Dow stumbled as Israel expanded Gaza land surgical operation

On Thursday Wall Street Futures slumped along with the European/Global market amid Gaza war uncertainty and subdued report card from blue chip techs. Apart from Microsoft and IBM, all other major techs like Alphabet, and Meta tumbled. Wall Street futures also got some boost briefly on upbeat U.S. GDP, positive for the soft landing narrative. Also, Japan’s and China’s tax cut stimulus boosted global/Wall Street index futures. But high USD/US bond yields also dampened the risk sentiment.

On early Friday, Wall Street Futures got some boost on upbeat report cards from Amazon and Intel; NQ-100 Future surged along with Dow Future, which made a day high around 33007. Techs got some boost on hopes of a normal relationship between the U.S. and China after China’s Foreign Minister Yi meets U.S President Biden Friday. The White House said: “President Biden told China's Wang that the US and China need to manage competition in relationship responsibly and maintain open lines of communication.”

On Thursday, the U.S. Treasury Secretary Yellen said:

·         Our objective on China's export & investment restriction is to focus them on national security as narrowly as possible

·         Diversifying supply chains is needed to avoid overdependence on China

·         We have what looks like a soft landing (after an upbeat revision of Q3 real GDP)

·         There could be consequences if a wider Israel-Hamas war happens

·         Fiscal plans should keep the deficit manageable

·         Longer-term yields may come down

·         The underlying trends of the slow-rate era are still there

·         Part of the increase in yields is a reflection of expectations that interest rates will be higher for longer

·         The yield rise reflects a strong US economy

·         Not much of the yield surge is connected to deficits, the surge in bond yields is happening in most advanced countries and is not an indicator of recession

·         A significant share of Americans has not seen meaningful growth in their real income in a long time

·         Americans seem worried about the economy

·         We see good strong consumer spending, economy is doing well

·         I wouldn't be surprised if we have a 2.5% growth rate for 2023

·         US GDP is a good strong number, the economy is doing very well

The White House Economic advisor Brainard said:

·         Consumers and businesses are taking into account the cost of credit, and that is a headwind for the economy

·         There are some soft spots in the global economy, so perhaps there are some headwinds there

·         Data points to strong & ongoing US growth

Risk trade sentiment was also boosted by hopes of a Gaza ceasefire, at least on humanitarian grounds as EU leaders called for ‘humanitarian corridors and pauses, to get aid into Gaza. Japan also called on Israel to temporarily suspend fighting to allow humanitarian assistance to Gaza. Also, BBC said Hamas is considering leaving Gaza for Lebanon, Turkey, or elsewhere. And Russia assured (when asked about US strikes in Syria): “There is no danger of Russia being dragged in”. US military has carried out strikes on Iran-backed targets in Syria as retaliation for attacks on US forces in recent days. Pentagon said President Biden ordered strikes against two facilities in Syria used by Iran’s IRGC and Iran-backed groups.

On Thursday, Iran’s Foreign Minister visited the U.S. and said:

·         US/Iran does not want expansion of Israelite – Hamas war

·         Hamas leaders are ready to release civilian prisoners to Tehran

·         If genocide in Gaza continues, the US will not be spared from this fire

On mid-Friday, Wall Street Futures got some boost, while Gold slipped briefly on hopes of an imminent Gaza Ceasefire after ab Al Jazeera Tweets:

·         Sources for Al Jazeera: Negotiations are progressing rapidly to achieve a ceasefire agreement and an exchange deal between Hamas and Israel, mediated by Qatar

·         Qatar mediation is moving "quickly" on a Gaza cease-fire

·         Negotiations, mediated by Qatar, on a ceasefire and prisoner exchange deal between Israel and Hamas are “progressing and at an advanced stage”

But soon Gold recovered and Wall Street Futures slipped as there was another report that Israel refused to respond to a long truce requested by Hamas (as Al-Arabiya Tweets, citing informed sources).

Also, CNN reported:

·         ‘Significant progress’ on Qatar-led negotiations to release hostages from Hamas but issues remain

And Wall Street Futures soon stumbled almost -500 points, while Gold soared from around 1980 to 2010 on the concern of escalating Middle East geopolitical tensions after a report that Israel launched a ground incursion in Gaza, while the US urges restraint:

·         Israel expands ground operations in Gaza

·         The US urges Israel against the Gaza ground invasion

·         The US urging for more surgical operation in Gaza, and are concerned the invasion could derail hostage negotiations

·         Jordan's Foreign Minister: Israel just launched the ground war on Gaza; the outcome will be a humanitarian catastrophe of epic proportions

·         Egypt's Military Spokesperson: The air defense forces are intensifying and securing Egyptian airspace

The Israeli PM adviser Regev said:

·         Gaza ‘will be very different’ after war

·         Israel is beefing up the pressure on Hamas

·         Our military operations are underway

·         They (Hamas) will continue to be on the receiving end of our military blows until we have dismantled their military machine and dissolved their political structure in Gaza

·         When this is over, Gaza will be very different

Overall, as per reports:

