Wall Street, Gold jumped on Fed’s QT tapering and QE-5 plan

On Thursday, Wall Street Futures and gold surged on softer progress of US core PCE inflation, but the overall boost was limited as the Fed’s favorite inflation data is now a lagging indicator; the market already anticipated the PCE inflation data after core CPI and core PPI data published around 2-weeks ago. Wall Street was also boosted by earnings optimism and month-end flow adjustment. Meanwhile, Trump also claimed the recent market surge for his high probable return in the WH, while in reality; it may be the just opposite.

On Friday, Fed’s Goolsbee popped up again and said:

·         Housing inflation is the thing that's been weird

·         I wouldn't be surprised if the January inflation was noise

·         We have to keep an eye on housing inflation

·         I believe the Fed funds rate is quite restrictive

·         If inflation keeps falling, the Fed must think about jobs

·         I don't know where interest rates will settle

·         I'd like to see Treasury holdings shift to a larger share of shorter-dated securities

On Friday, Fed’s Logan said:

·         When the overnight reverse repo balances approach a low level, it will be appropriate to slow the pace of asset runoff (QT)

·         Once the ON-RRP is empty, there will be uncertainty over how much excess liquidity remains

·         Significant ON RRP balances mean we can be confident liquidity is more than ample

·         After ON RRP is drained, QT will reduce reserves on a 1-for-1 basis, all else equal

·         I have not seen a reduction in reserves yet under the current Fed QT

·         The current overnight repo usage of about $500 bln tells me that we can continue to reduce our holdings for some time

·         In this environment, moving more slowly can reduce the risk of an accident that would require us to stop too soon

On Friday, Fed’s Waller said:

·         The timing of balance sheet redemptions pace will be independent of any changes to the policy rate

·         Low prepayments have kept MBS reductions to about $15 bln a month, it's important to see continued reduction

·         Upcoming Balance Sheet Decisions Have No Bearing On Monetary Policy

·         My interpretation is that it reinforces the view that the demand for U.S. Treasury securities is broad and deep—the buyers are not a narrow set of deep-pocketed, sophisticated investors but rather the American public. As a result, the pace of runoff is not a problem. As we have seen with the current phase of QT, runoff up to $95 billion a month is not causing substantial strains in financial markets—something that a few years ago would have surprised a lot of people, given the worries about QT that were common before 2022

·         Normalization of B/S:

·         Let me conclude with a few comments on where I believe the Fed should be heading as it continues to normalize its balance sheet. By "normalizing" I mean reducing the size of the balance sheet but retaining enough assets to manage monetary policy using an ample-reserves regime

·         As the Federal Reserve continues its QT program, I support further thinking about how many more securities to redeem. We have an overnight reverse repurchase agreement facility with take-up of more than $500 billion, and I view these funds as excess liquidity that financial market participants do not want, so this tells me that we can continue to reduce our holdings for some time

·         In addition, it is important to remember that we now have a standing repurchase agreement facility (SRF). The SRF serves as a backstop in money markets since it takes in Treasury securities as well as agency MBS and puts reserves in the banking system. This facility may allow banks to lower the level of reserves below what reserves would be without the facility, and it may provide a signal for when reserves are getting close to ample

·         Chair Powell has noted that the FOMC will begin to discuss slowing our redemptions at our FOMC meeting this month, which will help us transition into whatever definition of "ample" we deem appropriate. Changing our pace of redemptions will occur when the Committee makes a decision to do so, and the timing will be independent of any changes to the policy rate target. Balance sheet plans are about getting liquidity levels right and approaching "ample" at the correct speed. They do not imply anything about the stance of interest rate policy, which is focused on influencing the macro-economy and achieving our dual mandate

·         Thinking about longer-term issues related to the Fed's portfolio, I want to mention two things. First, I would like to see the Fed's agency MBS holdings go to zero. Agency MBS holdings have been slow to run off the portfolio, at a recent monthly average of about $15 billion, because the underlying mortgages have very low-interest rates and prepayments are quite small. I believe it is important to see a continued reduction in these holdings

