Gold slips on hopes of an imminent Gaza war ceasefire

On Monday, Wall Street Futures were almost flat amid fading hopes of earlier & deeper Fed rate cuts and renewed hopes & hypes of an imminent Gaza war ceasefire. Earlier, Wall Street was also undercut by fading hopes of an imminent Gaza war ceasefire as Israel's PM Netanyahu alludes to ongoing hostage negotiations, uncertain of outcome in a CBS interview. Netanyahu also predicts "weeks away from total victory" regarding the Rafah operation.

But late Monday, Wall Street Futures got some boost (risk trade sentiment) after U.S. President Biden expressed hopes for a ceasefire between Israel and Hamas in Gaza by Monday (4th March). Biden’s comments come as negotiations to end the lingering Gaza war appear to gather pace amid a report that an Israeli military delegation had flown to Qatar for intensive talks.

The negotiations – mediated by Egypt, Qatar, and the US – seek to secure a six-week-long pause in fighting between Israel and Hamas to allow aid into Gaza, where the UN says some 2.3 million people are on the brink of famine. The proposed pause/permanent ceasefire would also allow for the release of dozens of captives held by Hamas in return for the release of hundreds of Palestinian prisoners held by Israel.  Ahead of the November election and the growing popularity of Trump’s anti-war/proxy war stance, the Biden admin has recently stepped up pressure on Israel to agree on a truce soon in a bid to head off a threatened Israeli assault/civilian massacre on Rafah, the city in southern Gaza where some 1.4 million people, many of them displaced by war, have sought safety.

Biden’s comments could also be aimed at voters in the state of Michigan, which is due to hold its presidential primaries on Tuesday. Many Arab- and Muslim-American voters there have pledged to vote “uncommitted” on their ballots in protest of Biden’s support for Israel; Biden can’t win Michigan unless there is a major change in Israel-related stance. Biden won Michigan by more than 157K votes in the last election in 2020, and there are some 300K Arab and Muslim Americans in Michigan, not to mention young people of all races and all religions who may not support Biden this time unless there is a major reversal of Biden’s pro-Israeli policy.

The same is true for other Muslim-dominated states in the U.S. This time Trump is around 10% ahead of Biden in advance opinion polls due to his nationalistic image and focus on core domestic issues rather than deploying resources by engaging in a proxy war in Ukraine, Israel to help US Military industry (as direct/indirect fiscal stimulus).

On Tuesday, Biden said the agreement reached for a ceasefire during Ramadan. Biden told a late-night talk show that fighting could be paused as soon as 10th March after he faced a public outcry back home for eating ice cream while discussing Gaza war ceasefire Monday (as it seems he was not talking seriously about the ongoing Gaza war, which so far killed around 30K civilians). On Monday, at an ice cream shop in NY, Biden, when asked when he thought the Gaza war ceasefire could begin, said he hoped for a truce to take effect within days:

·         Well, I hope by the beginning of the weekend, by the end of the weekend

·         My national security adviser tells me that we’re close. We’re close. We’re not done yet. My hope is by next Monday we’ll have a ceasefire

·         Israel would halt Gaza war activities during the Muslim holy month of Ramadan under the ceasefire deal

Biden’s comments came a day after his National Security Adviser (NSA) Sullivan said representatives from Israel, Egypt, Qatar, and the US discussed the terms of a ceasefire deal in Paris over the weekend and had come to “an understanding” about the contours of such an agreement. The talks did not include Hamas, but the Palestinian group is reviewing the Paris truce proposal, which involves a 40-day pause and a hostage exchange. Paris meeting may be followed by talks involving Israel and Hamas, first in Qatar and later in Egypt. Israeli media reports that a delegation from Israel arrived Sunday in Qatar for ceasefire talks. Qatar’s emir is due in Paris on Monday for talks with the French President Macron.

Hamas has its political office in the Qatari capital, Doha. In Qatar on Monday, the country’s Emir Sheikh Thani met Hamas’s political leader Haniyeh and discussed efforts to reach an “immediate and durable ceasefire agreement in the Gaza Strip”. Following the meeting, Haniyeh said Hamas welcomed mediators’ efforts to find an end to the war and accused Israel of stalling while the people of Gaza die under siege. Israel, meanwhile, continues to maintain its public stance that it will not end the war until Hamas is eradicated and that its planned assault on Rafah would continue even if a ceasefire deal was reached.

