Dow surged as Putin indicated the Ukraine war realistic solution

·         Wall Street recovered from ICBM panic low as Russia used an experimental intermediate missile against Ukraine after duly notifying the US well in advance

·         Fed is now preparing the market for a potential hold in December as core disinflation almost stalled, while employment remains stable in Q3 and Q4 too

Wall Street Futures are wobbling in a roller coaster move amid escalated Ukraine war tensions & Russian ‘nuke’ rhetoric, mixed report cards, and hypes of Trump 2.0 politics & policies. The market is now concerned about a potential mini WW-III after Ukraine struck deep inside Russia with US-UK/French-made long-range ballistic missiles, while Russia also intensified its stack and now using ICBM.

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

On Wednesday, Ukraine used British Storm Shadow long-range missiles in an attack deep inside Russian territory for the 2nd time. On Tuesday, Russia confirmed that the Ukrainian military fired six US-made ATACMS long-range missiles for the 1st time since the start of the war in February 2022. Russia claimed to intercept five US-made missiles, while the last one hit a Russian military base, but failed to cause any major damage.

Again on Thursday, the Ukrainian Air Force confirmed Russia launched an intercontinental ballistic missile (ICBM) overnight from Russia's Astrakhan region, situated near the Caspian Sea and over 1,000 kilometers from Ukraine's border. Additionally, Russia fired a hypersonic Kinzhal air-launched ballistic missile and seven cruise missiles, with the Ukrainian Air Force successfully intercepting six of the seven missiles.

Moreover, on Thursday, Russia issued a veiled threat that it may target a US missile defense base in Poland. Russian Foreign Ministry said on Thursday that the new US missile defense base in Poland has ‘obvious potential’ to weaken Russia and that it has been added to a list of potential targets for the Russian forces. The US opened a ballistic missile defense base called ‘Aegis Ashore’ in Poland, on 13th November. The US missile defense base is located approximately 190 kilometers from the Russian border.

On Thursday Russian Foreign Ministry said:

·         Considering the nature and level of threats posed by such Western military facilities, the missile defense base in Poland has long been added to the list of priority targets for potential strikes, which, if necessary, can be addressed with a wide range of the latest weaponry

·         The opening of the base is yet another openly provocative step in a series of deeply destabilizing actions by the Americans and their allies in the North Atlantic Alliance

·         Russia is still ready to consider any ‘realistic’ peace initiative on the conflict in Ukraine

Russian Foreign Ministry indicated a potential peace plan with Ukraine:

·         A realistic plan takes into account Russia's interests and the situation on the ground

·         We are open to negotiations, we are ready to consider any realistic, non-politicized initiative – of course

·         I would like to emphasize once again: that the key word is taking into account the interests of our country, the current situation on the ground, and guarantees of compliance with relevant agreements

Earlier Putin said about a potential ‘realistic’ solution to the Ukraine ceasefire/peace plan:

·         A realistic solution would hinge on nothing less than Ukraine giving up all aspirations to join NATO as well as the ceding of the four territories in the east and south, namely Donetsk, Luhansk, Kherson, and Zaporizhzhia regions

On the other side, a few days ago, Ukrainian President Zelensky pointed out Trump's plan to jump-start peace negotiations as authentic:

·         I believe that President Trump wants a quick decision to end the war,

·         It doesn't mean that it will happen this way

·         He [Trump] wants this war to be finished

·         But the hasty resolution is going to be a loss for Ukraine

On Thursday, Ukrainian President Zelensky also accused Russian President Putin of using Ukraine as a ‘training ground’ after Kiev announced this morning that an ICBM was launched from the Russian territory for the first time since the war started. Zelensky also admitted Ukraine can never regain Crimea by force.

On Thursday, Zelensky said:

·         Today, our crazy neighbor once again showed what he (Putin) is and how he despises dignity, freedom, and people's lives in general

·         He [Putin] is so afraid that he is already using new missiles-

·         Although an investigation into the Russian missile launch is currently underway, it is obvious that Putin is afraid when there is simply a normal life around him.

·         Putin's use of a new ballistic missile against Ukraine is a clear escalation in the scale and brutality of this war.

·         This is Russia's second step towards escalation in a year

·         The speed and altitude show it was an ICBM, expert review continues

·         The first such step was the involvement of North Korea in the war

·         Russia used a new missile in the attack on Ukraine today

·         Today's strike with the new missile just shows once again that Putin isn't interested in peace

·         The world must react as Putin is constantly monitoring the behavior of other countries in relation to his actions.

·         If there is no strong reaction from global leaders now, Moscow will never stop striking and Kiev won't be its only target.

On Thursday, the US/Pentagon clarified:

·         Russian forces did not launch an ICBM at Ukraine, but an unknown experimental Intermediate-range ballistic missile

·         Russia may be seeking to use this capability to try to intimidate Ukraine and its supporters

·         But it will not be a game changer in this conflict

·         Kiev has withstood countless attacks from Russia, including from missiles with significantly larger warheads than this weapon.