·         Second, I would like to see a shift in Treasury holdings toward a larger share of shorter-dated Treasury securities. Before the Global Financial Crisis, we held approximately one-third of our portfolio in Treasury bills. Today, bills are less than 5 percent of our Treasury holdings and less than 3 percent of our total securities holdings

·         Moving toward more Treasury bills would shift the maturity structure more toward our policy rate—the overnight federal funds rate—and allow our income and expenses to rise and fall together as the FOMC increases and cuts the target range. This approach could also assist a future asset purchase program because we could let the short-term securities roll off the portfolio and not increase the balance sheet. This is an issue the FOMC will need to decide in the next couple of years

On late Thursday, Fed’s Mester said:

·         The January PCE data was not too surprising

·         The January PCE reading does not change the view that inflation is going downward

·         There is a little more work for the Fed to do on inflation

·         Monetary policy is restrictive, demand should cool

·         We can't rely on the pace of disinflation last year to continue this year

·         Demand will moderate growth this year and will not be as strong as last year

·         I expect a slowdown in employment growth

·         Slowing in employment growth is what we need to see to ease policy

·         Right now three rate cuts this year feel about right to me

·         We are in a really good spot, on policy and the US economy

·         There is a little more work for the Fed to do on inflation

On Friday, Fed’s Bostic said:

·         I am grateful for inflation progress, but the job is not done

·         I want to see more evidence that inflation is returning to normal

·         I don't want to have to raise rates again

·         The economy is producing at a level above the long-run potential

·         Will be longer to get to 2% inflation, I'm willing to wait

On Friday, the Fed’s March Monetary Policy Report for US Congress noted:

·         US inflation has slowed notably, but it remains elevated

·         Wage gains slowed in 2023, but remain above pace consistent with 2% inflation

·         The labor market has remained relatively tight, demand has eased, and supply has trended higher

·         Inflation expectations are broadly consistent with 2% goal

·         6-month core PCE rose at an annual 2.5% rate, inflation measured over relatively short periods may exaggerate idiosyncratic, temporary factors

·         It is not appropriate to reduce the target range until we have greater confidence inflation moving sustainably toward 2%

·         Higher rates, tighter underwriting, zoning, and other regulations have constrained housing supply

·         Risks to achieving Fed's goals moving into better balance, The Fed remains highly attentive to inflation risks

·         The strong labor market, work-from-home, and cash payments have supported demand for housing, limiting the effect of higher rates

·         Possible rapid adoption of new technologies like AI and robotics could boost productivity growth above the current moderate pace in the coming years

·         Softening in market rents points to a continued deceleration in housing services prices over the year ahead

·         Ongoing softening of labor demand and improvements in labor supply should contribute to a further slowing in core services price inflation

·         Inflation has slowed notably and remains elevated

·         Fed’s MTM loss around $152B till Feb’24 (for lower prices of HTM bond portfolio after Fed rate hikes of +5.25% and interest payment to banks under Reverse Repo)

Full Text: Summary

Monetary Policy Report submitted to the Congress on March 1, 2024, pursuant to section 2B of the Federal Reserve Act

“While inflation remains above the Federal Open Market Committee's (FOMC) objective of 2 percent, it has eased substantially over the past year, and the slowing in inflation has occurred without a significant increase in unemployment. The labor market remains relatively tight, with the unemployment rate near historically low levels and job vacancies still elevated. Real gross domestic product (GDP) growth has also been strong, supported by solid increases in consumer spending.

The FOMC has maintained the target range for the federal funds rate at 5-1/4 to 5-1/2 percent since its July 2023 meeting. The Committee views the policy rate as likely at its peak for this tightening cycle, which began in early 2022. The Federal Reserve has also continued to reduce its holdings of Treasury and agency mortgage-backed securities.

As labor market tightness has eased and progress on inflation has continued, the risks to achieving the Committee's employment and inflation goals have been moving into better balance. Even so, the Committee remains highly attentive to inflation risks and is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials.

The FOMC is strongly committed to returning inflation to its 2 percent objective. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.

