Markets:
- Gold up $21 to $2006
- US 10-year yields down 1 bps to 4.83%
- WTI crude oil up $1.93 to $85.15
- S&P 500 down 0.5% or 20 points to 4117
- Nasdaq up 0.4%
- JPY leads, CHF lags
The cross-currents were deep and violent on Friday. Let’s break them down:
1) The fog of war
Early reports talked about a ‘breakthrough’ in ceasefire talks but that was later disputed. It was followed by heavy strikes in Gaza and reports of tanks crossing, or getting ready to cross, into Gaza. Meanwhile, the Washington Post reports the US is trying to convinced Israel to abandon a ground assault altogether. With the late rally in gold, it seems as though the market concluded that escalation is more likely than the opposite into the weekend.
2) Tech turn
Amazon earnings and oversold conditions provided a reason for stocks to rally early and two hours into trading, it looked like we could see a rally into the weekend. But it wasn’t to be as tech stocks sagged aside from Amazon, Meta and Intel.
3) Pain in stocks elsewhere
The Russell 2000 broke major support today to touch (and close) at a three year low and back at 2018 levels. It illustrates the broader pain in equities that’s masked by strength in a few megacap names.
4) Yields slightly lower
Yields edged down and weren’t a big factor on Friday with 10s wrapping up the week 16 bps from the 5% threshold. That will be tested Wednesday with the FOMC and the quarterly refunding announcement.
5) Bank of Japan in focus
Some leaks suggest the BOJ will shift its 2024 inflation outlook higher and the fear is that could also lead to the end of yield curve control and steps towards rate hikes as soon as Tuesday’s meeting. That thinking is likely why USD/JPY fell and perhaps why the US dollar was broadly soft, particularly before late-day worries about Gaza.
6) Economic data
Yesterday’s PCE report foreshadowed higher headline inflation but that never materialized. Still, inflation did rise and the expectations metrics in the UMich report were worrisome. It all makes it less likely the Fed takes rate hikes off the table.