Nasdaq jumped on tech boost and lower bond yield

On Monday, Wall Street Futures were muted amid lingering suspense about the Gaza war pause/ceasefire. But Wall Street was also boosted by Biden’s plan for infra stimulus through the creation of infra for high-speed railway (HSR) network in the U.S. (worth trillions of dollars), subject to Congressional approval, especially U.S. House, where Biden/Democrats are minority.

On Tuesday, Wall Street Futures were undercut by mixed Chinese trade data, showing lower than expected exports and higher than expected imports. Chinese exports fell more than expected in October, while imports unexpectedly rose. This resulted in the smallest trade surplus in eight months at $56.53B in October from $82.35B sequentially.

China's trade surplus in October 2023 narrowed sharply to $56.53B from $82.35B yearly (y/y), far below market forecasts of $82B. It was the smallest trade surplus since February, as exports fell more than expected due to persistent subdued demand from US/Europe, while imports unexpectedly grew amid domestic stimulus. Exports dropped by -6.4%, worse than forecasts of a -3.3% decline, while imports unexpectedly grew by +3%, the first increase since February, above the market expectations of a -4.8% fall. The trade surplus with the U.S. narrowed to $30.82B in October from $33.119B in September.

Exports from China dropped by -6.4% (y/y) to $274.83B in October 2023, faster than a -6.2% fall in the previous month and worse than market forecasts of a -3.3% decline. This marked the sixth consecutive month of declining exports, reflecting persistent weak external demand. Sales fell for unwrought aluminum & products (-8.1%) and grains (-6.9%) but increased for refined products (+15.9%), steel products (+53.3%) and rare earths (+19.1%). Among major trading partners, exports decreased to the US (-8.2%), Japan (-13.0%), South Korea (-17.0%), Taiwan (-4.4%), ASEAN (-15.1%), and the EU (-12.6%), while rising to Australia (+5.9%) and Russia (+17%). Considering the first ten months of the year, exports shrank -5.6% (y/y) to $2.79T.

On Tuesday, Wall Street Futures, Gold were also undercut by more hawkish than expected Fed comments, while supported as IMF upgrades China's 2023, 2024 GDP growth forecasts. China’s Oil imports jumped by +13.5% in October amid stronger fuel demand due to a week-long Golden holiday and a fresh batch of oil import quotas.

On late Monday and Tuesday, Fed’s Kashkari said:

·         It’s too soon to declare triumph over inflation-- three months of promising evidence on inflation is insufficient

·         If inflation continues to decline, that would tell me that it's time to back off

·         We're not seeing a lot of evidence the economy is weakening

·         The Fed would do more on rates if required

·         The labor market continues to be quite robust

·         There are no discussion at Fed about rate cuts

·         The dollar has been quite strong

·         The term premium is economists' version of dark matter

·         Economic activity running this hot makes me question if we've done enough

·         The FOMC has been surprised by GDP growth

·         If inflation ticks back up, the Fed's job not yet done

·         We have to let inflation and labor data guide us

·         The economy will tell us how much needed on rates

·         The US has structurally underbuilt housing units

On Tuesday, Fed’s Goolsbee said:

·         We are also getting positive supply side developments in the economy

·         You cannot answer what number on long term yield equals enough tightening

·         We are all paying attention to figure out what is driving long-term yield rates

·         If long rates are sustained at high levels, that is most likely tightening

·         You have to look through two week movements of long-term yield rates

·         Inflation is a more important part of the mandate right now

·         As long as we are making progress on inflation, the topic is then only how long we keep rates at this level

·         We might equal the fastest drop in inflation in the last century

·         Inflation has fallen a lot

·         So far the slowdown is what you would want, in the direction of a more balanced growth and sustainable level

·         The job market is getting into better balance

·         The economy is weakening

·         There is the possibility of the golden path that allows us to get inflation down without a recession

·         Financial conditions clearly matter but the market doesn't get to tell the Fed what to do

On Tuesday, Fed’s Waller said:

·         The labor market is cooling and getting close to average from before the pandemic, clearly calming down

·         Everything was booming in Q3 GDP, the Fed is watching that closely

·         Prices probably won't go back to pre-pandemic levels

·         Policymakers are mulling what drove long-term yields higher

·         In central banking terms, the movement up in the 10-year has been an earthquake