Recent Economic and Financial Developments

Inflation; Consumer price inflation has slowed notably but remains above 2 percent. The price index for personal consumption expenditures (PCE) rose 2.4 percent over the 12 months ending in January, down from a peak of 7.1 percent in 2022. The core PCE price index—which excludes volatile food and energy prices and is generally considered a better guide to the direction of future inflation—rose 2.8 percent in the 12 months ending in January, and the slowing in inflation was widespread across both goods and services prices. More recently, core PCE prices increased at an annual rate of 2.5 percent over the six months ending in January, though measuring inflation over relatively short periods risks exaggerating the influence of idiosyncratic or temporary factors. Measures of longer-term inflation expectations are within the range of values seen in the decade before the pandemic and continue to be broadly consistent with the FOMC's longer-run objective of 2 percent.

The labor market:

The labor market has remained relatively tight, with job gains averaging 239,000 per month since June and the unemployment rate near historical lows. Labor demand has eased—as job openings have declined in many sectors of the economy—but continues to exceed the supply of available workers. Labor supply has trended higher over the past year, reflecting a continued strong pace of immigration and increases in the labor force participation rate, particularly among prime-age workers. Reflecting the improved balance between labor demand and supply, nominal wage gains slowed in 2023, but they remain above a pace consistent with 2 percent inflation over the longer term, given prevailing trends in productivity growth.

Monetary Policy

Interest rate policy:

After significantly tightening the stance of monetary policy since early 2022, the FOMC has maintained the target range for the policy rate at 5-1/4 to 5-1/2 percent since its meeting last July. Although the FOMC judges that the risks to achieving its employment and inflation goals are moving into better balance, the Committee remains highly attentive to inflation risks. The Committee has indicated that it does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.

Balance sheet policy:

The Federal Reserve has continued the process of significantly reducing its holdings of Treasury and agency securities predictably, contributing to the tightening of financial conditions. Beginning in June 2022, principal payments from securities held in the System Open Market Account have been reinvested only to the extent that they exceeded monthly caps. Under this policy, the Federal Reserve has reduced its securities holdings by about $640 billion since mid-June 2023, bringing the total reduction in securities holdings since the start of balance sheet runoff to about $1.4 trillion.

The FOMC has stated that it intends to maintain securities holdings at amounts consistent with implementing monetary policy efficiently and effectively in its ample-reserves regime. To ensure a smooth transition, the FOMC intends to slow and then stop reductions in its securities holdings when reserve balances are somewhat above the level that the FOMC judges to be consistent with ample reserves.

Special Topics

Employment and earnings across groups:

An exceptionally tight labor market over the past two years has been especially beneficial for historically disadvantaged groups of workers. As a result, many of the long-standing disparities in employment and wages by sex, race, ethnicity, and education have narrowed, and some gaps reached historical lows in 2023. However, despite this narrowing, significant disparities in absolute levels across groups remain.

Housing sector:

The rise in mortgage rates over the past two years has reduced housing demand, resulting in a steep drop in housing activity in 2022 and a marked slowing in house price growth from its historically high pace. Offsetting factors boosting housing demand, such as the robust job market and the increased prevalence of remote work, have prevented significant price declines. High mortgage rates have also discouraged some potential sellers with low rates on their current mortgages from moving, which has kept the existing home market unusually thin.

The shortage of available existing homes has pushed some remaining homebuyers toward new homes and supported a modest rebound in the construction of single-family homes later in 2023. In contrast, multifamily starts rose to historically high levels in 2022 but have more recently fallen back because of builders' concerns about the effect of the significant amount of new multifamily supply on rents and property prices.

Federal Reserve's balance sheet and money markets:

The size of the Federal Reserve's balance sheet has decreased since June as the FOMC continued to reduce its securities holdings. Despite ongoing balance sheet runoff, reserve balances—the largest liability on the Federal Reserve's balance sheet—edged up as declines in the usage of the overnight reverse repurchase agreement facility—another Federal Reserve liability—more than matched the decline in assets.