On Tuesday, the US said it does not want to see Israel-Hezbollah escalation Earlier, Israeli Defence Minister Gallant said Israel will continue to attack Hezbollah positions even if a truce is reached in Gaza, but the State Department’s Miller said Washington is working to resolve the Lebanon-Israel crisis diplomatically:

·         We do not want to see either side escalate the conflict in the north of Israel

·         And in fact, we’re going to continue to pursue a diplomatic resolution of that conflict. And while we saw the defense minister’s comments, we have also taken note that repeatedly the defense minister and other officials of the government of Israel, including the prime minister, have said publicly that they would prefer the situation to be resolved diplomatically

·         The ceasefire would be temporary freeing Israeli captives in Gaza and allowing more aid into the territory can be reached in the coming days

·         We do think it’s possible but--- ultimately some of this comes down to Hamas and whether Hamas is willing to agree to a deal that would provide significant benefits to the Palestinian people that they claim to represent

·         We want to see a ceasefire go on for as long as it can to get all the hostages out

·         Our ultimate goal is to end this war as soon as possible and end it in a way that ensures Israel’s security and end it in a way that puts us on a path toward the establishment of an independent Palestinian state. And that’s the diplomatic route that we continue to pursue

·         It’s difficult to predict the future and how the situation may unfold in the coming weeks

Meanwhile, a senior Hamas leader (political wing) Naim said Tuesday that meditators in negotiations to reach an agreement to pause the fighting in Gaza are still working with the Israeli side to cement a proposal. He also said US President Biden’s public assertion that a ceasefire deal will be reached by this Monday is being seen by Hamas as intended for the US domestic audience (ahead of the Nov’24 election), and not as a tactic to put pressure on Israel to accept a truce deal. For any ceasefire agreement to work, Hamas’s red lines must be met:

·         The return of people to their homes, especially in the north of the Gaza Strip

·         The total withdrawal of the Israeli military from Gazan territory

·         Support for rebuilding efforts

·         Aid for Gaza’s population, particularly food and medicine

·         A guaranteed ceasefire

·         Palestinian prisoners being freed

·         However, Hamas is willing to be flexible on the timing and sequencing of these demands, as long as the total ceasefire begins on day one of the implementation of any agreement

·         Hamas is also seeking guarantors such as Egypt, Qatar, Turkey, the United Nations, the United States, and Russia to ensure and verify that any deal is upheld by Israel

Meanwhile, Israeli PM Netanyahu said he has been resisting pressure to end the war ‘prematurely’ and he has been ‘leading a diplomatic campaign’ to secure strong support for Israel. In a statement viewed as a counter-response to Biden, Netanyahu cited a recent opinion poll showing that 82% of US respondents favor Israel over Hamas: “This will help us continue the campaign until total victory”.

Netanyahu has increasingly found himself at odds with stated US policy as of late, on a number of issues including a two-state permanent solution, the Rafah offensive, settlements in the occupied West Bank, and the amount of aid being allowed into Gaza. On the other side, Israeli opposition leader Lipid seems distancing himself from PM Netanyahu’s public stance on the Gaza war:

·         Prime Minister Netanyahu’s public quarrel with the administration in the USA is an injury to the security of the state, an injury to Israel’s foreign relations, and a lack of national responsibility

·         Don’t understand what is burning him to open another front (against Lebanon’s Hezbollah)

Late Tuesday, a new opinion poll found that 67% of US voters support a permanent ceasefire in Gaza, including 77% of Democratic Party voters, 56% of Republican supporters and 69% of Independents. However, the Biden admin has consistently rejected calls for a permanent ceasefire. The poll also found that substantial majorities of voters support making continued aid to Israel conditional on requirements such as allowing displaced Palestinians to return to their homes in northern Gaza, committing to peace talks with the Palestinians and halting indiscriminate Israeli bombings to protect civilians.

On Tuesday, the US Defense Department Spokesman Kirby said:

·         There's no Israel-Hamas cease-fire deal yet, there's more work to do

Now from geo-politics to economics, Japan’s (JGB) two-year yield climbed to the highest since 2011 after stronger-than-expected core inflation data at +3.5% boosted market bets the BOJ will end its negative-interest-rate policy (NIRP) and YCC in Apr’24. Global/US bond yields were also in an uptrend as Japan may exit YCC and NIRP in April, followed by some rate hikes (BOJ tightening talks). As Japan is seen as the global exporter of capital and Yen is a carry trade currency, higher Japanese bond yields and currency may cause serious risk-off trade in the global market despite Fed and ECB rate cuts. Also, Trump’s potential win in the Nov’24 US Presidential election may be another risk for Wall Street for a possible return of ‘Trump Tantrum’.

