- Gold up $21 in 2006
- US 10-year yields down 1 basis point to 4.83%
- WTI crude up $1.93 to $85.15
- S&P 500 down 0.5% or 20 points to 4117
- The Nasdaq up 0.4%
- JPY leads, CHF lags behind
The opposing currents were deep and violent on Friday. Let’s break them down:
1) The fog of war
Initial reports claimed a “breakthrough” in ceasefire talks, but this was later disputed. This was followed by heavy strikes in Gaza and reports of tanks crossing or preparing to cross into Gaza. Meanwhile, the Washington Post reports that the United States is trying to convince Israel to completely abandon any ground attacks. With gold’s late rally, it appears the market has concluded that an escalation is more likely than the opposite over the weekend.
2) Technology Tower
Amazon’s earnings and oversold conditions provided a reason why stocks rallied early, and after two hours of trading it looked like we might see a rally over the weekend. But this was not the case as technology stocks fell, with the exception of 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 return to 2018 levels. This illustrates the broader pain in stocks that is masked by the strength of a few mega-cap names .
4) Slightly lower yields
Yields fell slightly and did not play a significant role on Friday, with 10 bonds closing the week 16 basis points from the 5% threshold. This will be tested on Wednesday with the FOMC and the announcement of quarterly repayments.
5) Focus on the Bank of Japan
Some leaks suggest the BOJ will raise its inflation outlook for 2024 and there are fears this could also lead to an end to yield curve control and moves towards rate hikes as soon as Tuesday’s meeting. This thinking likely explains the drop in USD/JPY and perhaps why the US dollar was weak overall, particularly before the late-day concerns over Gaza.
6) Economic data
Yesterday’s PCE report foreshadowed higher headline inflation, but that never materialized. Inflation nevertheless increased and the expectations indicators in the UMich report were worrying. All of this makes it less likely that the Fed will abandon rate hikes.