Monetary policy rules:

Simple monetary policy rules, which prescribe a setting for the policy interest rate in response to the behavior of a small number of economic variables, can provide useful guidance to policymakers. With inflation easing and supply and demand conditions in labor markets coming into better balance, the policy rate prescriptions of most simple monetary policy rules have decreased recently and now call for levels of the federal funds rate that are close to the current target range for the federal funds rate

As labor market tightness has eased and progress on inflation has continued, the risks to achieving the Committee's employment and inflation goals have been moving into better balance. Even so, the Committee remains highly attentive to inflation risks and is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials, like food, housing, and transportation.

In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.

After remaining above $2 trillion during the first half of 2023, usage of the ON RRP facility has declined to about $575 billion amid the ongoing reduction in the Federal Reserve's balance sheet and the substantial increase in the net supply of Treasury securities. Reduced usage of the ON RRP facility largely reflects money market funds shifting their portfolio toward higher-yielding investments, including Treasury bills and private-market repurchase agreements.

The ON RRP facility is intended to help keep the effective federal funds rate within the target range. The facility continued to serve this intended purpose, and the Federal Reserve's administered rates—the interest rate on reserve balances and the ON RRP offering rate—were highly effective at maintaining the effective federal funds rate within the target range as the FOMC tightened the stance of monetary policy.

The Federal Reserve's expenses have continued to exceed its income over recent months. The Federal Reserve's deferred assets increased $82 billion since last June to a level of $152 billion. Negative net income and the associated deferred asset do not affect the Federal Reserve's conduct of monetary policy or its ability to meet its financial obligations.

The deferred asset is equal to the cumulative shortfall of net income and represents the amount of future net income that will need to be realized before remittances to the Treasury resume. Although remittances are suspended at the time of this report, over the past decade and a half, the Federal Reserve has remitted over $1 trillion to the Treasury.

Net income is expected to turn positive again as interest expenses fall, and remittances will resume once the temporarily deferred asset falls to zero. As a result of the ongoing reduction in the size of the Federal Reserve's balance sheet, it is expected that interest expenses will fall over time in line with the decline in the Federal Reserve's liabilities.

Ahead of the Nov’23 U.S. Presidential election, White House/Biden/Fed/Powell is more concerned about elevated inflation rather than the labor market; prices of essential goods & services are still significantly higher than pre-COVID levels, which is creating some incumbency wave (dissatisfaction) among general voters against Biden admin (Democrats). Also, more employment to migrant workers rather than original ordinary Americans is causing some dissatisfaction among the general US public (voters).

Overall, Fed’s Waller, Logan, other speakers, and Fed’s latest MPR (Monetary policy report) indicate Fed is now giving more priority to price stability (which is still quite elevated compared to pre-COVID levels) rather than employment (which is quite robust) and not ready to cut rates early as it may again cause inflation spike just ahead of the Nov’24 election. Fed last hiked in May’23 and on hold since June’23. Fed is providing at least 12 months to transmit the full effect of higher repo rates (5.50%) to the real economy to create appropriate slack or affect demand, so that it can balance on presently constrained supply capacity of the economy, bringing down inflation in a sustainable way.

Thus Fed may cut only from July’24, which will ensure no inflation spike just ahead of the Nov’24 election (as any rate action usually takes 6-12 months to transmit in the real economy), while boosting up both Wall and Real/Main Street. Fed may announce a plan for QT tapering in the March meeting and close the same by June before going for rate cuts from July’24. Fed, the world’s most important Central Bank may not continue QT and rate cuts at the same time, which is contradictory, at least theoretically.

Fed’s B/S was around $7.5T in Feb’24 and will be around $6.5T by Mar’24. The U.S. nominal GDP was around $27T in 2023 and the Fed may keep its B/S size at least 20% of nominal GDP to maintain long-term smooth neutral banking/system liquidity (in line with pre-COVID/longer run trend). Thus Fed may ensure B/S size for at least $5.5T for the time being and may reduce (taper) the QT run rate from the present $95T/month to around $30T/Month in Q2CY24 (April-June) and close the present cycle of QT by June’24 at B/S size around $5.5T.