·         Israeli ground forces expanding Gaza operations

·         Gaza is facing a near-total communications (mobile/internet) blackout, cutting residents across the besieged Palestinian off from the outside world and each other

·         Several international aid groups – including prominent UN agencies – have said they are unable to reach their teams on the ground

·         Israel has upped its bombardment of the Gaza Strip as its military said it was “expanding” ground operations in Gaza

·         Israel has stopped the supply of fuel to Gaza so that it can’t be used for electricity/air-conditioning in the network of hundreds of underground Gaza tunnels, which will eventually help to destroy the Hamas terror networks

·         Palestinian officials in Gaza have rejected Israel’s claim that Hamas is operating from Al-Shifa Hospital, the largest in the enclave. A former UN special rapporteur tells Al Jazeera that Israel is attempting to “prepare public opinion for the attacks to come” (If Israel bombed this hospital, then there may be major global outcry)

·         Fighting along the partition between Gaza and Israel has ramped up in at least three locations

·         The UN General Assembly (UNGA) has passed a resolution calling for a humanitarian truce, with the US and Israel leading 14 countries in voting against the measure

Conclusion:

Overall, Israel could still delay/postpone/cancel an all-out ground military invasion in Gaza and continue with the present strategy of intensified targeted surgical strike/operation involving aircraft/aerial bombing designed to destroy underground Hamas tunnels and special forces on the ground to eliminate targeted Hamas leaderships/mercenaries and rescue as many hostages as possible. The U.S./NATO is also providing direct/indirect ground support in finding underground tunnels and any possible hostages there with laser-guided technology and possibly by providing private mercenaries (contractors/freelancers).

This strategy will avoid a wider regional conflict and also limit the Israel Military’s casualties and help the general global support for Israel’s right to self-defence and eliminate Hamas. But Israel needs to finish the present ‘expanded’ ground military operation and restore mobile/internet in the Gaza strip ASAP to limit civilian and diplomatic damage.

Although Iran is threatening to send troops through Hezbollah Hezbollah-controlled northern Lebanon border for domestic political compulsion, in reality, Iran will continue to support proxies (Hamas, Hezbollah and Houthi rebels) rather than direct military confrontation with Israel/U.S. as in that scenario, Iran will stand to lose both diplomatically, militarily and economically. Hezbollah, on the other side, is sympathetic to Hamas, in reality, it’s also not in a position to join Hamas in attacking Israel directly/indirectly. Hams is increasingly finding itself isolated and Israel is intensifying its surgical operations to eliminate targeted leaderships and rescue as many hostages as possible without going for an all-out ground military operation in Gaza to balance everything.

Market wrap:

On Friday, Wall Street Futures stumbled from the session high on fading hopes of an imminent Gaza ceasefire after Israel expanded Gaza surgical operations to eliminate Hamas and rescue captive hostages as many as possible. Blue chip DJ-30 Future tumbled almost -400 points, but tech-heavy NQ-100 gained around +0.4%, while broader SPX-500 edged down -0.5% after erasing earlier gains.

On Friday, both USD/US bonds and Gold and oil surged on an escalation of Gaza/Middle East geopolitical tensions as Israel intensified its surgical operation in the Gaza Strip. As the U.S. core PCE inflation does not cool sequentially, Gold briefly slips along with Wall Street Futures; but reversed soon as Fed Fund Futures implied probability little changed, indicating Fed hold both in November and December; i.e. Fed’s tightening is over for the time being.

On Friday, Wall Street was dragged by energy, banks & financials, utilities, healthcare, real estate, consumer staples, industrials, and materials, while boosted by consumer discretionary, techs, and communication services. Dow Jones was boosted by Intel, Apple, Microsoft, Boeing, Cisco and Honeywell. Additionally, the Nasdaq was boosted by Amazon (AI optimism), Meta, AMD, NVIDIA and Tesla.

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

Whatever the narrative, technically Dow Future (32508), now has to sustain over 32300-32550 for any recovery to 33000/33300-33550/33750 and 33900/34300-34450/34855 and further to 35375-35875 in the coming days (if there is a Gaza ceasefire/Israel ends its intensifying surgical/military operation).; otherwise, if there is a further escalation in Gaza war tensions, Dow Future may further fall below 32250 for 32000/31750-31595/31190 and even 29400-28475 levels (in case of a wider major regional military conflict).

Similarly, NQ-100 Future (14268), now has to sustain over 14150/14100-14000 for any recovery to 14400/14500-14600/14800 and 15000/15150-15325/15500 and further 15625/15750-15975/16075 in the coming days; otherwise sustaining below 13950, NQ-100 may further fall to 13650/13500-13395/12990 and 12790/12400-12180/11650 and even 11000-10675 in the coming days.

Technically, Gold (XAU/USD: 2007) now has to sustain over 2012 for a further rally to 2022/2038-2055/2085; otherwise sustaining below 2005 may further fall to 1997/1987-1965/1955 and 1945/1934-1924/908 and further 1894-1805 in the coming days.