On late Monday, the US Treasury Secretary Yellen said:

·         Inflation to fall in 80% of economies in 2024

·         US economic strength key driver of positive global economic performance

·         Monitors economic challenges in some countries, but the global economy stays robust

·         US growth exceeds projections despite risks to the outlook

·         I see stronger global growth than forecasted, inflation to decline in 80% of economies this year

·         The US economy doing extraordinarily well, but I wouldn't be surprised if growth came in under 3.1%

·         I consider the global outlook quite favorable, and there are always risks

On Tuesday, the G20 Finance Minister’s draft communique said:

·         Upside risks include faster-than-expected disinflation

·         Global economic recovery proves more resilient than anticipated, but medium-term growth is still subdued

·         Committing to resist protectionism

·         Central banks maintaining focus on inflation converging to target in line with mandates

·         Most economies see receding inflation due to appropriate monetary policies, eased supply chain bottlenecks, and moderating commodity prices

·         The likelihood of a soft landing in the global economy increases, but uncertainty remains high

·         The global economy faces multiple challenges reinforcing each other

·         Working towards improved international financial institutions and comprehensive debt solutions

On late Monday, Fed's Schmid said:

·         Not out of high inflation yet, the Fed should be patient on cuts

·         No need to preemptively adjust the stance of monetary policy

On Tuesday, Fed’s Bowman said:

·         The economic activity and consumer spending are strong, the labor market is tight

·         Fed's monetary policy stance is restrictive and appropriately calibrated

·         I expect inflation will decline further with the policy rate held steady, but I see upside inflation risks

·         If inflation moves sustainably to the 2% goal, it will eventually be appropriate to cut interest rates; not yet there

·         I remain willing to raise the policy rate if inflation progress stalls or reverses

·         Reducing policy rates too soon could result in the need for future rate hikes

·         The latest inflation data suggests slower progress on inflation

·         I will remain cautious on monetary policy

Market wrap:

On Tuesday, Wall Street Futures were mixed amid hopes & hypes of an imminent Gaza war ceasefire and fading hopes of an earlier & deeper Fed rate cut. The CME Fed swaps now price in only 75 basis points of easing in 2024 against earlier -150 bps a few months ago. Gold slips.

Oil jumped Tuesday on a report that OPEC will consider extending voluntary cuts in Q2CY24 and perhaps full of 2024, while Asian demand is strong led by China and India; other side Red Sea disruptions are set to continue throughout 2024. But another report said: “The issue has yet to be discussed formally by OPEC+, two of the sources said. A decision on extending the cuts is expected in the first week of March, sources have said, with individual countries expected to announce their decisions.”  Earlier, OPEC+ was to consider extending voluntary oil output cuts into Q2 and may extend them until year-end. Meanwhile, Kremlin/Russia also warned of escalation if NATO troops fight in Ukraine.

On Tuesday, the Dow fell 0.25%, while the S&P 500 and Nasdaq Composite gained 0.17% and 0.37%, respectively. Mega-cap tech names traded mixed, with gains seen from Tesla, Apple, and Meta, while losses were seen from Nvidia and Amazon. Wall Street was boosted by utilities, communication services, materials, banks & financials, consumer discretionary, industrials, techs, and real estate, while dragged by energy, healthcare and consumer staples to some extent. Dow Jones was boosted by Walt Disney, Home Depot, Travelers, Apple, Caterpillar, Verizon, Nike and Boeing, while dragged by Amgen, United Health, Chevron, Intel, P&G and Honeywell.

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

Whatever may be the narrative, technically Dow Future (38972), now has to sustain over 39500 levels for a further rally to 39700/39900-40200/40500 and even 42600  levels in the coming days; otherwise, sustaining below 39450-39350 may again fall to 39250/200-39150/39000-38950/38600 and  38400/38200*-38000*/37300 levels in the coming days.

Similarly, NQ-100 Future (18000) now has to sustain over 18400 levels for a further rally towards 18500/18675-18975/19200 and 19450/19775-2000/20200 in the coming days; otherwise, sustaining below 18350/300-18250/200 may fall to and 17300-16830-16750-16550 in the coming days.

Also, technically Gold (XAU/USD: 2031) now has to sustain over 2045-2055 for any further rally to 2067/2085-2100/2125-2130/2175; otherwise sustaining below 2030, may again fall to 2020/2010-2000-1995/1985-1975 and even 1950 may be on the card.