Conclusions:

The 12M average between the US core CPI and core PCE inflation is now around +4.5%, which the Fed may consider as underlying core inflation, the target of which is +2.0% on a durable basis. The 6M rolling average of core inflation (PCE+CPI) is now around +3.7% or around +4.0%. Fed may cut 75-100 bps in H2CY23 if the 6M rolling average of core inflation (PCE+CPI) indeed eased further to +3.0% by H1CY24.

As per Taylor’s rule, for the US:

Recommended policy repo rate (I) = A+B+(C+D)*(E-B) =0.00+2.00+ (0+0)*(4.50.00-2.00) =0+2+2.50=4.50% (for 2024)

Here:

A=desired real interest rate=0.00; B= inflation target =2.00; C= permissible factor from deviation of inflation target=0; D= permissible factor from deviation of output target from potential=0.00; E= average core inflation for CY23 (+4.50%)

Fed has to ensure a 2% price stability (core inflation) target keeping the unemployment rate below 4% and also 10Y bond yield below 5.00-4.50% so that borrowing cost for Uncle Sam remains manageable/sustainable to fund +34T debt (never-ending); whatever may be the narrative, the Fed has to ensure lower borrowing costs for the U.S. Government (Treasury).

The U.S. is now paying around 15% of its revenue as interest on public debt against China/EU’s 5.5%, which is a red flag for fiscal discipline, especially for AEs. But the U.S. is taking debt in USD (local currency), which is a global reserve currency, always in demand (despite almost 24/7 printing) and US public/DIIs/Fed are the largest holders of US debts, also beneficiaries of risk-free interest. China, Japan, Saudi Arabia and some other EU countries are also big holders of US debts (treasuries), but they are also not in a hurry to exit from subscribing debts of the world’s biggest and most qualified borrower country.

As a result of higher bond yields around 4.50%-5.00% (for 10Y UST); i.e. lower bond prices, the Fed is now in deep MTM loss for its huge bond holding. Fed is also providing higher interest to banks & financials for reverse repo operation than it getting under repo operation; i.e. Fed’s NIM/NII is now negative and theoretically the Fed is in negative profit to the tune of -$152B. The same is also true for various banks & financials, most of which are now in deep MTM loss for higher bond yields; i.e. lower prices for their HTM bond portfolio holdings due to sudden/unexpected (?) Fed rate hikes.

The US10Y TSY market price fell from around $140 to $105 from Jan’20 (pre-COVID) to mid-Oct’23; i.e. a fall of almost -33% in around 4 years; it recently recovered to almost $113.40 levels and made low around $109.00; looking ahead Fed will keep 10YUS bond within this price range ($113-109) to ensure 10Y bond yield around 3.75-5.00%.

This is a red flag, and thus Fed has to operate in a balancing way while going for calibrated hiking to bring inflation down to target, avoiding an all-out recession; i.e. to ensure both price & financial stability and soft-landing. Fed has to bring down inflation to +2.0% targets by keeping the US10Y TSY bond yield below 5.00%, and an unemployment rate below 4.0% without triggering an all-out or even a brief recession in the US Presidential election year (2024). The Fed will ensure that the US10Y bond yield is below 5.00% at any cost for lower borrowing costs for Uncle Sam (U.S.), everything being equal. Thus, overall Fed is methodically jawboning on both sides (hawkish/dovish) from time to time to achieve all its goals at the same time.

As the U.S. labor market is still robust with healthy wage growths, the incumbent Biden admin may prefer price stability and lower inflation in the coming months along with a sub/below 4% unemployment rate; i.e. price stability over GDP growths. As the 10Y bond is the main instrument for raising debt and a benchmark for US/global borrowing costs, the Fed may not allow it to hover above 5.00% for long under any circumstances, everything being equal. Fed needs to lower borrowing costs for the U.S. government from the present 15% to 10-7% over the next few years.

