Wall Street surged on hopes of Gaza ceasefire and Fed pivot

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's U.S. session, Wall Street Futures got some further boost briefly on hopes of an imminent Gaza Ceasefire after a report that back door negotiations are progressing rapidly to achieve a ceasefire agreement and an exchange deal (hostages-prisoners) between Hamas and Israel, mediated by Qatar. But soon Wall Street Futures slipped as there was another report that Israel refused to respond to a long truce requested by Hamas. Dow Futures soon stumbled almost -500 points, while Gold soared $30 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 urged restraint.

Equities tumbled, while Gold and oil surged after Israel expanded its Gaza ground surgical operation to eliminate/flush out Hamas terrorists and rescue any hostages still alive; but Israel is avoiding an all-out Gaza land military operation for various reasons.

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 the underground network of numerous Hamas tunnels and special forces on the ground to eliminate targeted Hamas leaderships/mercenaries and rescue as many alive 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) or even official U.S. marines.

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-defense 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. On average records show a 10-30-day duration of the Israel-Hamas war before arriving at any ceasefire. The recent war is now approaching almost 25 days by the end of this month and should finished by 5th November or even earlier considering intense ground levels surgical military operations targeting the horror network of Hamas tunnels (underground).

On Sunday/Monday, Israeli PM Netanyahu said the war in Gaza will be “long and difficult”, adding he will do everything to bring hostages home safe: “We’ll use every possibility to bring them back to their families”. But Netanyahu has also rejected any calls for a ceasefire or cessation of hostilities with Hamas. Netanyahu also said the idea of a swap deal of hostages for Palestinian prisoners had been discussed within the war cabinet but there was no decision on the move.

 Hamas spokesman earlier said: “If the enemy wants to close this file of detainees in one go, we are ready for it. If it wants to do it step-by-step, we are ready for that, too.” Hamas’s leader said the group is ready for an “immediate” prisoner swap with Israel: “We are ready to conduct an immediate prisoner exchange deal that includes the release of all Palestinian prisoners from Israeli jails in exchange for all prisoners held by the Palestinian resistance”.

Qatar has been conducting back-door diplomacy for more than three weeks, speaking to both Hamas officials and Israel to promote peace and secure the release of hostages. Its mediation last week led to the release of two U.S. hostages (a mother and daughter), and two elderly Israeli women.

As per reports, negotiations between Israel and Hamas aimed at de-escalating the war are continuing but at a “much slower pace” than before Friday’s escalation as increased air and artillery attacks, severing of communications, and Israeli ground incursion affected the truce/ceasefire discussions. But both Israel and Hamas are under great pressure from all sides to have an immediate ceasefire deal after securing all the hostages.

Although Iran is threatening to send troops through the Hezbollah-controlled northern Lebanon border for domestic political compulsion, in reality, Iran will continue to support proxies (Hamas, Hezbollah, and Houthi rebels) and engage in light attack 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.

On Monday, Hamas released a video of captives demanding prisoner swap and criticizing the Israeli government for failing to protect people during Hamas’s October 7 attack. Israel called it “psychological propaganda”. The Israeli PM Netanyahu has rejected any calls for a ceasefire or cessation of hostilities with Hamas and said a ceasefire at this stage would be equivalent to surrender with Hamas: “It’s time for us to decide if we are willing to fight for a future of hope and promise or surrender to tyranny and terror. They are part of an axis of evil that Iran has formed an axis of terror----they are the enemies of civilization”. In a televised address, Israeli Defence Minister Gallant says Hamas has “two options” – either to “die fighting or to surrender without any conditions”.

On Monday, the U.S. also insisted that a ceasefire between Israel and Hamas is currently not “the right answer”. The U.S. National Security Council spokesperson Kirby said: “We do not believe that a ceasefire is a right answer right now believe that a ceasefire right now benefits Hamas, and Hamas is the only one that would gain from that right now---- instead of a ceasefire, the US administration is pushing for temporary, localized humanitarian pauses for aid, and for people to get out”.

Overall, Israel is now divided to the question of the captives/hostages being held in Gaza is divided, with some wanting the priority to be securing their release, while others want to focus on striking/eliminating Hamas. In the past, Israel released around 1,000 Hamas prisoners, including [Hamas leader] Ismail Haniyeh as a part of a prisoners’ swap. Now Israeli PM Netanyahu he admitted that such a swap policy was a mistake and said he would review this policy again.

As per the latest report, the director of Israel’s foreign intelligence agency (Mossad), Barnea traveled to Qatar over the weekend to discuss the efforts to release captives held in Gaza with Qatari officials. Barnea made the trip after Israel began expanding its ground operations in Gaza late Thursday. Qatar had been getting closer to mediating a prisoner swap between Israel and Hamas. Barnea had resumed the talks on the captives while in Qatar; the discussions were “positive and constructive”, but hadn’t led to “a breakthrough”.

Conclusions:

The Gaza war may be over within the next few days considering expanded ground operations by Israel to eliminate Hamas terror and secure all most alive hostages through pressure tactics. Israel has to finish the job ASAP to avoid further global hue & cry against increasing civilian suffering. It now seems that Israel is aiming to bomb Al-Quads Hospital in Gaza City to destroy the suspected Hamas HQ underneath the ground of the hospital. Israel has already instructed the hospital authority to shift all the patients there and warned of an imminent air bombardment to destroy the suspected Hamas HQ (tunnels) under the ground there.

For the time being, Israel may secure the hospital and any Hamas terror infra/HQ there and then stop the present aggression/expanded military operation and offer Hamas a ceasefire for a free hostage deal. So far Iran has shown limited reaction and there is little chance of a big miscalculation and an immediate regional conflict. The U.S. is also coordinating with Israel and other Middle East nations to control the situation.

Market wrap:

On Friday, US bond yield/USD, Gold eased to some extent on easing of Gaza war tensions and BOJ leaked that it will allow JGB yield to +1.0% as a part of its great YCC tweak policy (10Y JGB bond yield was already hovering around +0.9% for the last few days in anticipation of BOJ hawkish move. The market is now expecting a hawkish hold by the Fed Tuesday (1st November) and a Fed pause/pivot as the Fed will hold rates at least till Aug’24 before going for any cut from Sep’24.

On Monday, blue-chip DJ-30 futures jumped almost +500 points, and made a session high around 33091 before closing around 33020; similarly, tech-heavy NQ-100 and broader SPX-500 surged around +1%. Wall Street was boosted by all the major sectors led by communication services, banks & financials, consumer staples, industrials, techs, materials, utilities, health care, real estate and energy. Dow Jones was boosted by Nike, Goldman Sachs, Verizon, Travelers, Microsoft and Apple (hopes of a blockbuster report card).

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.