Gold, Dow waved on Gaza war ceasefire and hawkish Fed talks

• There are some key differences between Israel's offer and Hamas's counteroffer, but the US trying to bridge the gap; the Fed may not cut rates before the US election

On early Friday U.S. Session, Wall Street Futures and gold surged, while USD slid on hopes of September rate cuts soon after a softer-than-expected US NFP/BLS job and ISM service PMI data. But eventually reversed again as this job report for April may not change the Fed’s narrative; one month of weak job data may not change the Fed’s higher for longer stance as the 6M rolling average of headline unemployment is around 3.8%, still below 4% red line, while core CPI inflation around 3.9%, still way above +2.0% Fed’s price stability target. We may see stalled core CPI inflation and better/upbeat NFP/BLS job reports in the coming months ahead of Nov’24 US election as the Fed may not cut in Sep’24, just months ahead of the US Presidential election in Nov’24 to avoid any political controversy.

In any way, Gold surged to almost 2320 from around 2285 after the expected US job report Friday but stumbled on fading hopes of an early Fed pivot and progress of the Gaza War ceasefire. By Monday's early Asian Session Gold tumbled to almost 2291, but gradually recovered from the European session and scaled almost 2232 on escalated Gaza war geopolitical tension as Israel warned of an imminent all-out war in Rafah after Hamas almost poured cold water on the latest series of ceasefire proposals.

Latest developments in the Gaza war situation:

·         Hamas source: Decide to freeze cease-fire negotiations

·         Al Jazeera citing leading Hamas source: Movement informs Qatari and Egyptian mediators of its acceptance of their ceasefire proposal

·         A political source in Israel: Hamas agreed to a “modified” Egyptian proposal - Sky News Arabia

·         Sky News Arabia correspondent, quoting an Israeli political source: The “amended” Egyptian proposal differs from the formula approved by Israel

·         Israeli Channel 12: Israel has not yet received confirmation of Hamas’ announcement that it accepts the broad outlines of the ceasefire - Sky News Arabia

·         Qatari/Egyptian mediators say Hamas has agreed to the ceasefire proposal

·         Hamas: We accept the ceasefire proposal of Egypt and Qatar

·         Late Monday, Hamas said it has approved a proposal for a ceasefire, which was initially put forward by Hamas mediators Qatar and Egypt, but Israel clarified it’s not the official ceasefire proposal that it placed a few days ago before Hamas either accepted or faced an all-out attack by IDF in Rafah crossings. Israel said the ceasefire proposal put forward by Hamas falls short of its demands

·         Ceasefire proposal is a three-phased agreement; each is 42 days - Hamas' Deputy Gaza Chief

·         The ball is in Israel's court, I think this agreement satisfies all parties - Hamas' Deputy Gaza Chief.

·         Israel Air Force struck 50 targets in Rafah Monday – IDF

·         Israeli Army Spokesperson: We examine every answer and response seriously and are exhausting every possibility regarding negotiations and returning hostages

·         Israeli Military Spokesperson: In parallel, we are still operating in Gaza and will continue to do so

·         Israeli Military: We are currently conducting targeted strikes against Hamas in Eastern Rafah - Statement

·         Israel Army Radio: Preparations for military operations in Rafah continue

·         Official Briefed on the talks: Hamas agreement is to the latest proposal Israel made on April 27, with no changes to major elements

·         Israeli Official: The prime minister and the war cabinet ministers will hold a telephone consultation tonight after the negotiating team finishes examining Hamas's response

·         US Official Familiar with talks: Netanyahu and the Israeli war cabinet have not appeared to negotiate with Hamas in good faith in the latest round

·         US Official Familiar with Talks: The US committed to stopping an invasion of Rafah, but Israel still plans to proceed

·         The Cabinet unanimously decides that Israel to continue operations in Rafah

·         Israeli forces have taken control of the Palestinian side of Rafah crossing in Gaza - Israel's Army Radio reports

·         Biden and Netanyahu to speak about Rafah later today

·         The Palestinian Authority is holding intensive calls with regional and international parties, especially the US, to prevent the massacre of a possible Israeli invasion into Rafah

·         The Biden administration is concerned that Hamas' deadly rocket attack over the weekend has led Israel to fast-track its timeline for a military operation in Rafah, according to a senior administration official and a US official

·         Israeli official: Hamas approved a "softened" Egyptian proposal that is not acceptable to Israel