If US core CPI indeed dips around 3.3-3.0% by June’24 (from +3.9% in Jan’24) and US core PCE inflation to 2.3-2.0% (from +2.8% in Jan’24), then the Fed may start cutting rates from July’24 and may cut cumulatively 75 bps at -0.25% pace till Dec’24 for a repo rate at 4.75%, so that core real rate continues to stand around +1.50%, in line with the present restrictive stance (repo rate-average core CPI around for last 12/6M) to ensure a soft landing while bringing down inflation. The 2024 US core CPI inflation average is expected to be around 3.25-3.00% against 2.50-2.25% core PCE inflation.

Fed has to ensure price stability, and maximum employment along with moderate/lowest bond yield to ensure financial/Wall Street Stability and also keep public/government borrowing costs at the lowest possible by directly/indirectly controlling bond yield (like YCC by BOJ). For the time being, the Fed is now targeting 2% core inflation with below 4% unemployment and 4.50% bond yield (10Y US) to keep borrowing costs lowest for the U.S. Government.

Bottom Line:

Fed, ECB may also cut rates from July’24; i.e. in H2CY24 for a cumulative 75-100 bps (synchronized global rate cuts amid a synchronized easing in core inflation); every major central bank including BOE, BOC, RBI, and also PBOC has to follow ‘King Fed/USD’, whatever may be the narrative. We may see a synchronized global easing from H2CY24. As the Fed is the world’s unofficial central bank because the USD is the ‘King’ (the world’s most preferred FX or global reserve currency), all major G20 central banks are now bound to follow the Fed policy stance to maintain present policy/currency/bond yield parity, everything being equal.

Thus the market is now expecting a synchronized global easing (rate cuts) by major G20 global central banks including ECB, BOE, BOC, PBOC, and even India’s RBI, whatever may be the domestic macro-economic narrative (just like post-COVID synchronized global tightening to bring inflation down to targets). The hopes & hypes of synchronized global rate cuts are also causing a synchronized global stock market rally on both sides of the Atlantic as well as Pacific; i.e. from Wall Street to Dalal Street.

Market wrap:

On Friday, on Wall Street, Gold surged on less hawkish Fed talks including indication of QT tapering, close of QT and the subsequent cycle of rate cuts. Moreover, Fed’s Waller also hinted next cycle of small targeted QE-5 (QE/not QE) of short-term treasuries in the coming years in line with a possible change in stance for ease of B/S management in the future even during any economic/financial crisis (real QE) or posy-crisis (QT). On the economic data side, it was a mixed day as ISM Manufacturing PMI, US/UM consumer confidence came softer than expected, while S&P Global Manufacturing PMI was hotter than expected. The market is now expecting the start of the Fed rate cuts cycle of -75 bps from June’24 against -150 bps from Mar’24 earlier a few weeks ago.

On Friday, Wall Street was boosted by techs, energy, real estate, healthcare, communication services, materials, consumer discretionary, and industrials, while dragged by consumer staples, banks & financials, and utilities. Dow Jones was boosted by Salesforce, Amgen, Intel, IBM, Home Depot, Amazon, Caterpillar, Chevron, J&J, Verizon, Microsoft, and Walmart, while dragged by Boeing, Nike, Travelers, Coca-Cola, United Health, Apple (analyst downgrade), McDonald’s and JPM.  Blue chip DJ-30 edged up +0.23%, tech-heavy NQ-100 jumped +1.44% (NVIDIA boost) and broader SPX-500 surged +0.80%, making a new life time high (except DJ-30).

On Friday, Gold jumped from around 2045 to almost 2088 after Fed’s Waller, Logan, and also the March MPR indicated an imminent QT tapering and a probable mini QE-5 down the years. Gold was also boosted by lingering delay in the Gaza war temporary ceasefire, which was earlier supposed to start on Monday (4th March). Oil was also boosted and scaled $80.83, at a four-month high on lingering Gaza/Red Sea war/disruptions, sequentially lower OPEC+ productions, hopes of extended OPEC+ production cut throughout 2024 from Q1/Q2, lower production from the U.S. amid maintenance issues and robust real GDP growth of +8.4% by India, the 3rd largest oil consumer in the world.