·         The US doesn't seek war with Russia.

·         Although the United States is not interested in escalating tensions with Moscow, it remains committed to offering military support to Kiev.

·         We don't want to see this escalate to a wide regional conflict

·         We don't seek war with Russia

·         But you are going to see like-minded allies and partners come together to support Ukraine.

Early Thursday, Russia also didn’t confirm the launch of an ICBM toward Ukraine. Later Putin confirmed Russia has successfully tested a new medium-range ballistic missile, called Oreshnik, against Ukraine as part of its ongoing special military operations now approaching three years.

Late Thursday Putin said in a televised address to the nation:

·         Long-range strikes from Ukraine have introduced global elements to the conflict, but the enemy has failed to achieve its military objective

·         Attacks using Western weapons will not change the outcome of Russia's special operation in Ukraine---

·         if hypersonic weapons are deployed against Ukraine, civilians would be warned.

·          Russia has the right to target military objects of those who use weapons against them

·         The US made a mistake in abandoning the INF (Intermediate-Range Nuclear Forces) Treaty in 2019

·         We believe the US made a mistake by destroying the INF Treaty in 2019 under a fabricated pretext

On late Thursday, Kremlin spokesperson Peskov also clarified:

·         As a protocol, Russia informed the US in advance of its launch of a new medium-range ballistic missile 'Oreshnik' targeting Ukraine

·         The Russian side warned the Americans about the launch of 'Oreshnik' through the National Nuclear Risk Reduction Center, which operates in automatic mode and maintains constant communication with a similar system of the United States of America

·         The warning was sent in a standing automatic mode 30 minutes before the launch

Now from never-ending geopolitics to economics and Fednomics, on Thursday, Richmond Fed’s President Barkin said:

·         I do not want to prejudge the December meeting, but if inflation stays above target, have to be careful when going about reducing rates

·         But if unemployment accelerates, it makes the case to be more forward-leaning

·         Upcoming decisions will depend on the data

·         The economy right now is ‘quite prosperous’

·         Recent policy moves can be described as a ‘recalibration’

·         Questions on the pace of further reductions would be more relevant once the Fed moves to the ‘normalization’ phase

·         We’re somewhat more vulnerable to cost shocks on the inflation side

·         Can see why businesses are concerned about the possible inflationary effects of tariffs

·         But the Fed should not preemptively adjust policy ahead of possible economic policy changes

On Thursday, the NY Fed President Williams said:

·         The disinflationary process will continue

·         The labor market is now in balance, not providing upward pressure on inflation

·         Wants to see inflation coming down to 2% and staying around that level amid a solid labor market

·         Don't see any signs of a recession in the data

·         It is pretty clear that monetary policy is restrictive today

·         That is why it is ‘very appropriate’ to cut rates in the past two meetings

·         We're well positioned for risks of inflation being higher than we expect for next year

·         Expect it to be appropriate to cut rates further to more normal or neutral levels over time

·         Inflation Must Come Down to 2%

·         Inflation to Cool, Interest Rates to Fall Further

·         Month to month, there are movements up and down in individual [data] series, but they are moving in the way that I would like to see

On Thursday, Boston Fed’s President Collins said:

·         Looks to be on the fence when asked about a potential December interest rate cut

·         Some additional rate cuts are needed as the policy is still restrictive

·         Doesn’t want to cut rates too quickly

·         Overly slow rate cuts could hurt the labor market

·         The final destination of rate cuts is unclear

·         Monetary policy well positioned for economic outlook

·         Monetary policy not on a preset course

·         Fed policy decisions to be done meeting-by-meeting.

·         Any further slowdown in the job market is undesirable.

·         Risks to the outlook are roughly in balance

·         The labor market is healthy, inflation moving back to 2%

·         Strong Productivity Results in Wage Increases, Not Inflation

·         The economy is in a good place

·         Progress to 2% inflation could be uneven

·         More rate cuts needed

·         I don’t want to cut rates too quickly

·         Some additional rate cuts are needed as the policy is still restrictive

·         Rate Cuts Ignite Construction Boom

·         Overly slow rate cuts could hurt the labor market

·         The final destination of rate cuts is unclear

·         Monetary policy is not on a preset course

·         Fed policy decisions to be done meeting-by-meeting

·         Too early for the Fed to factor in the election impact

·         Cautions against speculating on policies that have yet to be implemented

·         Premature for Fed to Consider Effect of Election on its Actions

·         Labor Market Strong, Inflation Returning to 2%

·         Balance sheet policy is most useful in unusual conditions

·         I expect more policy normalization but it's not a done deal

·         Rate cuts' ultimate purpose is uncertain

·         Monetary Policy Positioned Well for Economic Outlook

·         Achieving 2% inflation may not be uniform

·         Further job market slowdown is not wanted

·         Monetary Policy Not Pre-Set

Outlook Risks Equally Balanced

On Wednesday (20th November), Fed’s Bowman said:

·         It's concerning we are recalibrating policy without reaching inflation goals

·         Fed needs to be flexible

·         Even when we bring inflation down, prices are still more expensive

·         We need to be patient and cautious about what immigration policy approach may be

·         The US needs policies that will facilitate people to be able to work across the country

·         Sites own families of farmers and difficulty finding labor.