·         Israeli Official: Hamas announcement appears to be a ruse to cast Israel as the side refusing a deal

·         Israel is studying the updated cease-fire proposal

·         Hamas agreed to a proposal that meets several demands including ceasefire, reconstruction, return of displaced, and prisoner swap deal - Hamas Official

·         Ceasefire proposal is a three-phased agreement; each is 42 days - Hamas' Deputy Gaza Chief

·         The ball is in Israel's court, I think this agreement satisfies all parties - Hamas' Deputy Gaza Chief

·         Israeli Army Spokesperson: We examine every answer and response seriously and are exhausting every possibility regarding negotiations and returning hostages

·         Israeli Government Spokesman: Negotiators will leave for Cairo shortly

·         Israeli government spokesman: The objective is still to destroy Hamas

·         Rafah operation will continue until Hamas is eliminated or 1st  hostage returned

·         Hamas Official Osama Hamdan: The latest ceasefire proposal which we agreed to represents the minimum that responds to the demands of our people and our resistance

·         Israel has promised the US and Egypt that its limited operation in the Gazan city of Rafah is focused on getting the Rafah Crossing with Egypt out of Hamas’s control to prevent the smuggling of arms and other banned goods

·         The plan, according to the report, is to transfer control of the key crossing to a private American security firm after the IDF concludes the offensive. It says negotiations are ongoing with the unnamed company, which employs former elite US soldiers and is an expert on securing strategic sites in Africa and the Middle East. Israel and the US will help the firm if needed

·         Israel has reportedly promised to only operate in the city’s eastern part, and not to damage border infrastructure

·         Asked about the report in a press briefing, US State Department spokesperson Matthew Miller says, “I’m not aware of that at all”

·         A Channel 12 report highlights some of the key differences between the reported terms of the Egyptian-crafted, Israeli-backed hostage and truce proposal conveyed to Hamas late last month, and the proposal (Arabic) Hamas issued last night, which it claimed constituted its acceptance of a permanent ceasefire

·         Israel has rejected the Hamas terms and said they do not meet Israel’s vital demands

·         Among the differences cited in the TV report:

·         The Hamas proposal would see the release of 33 Israeli hostages, alive or dead, in the first, 42-day phase of the three-phase deal, whereas the Israeli text requires the release of 33 living hostages

·         The hostages would also be released at a slower pace than in the Israeli-backed proposal, with three to be freed on the third day, and then three more every seven days. The Hamas proposal also removes the veto Israel demanded on the release of certain Palestinian security prisoners and instead gives Hamas the right to choose who will go free

·         The combination of those two changes potentially means Hamas could secure the release of some of the most dangerous mass murderers and iconic terror chiefs from Israeli jails very early on in the deal before many hostages are freed

·         The Hamas version raises the number of Palestinian security prisoners to be freed in exchange for each hostage in the first phase

·         The Hamas proposal provides for the free movement of all Gazans back to the north of the Strip, without security checks as required by Israel to prevent Hamas gunmen from returning

·         The TV report also claims the Hamas proposal requires Israel to announce an end to the war in the first phase of the deal. The Hamas text calls for a cessation of Israeli military operations in the first phase and thereafter. Significantly, Hamas said soon after delivering its response on Monday night that it regards itself as having accepted terms for an end to the war, whereas both the Israeli-backed text and the Hamas response refer to restoring “sustainable calm.

·         Another change between the two proposals, not highlighted in the TV report, is that Hamas demands the release of all Palestinian security inmates who were freed in the 2011 Gilad Shalit prisoner deal and have since been rearrested

·         The Hamas proposal also does not specify how many Palestinian security prisoners it would demand in the second phase of the deal when remaining living Israeli men are to be freed but requires that Israel reach an agreement on that issue in the midst of the first phase before all the first-phase hostages are freed

·         The TV report also says Israelis “at the highest level” feared last night that the US had given some kind of guarantee to Hamas via the mediators that the deal would indeed constitute an end to the war. The Biden administration, for its part, reportedly responded that it saw the Hamas proposal as “a kind of counter-offer.”

·         It says “very tense discussions” between Israel and the US continued yesterday and today. Senior Israeli officials urged their US counterparts not to be publicly supportive of the Hamas terms, it says, while the US “didn’t quite accept that message.”