On Friday, Wall Street was also boosted by hopes of better trading/diplomatic relations between the US and China but was also undercut by fading hopes of an imminent Gaza war ceasefire.

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

·         We're not attempting to sever our economic relationship with China. The US believes trade with China is beneficial

On Friday, an Israeli Senior official said: “Israel made it clear to Egypt and Qatar that it will not hold another round of talks regarding the deal for the release of the abductees until Hamas presents a list of the abductees who are alive”.

On Saturday, a US official claimed the ball is in Hamas’s court on the ceasefire deal as Israel has accepted a temporary (six weeks) ceasefire: “Israelis agreed to a six-week ceasefire, now it’s up to Hamas to agree---That would be followed by a second phase to build something more enduring”.

Hamas has previously demanded a full & final (total) ceasefire, and not just a temporary pause, the total withdrawal of Israeli forces from Gaza, and freedom of movement for Palestinians within Gaza.

Although still there was no official Israel reaction to a temporary six weeks of Gaza war ceasefire proposal by the U.S., both Israel’s PM Netanyahu and US President Biden admin are now under immense public pressure for a sustainable permanent ceasefire. Ahead of Nov’24 election, Biden is also trying his best for a permanent Gaza war ceasefire and two-state peace solution. But Netanyahu is still batting for an extension of war to ‘eliminate’ Hamas completely, although, IDF previously claimed almost 90% success.

In this way, Israel PM Netanyahu’s political future may be now at stake due to the lingering Gaza war at a ‘barbaric’ scale, and the inability to free all the hostages from Hamas. As per a recent Israeli opinion poll, Netanyahu may lose an early election. Israel’s tech/innovation savvy $525B small economy is now on the brink of a recession/stagflation despite huge US aid; most of the young tech-savvy Israelis are now in the active/reserve bench of IDF (Israeli Defense Force). As per Bank of Israel estimates, this lingering Gaza war may cost around $53B; i.e. almost 10% of the Israeli economy. As per some private estimates, the lingering Gaza war/Palestine issues may also cause around $400B in economic activities in the next decade.

The current spate of the Gaza war also caused labor shortages, a decline in services and consumption (consumer spending), an impact on the tech sector, reduced investment/private CAPEX/FDI, a disrupted labor market and slowed productivity growth in Israel. The war has also had other knock-on effects on the Israeli economy. Military reservists represent about 8% of Israel's workforce, meaning mobilization led to a contraction of the labor supply.

As per reports, key Israeli war cabinet minister Gantz is set to visit the U.S. and U.K. in an uncoordinated trip (without PM approval) that has reportedly angered PM Netanyahu. Gantz is the head of the National Unity party, who has been tipped to replace Netanyahu if an election takes place now. Gantz may meet U.S. VP Harris on Monday (4th March) amid the Biden admin’s growing frustration with PM Netanyahu. Biden had said earlier this week (while eating ice cream) that he hopes to see a ceasefire in Gaza within days, something his admin has now said wants to be realized before start of Ramadan.

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

Whatever may be the narrative, technically Dow Future (39080), now has to sustain over 39200-39500 levels for a further rally to 39700/39900-40200/40500 and even 42600  levels in the coming days; otherwise, sustaining below 39450-39150 may again fall to 39000-38950/38600 and  38400/38200*-38000*/37300 levels in the coming days.

Similarly, NQ-100 Future (18333) now has to sustain over 18500 levels for a further rally towards 18675-18975/19200 and 19450/19775-2000/20200 in the coming days; otherwise, sustaining below 18450/18400, may again fall to 18250/200 may fall to and 17300-16830-16750-16550 in the coming days.

Also, technically Gold (XAU/USD: 2082) now has to sustain over 2095-2100 for any further rally to 2120/2130-2155/2175; otherwise sustaining below 2090, may again fall to 2065/2050-2030/2015 and further 2000/1995-1985/1975 and even 1950/1920 in the coming days.