On Tuesday, Fed’s Bowman said:

·         I continue to expect we will need to raise Fed funds further

·         The Fed funds rate currently appears restrictive, financial conditions have tightened since September

·         Some tightening is due to higher longer-term bond yields, which can be volatile

·         Monetary policy is not on a preset course

·         Financial conditions have tightened since September

·         Some tightening has occurred through run-up in yields

·         I'm willing to support hikes if inflation progress stalls

·         I continue to expect further rate hikes are needed

·         I will be closely watching incoming data

·         It's not clear how tightening will affect the economy and inflation

·         I supported the Fed decision to hold rates steady in November

On Tuesday, Fed’s Logan said:

·         All of us have been surprised by resilience of US economy

·         At the recent meeting, I thought a hold was appropriate to give time to look at financial conditions

·         I will watch to see if retracement of long-rates continues

·         If long-rates rising on back of strong economic growth, FOMC would have to deliver on those expectations

·         The key question is increase in long-term rates is what was driving it

·         Inflation readings look like they're trending toward 3%, not 2%

·         We've had a string of better data on inflation, but most recent reading was high

·         My expectation is that growth will start to slow, but were wrong before

·         Wage growth has cooled some

·         I have seen some important cooling in the labor market

·         I continue to expect we will need to raise Fed funds further

·         All of us have been surprised by resilience of US economy

·         At the recent meeting, I thought a hold was appropriate to give time to look at financial conditions

·         I will watch to see if retracement of long-rates continues

·         I have seen some important cooling in the labor market

·         Some tightening is due to higher longer-term bond yields, which can be volatile

On Tuesday, Wall Street was undercut by fading hopes of Fed rate cut by June’24, but was also boosted by hopes of temporary pause in Gaza war after Israel PM Netanyahu indicated it may be possible for release of hostages. As an Axios report, U.S. President Biden told Netanyahu 3-day fighting pause could help secure release of some hostages. Biden urged Netanyahu to agree to ‘three-day pause’ in Gaza fighting. Biden made the appeal during a call yesterday with Israel’s PM, saying the pause would help secure the release of captives held in Gaza.

As per reports, the US, Israel and Qatar are discussing a proposal under which “Hamas would release 10-15 hostages and use the three-day pause to verify the identities of all the hostages and deliver a list of names of the people it is holding”. Two US and Israeli officials also said “Netanyahu told Biden he doesn’t trust Hamas’ intentions and doesn’t believe they are ready to agree to a deal regarding the hostages”.

Market wrap:

On Tuesday, Blue Chip DJ-30 edged up around +0.17%, broader SPX-500 inched up +0.30%, while tech heavy NQ-100 jumped +0.90% led by Amazon, Apple, Meta, Microsoft and Tesla. Wall Street was boosted by consumer discretionary, techs, communication services, consumer staples, and healthcare to some extent, while dragged by energy (lower oil amid soft Chinese data, ease of Gaza war tensions and bearish EIA demand forecast), materials, real estate, utilities, industrials and banks & financials.

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

Whatever the narrative, technically Dow Future (34150), now has to sustain over 34300 for any further rally to 34500/34650 and 34855 and further to 35375-35875 in the coming days (if there is a Gaza ceasefire/Israel ends its intensifying surgical/military operation).; on the other side, sustaining below 34250, Dow Future may again fall to 33950/33650-33450/33150 and 32950/32650-32300/32200 and 32000/31750-31595/31190 and even 29400-28475 levels (in case of a wider major regional military conflict).

Similarly, NQ-100 Future (15222), now has to sustain over 15350 for any further rally to 15455/15500 and further 15625/15750-15975/16075 in the coming days; otherwise sustaining below 15300, NQ-100 may again fall to 15100/15000 and 14800/14600-14450/14300-14200/14100 and 14000/13800-13650/13500-13395/12990 and 12790/12400-12180/11650 and even 11000-10675 in the coming days. (under the worst scenario of Gaza regional war).

Technically, Gold (XAU/USD: 1978) now has to sustain over 1980/1995-2008/2012 for a further rally to 2022/2038-2055/2085; otherwise sustaining below 1975/1973-1965/1950 may further fall to 1945/1934-1924/908 and further 1894-1805 in the coming days (if there was a Gaza war pause/ceasefire).