·         Finally, it suggests Hamas’s Gaza leader Yahya Sinwar is intent on attaining a permanent ceasefire before all living hostages are freed because he fears he would otherwise be vulnerable to a potential Israeli-targeted strike on him

·         Egyptian state-linked media says, citing a “senior official,” that “all parties have agreed to return to the negotiating table” for talks towards a truce in the Israel-Hamas war

·         Al-Qahera News, a site linked to Egyptian intelligence services, earlier reported that Egyptian, Qatari, and US mediators were in talks with a Hamas delegation, without initially mentioning Israel

·         Israeli PM says terror group’s proposal didn’t meet ‘vital demands,’ and negotiating team won’t back down on terms; Hamas warns offer is Israel’s ‘last chance’

·         Poll: Majority of Israelis support prioritizing hostage deal over Rafah operation

·         Hamas says 33 hostages to be freed in 1st phase of a deal may not all be alive

·         The US knew of the mediators’ altered proposal to Hamas but did not inform Israel

·         Netanyahu says Hamas offer aimed to ‘sabotage’ Rafah op as Israeli delegation in Cairo

·         Biden said Hamas and Israeli differences over the ceasefire proposal are bridgeable

Hamas Official Osama Hamdan: If Israel's military aggression continues, there will be no ceasefire

On Monday, the Richmond Fed’s President Barkin said:

·         I hear strongly from business contacts that the labor market is normalizing, though some sectors that fell behind in hiring during the pandemic are still catching up

·         The metrics of where the neutral rate is have moved up; but feels like the current policy is restrictive

·         At this point, I am willing to believe that current rates are restrictive enough

·         It still feels like the weight of risks is towards inflation

·         It takes a while to corral price-setters to think "they don't have a chance"

·         Recent data makes you think less optimistically about how quickly inflation gets under control; it is a stubborn road

·         Still feels like the weight of risk is toward inflation

·         I tend to imagine the Fed will need to take some edge off demand to finish the inflation fight, though some help from supply is still possible

·         I tend to imagine the Fed will need to take some edge off demand to finish the inflation fight, though some help from supply is still possible

·         I have not yet seen evidence that inflation is on track

·         GDP growth still seems strong; we are now focusing attention on the job market

·         I expect high interest rates to further slow the economy and keep inflation below the 2% target

·         Inflation data this year is "disappointing" and the job is not yet done

·         I am confident that the current restrictive level of rates can curb demand enough to bring inflation to the target

·         Businesses are still looking to raise prices if they can, the risk is if shelter and services keep the headline index above the target

·         Given the strong labor market, the Fed has time to gain the confidence it needs to be sure that inflation will fall

·         The data "whiplash" confirms the value of the Fed being deliberate

·         I don't see the economy overheating, but the Fed knows how to respond if it does

·         It is worrisome when monthly inflation prints come in higher

On Monday, the NY Fed President Williams said:

·         I am seeing job growth moderates

·         Eventually, there will be rate cuts

·         The Fed balance sheet wind-down has gone smoothly

·         Consumers are still spending, see GDP in the 2%-2.5% range this year

·         Real wages are improving

·         I expect good though somewhat slower GDP growth in 2024

·         I'm seeing signs of more consumer caution on spending

·         The economy is still healthy but is growing more slowly

·         Higher government debt means somewhat higher global rates

·         It is too soon to say how AI will affect the long-term economy

·         There is probably greater economic volatility in the future

·         Low volatility world may be behind us

On Tuesday, Minneapolis Fed’s President Kashkari said:

·         The housing market is proving more resilient to tight monetary policy than it has been in the past

·         Housing resilience raises questions about the neutral rate

·         housing market is proving more resilient to tighter policy

·         Housing market resilience may mean the neutral rate has been pushed higher, at least in the short term

·         The inflation progress seen in the latter half of 2023 appears to have stalled. The question is whether disinflation is still underway, or just taking longer

·         The recent slow GDP is due to inventories and net exports; underlying demand remained strong

·         I question policy restrictiveness, given the inflation data

·         The yield curve inversion does suggest that policy is tight

·         I modestly raised the neutral rate estimate to 2.5% from 2%

·         The question that the Fed faces is if disinflation is still underway

·         Policymakers misperceiving the current neutral rate could explain the current data

·         The most likely scenario is we stay put for an extended period on rates

·         If disinflation comes again, or we see marked weakening in the job market that might lead to rate cuts

