming days; otherwise, sustaining below 6075/6050, may again fall to 6000/5950-5900/5850 and 5675/5600-5550/5500 in the coming days.

Also, technically Gold (CMP: 2600) has to sustain over 2590-2575 for a recovery to 2635/2675-2700/2715 and further 2725/2750-2775/2795 in the coming days; otherwise sustaining below 2575, Gold may further fall to 2540/2500-2470/2450 in the coming days (depending upon Fed rate cuts,  Gaza/Ukraine war trajectory).