Dow surged on hopes of permanent Gaza war pause, Gold slips

On Tuesday, Wall Street Futures slumped on lingering uncertainty about Gaza was trajectory despite an imminent temporary pause, hawkish FOMC minutes, and subdued report cards by retail/consumer majors Lowe’s, Kohl’s, and Best Buy. The market is now concerned about cautious guidance by consumer-savvy companies for the next quarter/year amid higher borrowing costs, the Fed’s higher for longer stance and elevated cost of living, affecting discretionary consumer spending, the backbone of the world’s largest economy. Although the market and Fed are still confident about a soft landing, there are still concerns about a hard landing in 2024.

On Tuesday, Nvidia was under stress ahead of earnings, which came later above market estimate amid the AI chip boom. But Nvidia also warned continued anti-China policy even by Biden admin: “Our competitive position has been harmed due to export rules.” Subsequently, Nvidia slumped on Wednesday.

On early Wednesday as highly expected, Israel's war cabinet officially announced the much-awaited Gaza war temporary pause (Israel-Hamas) brokered by Kuwait, Egypt, and the US:

·         The temporary pause agreed to by both sides would last four days initially

·         Israel will stop military actions in all areas of the Gaza Strip, including the movement of military vehicles

·         Hundreds of humanitarian aid trucks, including medical and fuel supplies, will be allowed into Gaza

·         Israeli drones in southern Gaza will stop for four days; will stop in the north for six hours per day

·         Israel “is committed not to attack or arrest anyone in all areas of the Gaza Strip” during this pause time

·         Freedom of movement will be guaranteed along Salah al-Din Road from the north of Gaza to the south

·         Hamas will release 50 women and children taken captive in exchange for the release of 150 Palestinian women and children held in Israeli jails

·         Hamas will release 50 out of an estimated 237 captives, although it’s worth recalling that Hamas has said dozens of the captives have already been killed in Israeli air strikes

·         There will be a 24-hour period following the release of a list of Palestinian names to allow for legal appeals; i.e. the Gaza war temporary pause will be effective from Thursday and captives will be released Friday/Saturday through Red Cross

·         Foreign nationals are not believed to be included in the main agreement, but they could still be part of separate deals and could be released during the temporary ceasefire period

·         Ten captives are expected to be released each day during the pause in fighting

·         Israel is willing to give an additional day of pause for every 10 further captives released by Hamas

·         About 300 trucks of aid, including fuel, are expected to be allowed into the Gaza Strip on those potential additional days

·         During that pause, Israel says it will refuse to allow Palestinians to return to their homes in northern Gaza

On Wednesday, after the official announcement of the Gaza war temporary pause, Qatar PM Thani hopes this truce will lead to comprehensive peace talks to end the war: “The State of Qatar affirms its commitment to ongoing diplomatic efforts to de-escalate tensions, stop the bloodshed, and protect civilians. In this regard, the State of Qatar appreciates the efforts of the Arab Republic of Egypt and the United States of America in reaching this agreement”.

U.S. President Biden also released an official statement, welcoming the Gaza war pause:

“I welcome the deal to secure the release of hostages taken by the terrorist group Hamas during its brutal assault against Israel on October 7th.

Jill and I have been keeping all those held hostages and their loved ones close to our hearts these many weeks, and I am extraordinarily gratified that some of these brave souls, who have endured weeks of captivity and an unspeakable ordeal, will be reunited with their families once this deal is fully implemented.

I thank Sheikh Tamim bin Hamad Al-Thani of Qatar and President Abdel-Fattah El-Sisi of Egypt for their critical leadership and partnership in reaching this deal.  I appreciate the commitment that Prime Minister Netanyahu and his government have made in supporting an extended pause to ensure this deal can be fully carried out and to ensure the provision of additional humanitarian assistance to alleviate the suffering of innocent Palestinian families in Gaza. I look forward to speaking with each of these leaders and staying in close contact as we work to ensure this deal is carried through in its entirety. It is important that all aspects of this deal be fully implemented.

As President, I have no higher priority than ensuring the safety of Americans held hostage around the world. That’s why—from the earliest moments of Hamas’s brutal assault—my national security team and I have worked closely with regional partners to do everything possible to secure the release of our fellow citizens.  We saw the first results of that effort in late October when two Americans were reunited with their loved ones.  Today’s deal should bring home additional American hostages, and I will not stop until they are all released.

Today’s deal is a testament to the tireless diplomacy and determination of many dedicated individuals across the United States Government to bring Americans home.”

But despite the official announcement of the Gaza war pause from Thursday, Israeli attacks/counter attacks by Hamas have continued across the Gaza Strip, while Iran-backed Houthi rebels also tried to attack Israel with a failed rocket and later launched a new barrage of missiles, targeting military posts of Israel’s Red Sea Port of Eilat. On Wednesday, after the official announcement of the Gaza war temporary pause, Iran warned about wider Middle East war if the truce is not extended.

France, Germany, China, India, and many other global powers also called for a permanent end to Gaza/PA-related terrorism and a permanent ceasefire/peace solution. France’s President Macron called for the expected Gaza war truce to expand into a lasting ceasefire and the deal between Israel and Hamas would be broadened: “Israel’s security had to be taken into account by everyone. There will be no lasting ceasefire without very solid guarantees on Israel’s security”.

Israel is now pointing out a vast network of underground tunnels in various Gaza hospitals as a part of Hamas terror infra, while Hamas is denying that and arguing those tunnels were built by Israel/IDF itself around 40 years ago to help hospital expansion, considering the limited size of the compound.