·         Congress would need to mandate a central bank digital currency if it felt one was needed.

·         Bowman's comments sets

·         Fed may be closer to a neutral policy than policymakers currently think

·         U.S. Central Bank should pursue a cautious approach to monetary policy

·         Fed may be closer to a neutral policy than policymakers currently think; inflation remains a concern

·         My estimate of a neutral policy rate is much higher than before the COVID pandemic

·         I agreed to support the November Fed rate cut as it aligns with my preference to lower rates gradually

·         I am pleased that the November Fed policy statement provided optionality in deciding future policy adjustments.

·         Progress in lowering inflation appears to have stalled

·         I see greater risks to the price stability mandate, though deterioration in labor conditions is possible

·         The economy is strong, and the labor market is near full employment, but inflation is still elevated.

·         Sideways move in core personal consumption expenditures inflation since May reflects increased demand for affordable housing and inelastic housing supply.

·         The unemployment rate is below my estimate of full employment; the rise this year reflects weaker hiring.

·         October payrolls likely rose at the recent average pace after accounting for a hurricane, Boeing strike, low response rate.

·         Approaching Policymaking Pragmatically

·         I see greater risks to the price stability mandate, though deterioration in labor conditions is possible

·         Progress in lowering inflation appears to have stalled

·         We need to be patient and cautious about what immigration policy approach may be

·         The Fed needs to be flexible

On Wednesday, Fed’s Cook said:

·         The job market overall remains solid, with recent weak growth as a result of the temporary strike and storm effects

·         The labor market largely normalized, and is no longer a source of inflation

·         Continued growth with slowing inflation could mean the underlying potential is greater than thought

·         Faster productivity growth appears to have supported both potential and actual growth

·         Housing services account for most of the excess of core inflation

·         Economic growth is robust, I expect expansion will continue

·         If inflation progress slows with the job market still solid, could see a scenario for pausing

·         The totality of data suggests disinflation is still underway with the labor market gradually cooling

·         Cuts so far were a strong step toward removing policy restriction

·         The magnitude and timing of rate cuts will depend on coming data, the outlook, and the balance of risks

·         The policy is not preset

·         Risks right now are roughly in balance

·         The economy is in a good position, though core inflation is still somewhat elevated

·         Elevated core inflation suggests the Fed still has further to go

·         If the labor market and inflation continue to progress in line with my forecast, it could well be appropriate to lower the level of policy restriction over time until we near the neutral rate of interest

·         However, if inflation progress slows and the labor market remains solid, I could see a scenario where we pause along the downward path

·         Alternatively, should the labor market weaken substantially, it could be appropriate to ease policy more quickly

On Wednesday, former Fed Governor Warsh, who is the next Treasury Secretary Candidate under Trump admin said:

·         The surge in federal spending and concomitant central bank asset purchases in 2021 and 2022 contributed to the harmful surge in inflation

·         The American people are still paying a high price for the central bank’s policy error

·         In my view, irresponsible government spending and excessive money printing are largely to blame for triggering inflation in the first place

On late Thursday, Fed’s Goolsbee said:

·         The labor market is moving into stable and full employment

·         I've gotten more comfort from the fact that we're not crashing through full employment

·         It may make sense to slow the pace of interest rate cuts

·         Inflation is on its way down to 2%, and the labor market is close to stable full employment

·         Over the next year, it feels like rates will end up a fair bit lower than where they are today

·         It may make sense to slow the pace of interest rate cuts as the US central bank gets close to where rates will settle

Bottom line:

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.

Market Impact:

On Thursday, Wall Street Futures recovered from earlier Russian ICBM panic low in a roller coaster move after the Russian President expressed negotiation with Ukraine for a realistic peace plan with Ukraine. Gold also wobbled on the missile war game as Russia notified the US of a newly developed inter-mediate missile and no ICBM was used. Both Russia and Ukraine may be testing each other’s psychological endurance and patience.

Eventually, on Thursday, the S&P 500 rose 0.5% higher, the Dow Jones surged by +461 points, while the Nasdaq (NQ-100) closed mostly flat. Wall Street was boosted by Utilities, banks & Financials, consumer staples, industrials, materials, healthcare, energy, real estate, and techs, while dragged by communication services and consumer discretionary. Scrip-wise, Wall Street was dragged by Amazon, Boeing, McDonald’s, Apple, Chevron and Apple. Nvidia’s upbeat guidance also helped other chip stocks.

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).