Oil and gold slid on a fading concern of a wider Gaza war

On Tuesday, Wall Street was undercut by hawkish Fed jawboning, keeping open the possibility of another rate hike and fading hopes of an early Fed rate cut by June’24, but was also boosted by increasing hopes of a temporary pause in Gaza war after Israel PM Netanyahu indicated it may be possible for the release of hostages. As per the report, U.S. President Biden told Netanyahu 3-day fighting pause could help secure the release of some hostages.

Biden urged Netanyahu to agree to a ‘three-day pause’ in Gaza fighting. Biden made the ‘request’ 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”.

On Tuesday Dow Future was almost flat on hawkish Fed talks and ease of Gaza war tensions, but Gold and oil slips. Oil was also under stress on the subdued demand forecast by EIA for 2024 due to increasing EV adoption in the U.S., Europe and China.

On Wednesday, G7 Foreign Ministers also urged Israel for a temporary humanitarian pause in the Gaza war/military operation, although refrained from the term ‘ceasefire’ and also supported Israel’s right to self-defense and keeping its citizens secured.

Also, the White House pointed out that it may take more than one pause to get captives out of Gaza. The White House spokesman Kirby told reporters that a pause would be temporary and of short duration, “hours to days” depending on the need and would be localized in terms of geography: “So it would be an agreement that for a set period of time in these agreed coordinates, there would be a pause in the fighting. That doesn’t mean there won’t be, or couldn’t be, fighting outside that zone during that same period of time. So all of that has to get factored in, and I have no doubt that on the Israeli side, as they look at each proposal, they’ll think about the potential impact on their military operations on the ground or in the air.”

But despite immense global and local pressure, Israel's PM Netanyahu is not agreeing (at least publicly) to any kind of ceasefire or even a temporary pause: “I’d like to put to rest all kinds of false rumours we’re hearing from all kinds of directions, and reiterate one clear thing: There will be no ceasefire without the release of our hostages.”

On Wednesday, the Israeli military said Hamas has lost control and is continuing to lose control of Gaza in the North: “We saw 50,000 Gazans move from the northern Gaza Strip to the south. They are moving because they understand that Hamas has lost control in the north. Hamas has lost control and is continuing to lose control in the north--there would be no ceasefire, but we are already allowing Palestinians in Gaza to relocate south at specific times.”

Overall, Netanyahu said there would be no ceasefire or even a humanitarian pause unless all the captives were released despite repeated US requests. Netanyahu is insisting there will only be a ceasefire when all the captives are freed. But Netanyahu may also change his stance if there is the possibility of freeing even some of the hostages (around 15) if there is some sort of deal that can be done to free those captives, but those negotiations continuing with the active mediation of Qatar and U.S. Meanwhile Israel is getting sufficient time to destroy Hamas terror network in Gaza completely, while West is also buying time to manage growing domestic pressure for Israel’s ‘genocide’ in Gaza and Israel’s right in securing its citizens from any terrorist attack in future; it’s Israel’s ‘9/11’ moment.

Meanwhile, Yemen's Houthis announced that their air defense has shot down an American MQ-9 drone "while it was carrying out hostile, monitoring and spying activities in the airspace of Yemeni territorial waters and as part of American military support for Israel”.  Also, Israel carries out air strikes targeting military sites in southern Syria.

On Wednesday, Fed’s Cook said:

·         Escalating geopolitical tensions could weigh on activity and trade

·         Rising geopolitical tensions pose market risks

·         A further slowdown in China could worsen financial stresses, with possible international spillovers

·         The escalation of global geopolitical tensions could also lead to negative international spillovers

·         We must remain vigilant to potential shocks that could exacerbate global financial system vulnerabilities

Market wrap:

On Wednesday, Wall Street was almost flat on fading hopes of an early Fed rate cut in 2024 and lingering suspense about the Gaza war tactical pause/ceasefire. But Gold and oil slid on ease of Gaza war tensions amid fading concern of a wider regional conflict involving Iran.

On Wednesday, Wall Street was boosted by techs, real estate, industrials, materials, communication services, and banks & financials, while dragged by energy, utilities, consumer staples, consumer discretionary, and healthcare to some extent.

Technical trading levels: Gold and Oil

Whatever the narrative, technically Gold (XAU/USD: 1947) now has to sustain over 1950/1965 and 1980/1995-2008/2012 for a further rally to 2022/2038-2055/2085; otherwise sustaining below 1943-1940, may further fall to 1932/1928-1923/908 and further 1904/1900-1895/1885 and 1850/1810 in the coming days (if there was a Gaza war pause/ceasefire).

Similarly, oil (75.57) now has to sustain over 75.00 for a recovery to 78.75/80.00-82.25/83.75 and further 85.25/86.50-87.25/90.00 and 93.75/95.00 in the coming days; otherwise, sustaining below 74.00, may further fall to 71.25/69.90-66.30/65.50 in the coming days.