On Wednesday, the IDF/ Israeli military said it’s readying for the deal to be implemented, but also termed the agreement a complex process that may take time and have many stages. The Israeli PM Netanyahu vowed again that the Gaza war is not over despite the temporary pause as IDF has work to be done:

“The war continues. We will continue this war until all our objectives have been met, including the return of our captives and the elimination of Hamas and ensuring that the day after Hamas, Gaza will not be under the control of any party that engages in terrorism or teaches terrorism. We will ensure the security and safety of our citizens both in the north and the south. We are winning and we will pursue the fight until complete victory---our soldiers will be safe during the four-day pause agreed to in the deal.

Red Cross will be able to visit captives in Gaza--- Since the beginning of the war, I’ve never stopped thinking of them, and I’ve never stopped thinking about you--- Israel’s significant military pressure and its ongoing political pressure paved the way for the release of the captives--- Red Cross would be able to visit captives in Gaza as part of the deal, despite some people are denying that”.

Netanyahu also addressed growing domestic criticism over the release of Palestinian prisoners as a part of the Gaza war pause deal. About 150 Palestinian women and children are expected to be released as part of the agreement; most of the children were charged with low-level crimes, such as stone-throwing and damaging property. Netanyahu pointed out that those set to be released “are not murderers” but are still “bad people” and promised that Israel would do everything to ensure that those released do not pose a risk to Israelis.

On Wednesday, Israeli Defence Minister Gallant said the Gaza operation is delicate, resolute, and lethal; also vowed to continue the war against Hamas after the implementation of the captive deal: “The operation is very delicate, the operation is resolute and the operation is lethal—we are succeeding in dismantling Hamas as a fighting force. Israel’s ground operation had created the conditions for the captive release. This is the reason for which I recommended that we operate inside Gaza. Hamas only understands the language of power and the deeper we go in our push towards the accomplishment of our goals; the more likely it is for us to liberate our captives.”

Gallant also reaffirmed their commitment to bring home all captives: “This is a personal commitment, and I will make sure that this commitment is translated and that our objectives are accomplished. I feel bittersweet—but we will deepen our operations and we will do everything necessary to increase pressure on Hamas and liberate more captives.”

On Wednesday, the White House Spokesman Kirby said the U.S. will continue to back Israel after the truce. Kirby also added there were some positive indications that Israel and Saudi Arabia do not want to give up on a possible normalization of diplomatic relations, which was being discussed before the outbreak of war in Gaza on October 7 and may be one of the main underlying reasons for Hamas massacre on Israel.

Overall, both Israel and Hamas are keen to show Gaza War's temporary pause is not a sign of weakness in satisfying respective domestic compulsions, while most of the major global powers are keen to see a permanent ceasefire/pause and a permanent two-state solution for this never-ending Palestine-Israel legacy problem for decades after decades. The market is also expecting at least an extended Gaza war pause.

Market wrap:

On Wednesday, Wall Street Futures edged up despite the temporary truce as the market is still quite concerned about the lingering uncertainty about the durability of the Gaza war pause and the eventual trajectory of the war. Gold made a session high around 2006, but eventually slipped to 1987 on the Gaza war pause and also softer than expected US jobless claims and hotter than 1Y inflation expectations (UM) at +4.5% vs 4.2% prior estimate amid higher fuel/gas prices due to elevated demand for the Thanksgiving travel holiday driving factors.

On Wednesday, blue chip DJ-30 surged around +0.49%, while broader SPX-500 and tech-heavy NQ-100 inched up around +0.33% and +0.37% respectively. Wall Street was boosted by communication services, consumer staples, healthcare, consumer discretionary, banks & financials, real estate, utilities, techs, industrials, and materials, while dragged by energy as oil wobbled on the postponement of OPEC+ meeting from 26th November to 30th November amid reported disagreement about deeper production cut with various producers, especially African countries. Also, Saudi Arabia may not extend the voluntary -1 mbpd cut into 2024 if other producers do not oblige. The market was expecting an additional deeper production cut of -1.0 mbpd in the November OPEC+ meeting.

On Wednesday, Wall Street was boosted by Microsoft (as Altman set to return to Open AI), Amazon (Black Friday and Cyber Monday sale optimism), Apple, 3M, Nike, and Boeing (FAA clearance for 737 MAX 10 jet for test flight), while dragged by Walgreens Boots, Caterpillar, Walmart and Nvidia (muted guidance due to ongoing US-China tech/cold war).

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

Whatever the narrative, technically Dow Future (35323), now has to sustain over 35400 for a further rally to 35500/35650-35850/36000 and a further 37300 in the coming days; on the other side, sustaining below 35350-35250, Dow Future may again fall to 35000-34800/34650-34120/34000 and 33700/33200-33000/32400 in the coming days.

Similarly, NQ-100 Future (16045) now has to sustain over 16200 for a further rally to 16700-16800 zones; otherwise sustaining below 16150-16050, may again fall to around 15100-14140 in the coming days.

Also, technically Gold (XAU/USD: 1990) now has to sustain over 2015 for any further rally to 2025/2050-2065/2085; otherwise sustaining below 2010/2005-2000/1995, may further fall to 1985/1975-1960/1950 and 1928/1908-1895/1885 and 1850/1810 in the coming days (if there was a permanent Gaza war ceasefire and Fed sounds more hawkish than being expected).

Similarly, Oil (76.79) now has to sustain over 79.00 for a further rally to 82.50/84.50-90.50/95.50; otherwise sustaining below 78.50, may again fall to 74.00/72.00-71.40/70.00 and even 66.40-65.40 in the coming days (if OPEC+ is unable to agree for a deeper cut and Saudi Arabia withdraws the voluntary cut).