·         Raising rates is not the most likely, but I can't rule it out

·         If we see a marked labor weakening, it could spur a cut

·         The jobs report on Friday was softer than expected, but not soft

·         New lease rates seem to have ticked up, that's a little concerning

·         If inflation becomes embedded, we may hike if needed

·         I would need to see multiple readings on inflation to be confident to cut rates

·         In March, I jotted down two rate cuts for this year, it is possible will stay at 2, or go to 1 or 0 rate cuts for the June SEP

·         The US economy is in a good place

·         It seems like we will go sideways for a while

·         We may need to be more patient

·         Keeping rates where they are for longer than the public expects is much more likely than raising rates

·         The most likely outlook is the Fed stands put on rates

·         Too soon to declare we are stalled out on inflation

·         If we need to hold rates for an extended period, or raise rates, we will do that

·         A rate cut this year is still a possibility

·         If inflation moves sideways and the labor market stays strong, we should not do anything about rates

·         CIA Director Bill Burns to visit Israel for talks with Netanyahu and officials on Wednesday

Market impact:

On Tuesday, Wall Street Futures closed almost flat on fading hopes of an early Fed pivot amid hawkish Fed talks. Also, lingering suspense and hopes & hopes about the Gaza war ceasefire wobbled Wall Street Futures and gold. Additionally, techs were under stress as Druckenmiller cut his stake in Nvidia, saying "AI might be a little overhyped now", while the US revoked licenses for the supply of chips to China’s Huawei; Intel, Qualcomm among companies affected by revoked licenses. Disney tumbled after the company reported revenue that slightly missed forecasts and lower-than-expected overall Disney+ subscriber numbers. Palantir Technologies plunged -15.1%, its worst performance since May 2022, after issuing a subdued guidance. On the other hand, Peloton's stock soared +15.5% on news that private equity firms are considering a buyout of the fitness company.

On Tuesday, Wall Street was boosted by materials, utilities, consumer staples, real estate, healthcare, communication services, banks & financials, while dragged by energy, techs, and consumer discretionary. Script-wise, Wall Street was dragged by Walt Disney, 3M, Microsoft, Intel, McDonald’s, Home Depot, IBM, JPM, and Verizon, while boosted by Merck, Visa, United Health, Honeywell, Caterpillar, Apple, and Amgen.

Bottom line: Summary

·         Fed may not cut rates before Nov’24 US election

·         Fed may not cut rates at all from Sep’24, just months before Nov’24 US election to avoid any political controversy, and may/may not cut rates in Dec’24; Fed may revise dot-plots in June meeting.

·         At present, Fed’s Mar’24 dot-plots show: 75 bps rate cuts each in 2024, 2025, 2026, and -50 bps in 2027 for a neutral repo rate of +2.75%

·         But the Fed may now show the June’24 dot-plots as -100 bps rate cuts each in 2025, 2026, and -50 bps in 2027 for terminal neutral repo rate +3.00%

·         Another scenario: Fed may also cut -50 bps in Dec’24 or even in Jan’25 after the Nov’24 US election to avoid any political controversy and also to assess overall inflation and employment data for the whole of 2024.

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

Whatever may be the narrative, technically Dow Future (38900), now has to sustain over 39200 for a further rally to 39300/39400-39500/39750 and 40000/40200-40425/40600-40700-42600 levels in the coming days; otherwise, sustaining below 39100/39000-38900, DJ-30 may again fall to 38700/500-38300/38050-37650/37450*, and further fall to 37300*/37200-37050/36600 and 36300/36300 and even 35700 levels in the coming days.

Similarly, NQ-100 Future (18200) now has to sustain over 18400 for any recovery/rally to 18600/18750-18800/18900*-19100/19200-19450/19775 and 20000/20200 in the coming days; otherwise, sustaining below 18350-18200 may fall to 18100/18000 and 17800/17700-17600-17500 and 17400/17300-17100/17000* and 16890/16700-16595*-16100/15900 in the coming days.

Also, technically Gold (XAU/USD: 2315) now has to sustain over 2355 for a further rally to 2375/2385-2395 and 2400/2410-2425/2435* to 2455-2475/2500; otherwise sustaining below 2345-2335, Gold may again fall to 2305/2290-2270 and 2255/2235*, and 2180/2145*, and further to 2120*/2110-2100/2080-2060/2039 and 2020/2010-2015 in the coming days.