• US September PCE core +3.7% vs +3.7% expected
• October final UMich US consumer sentiment 63.8 vs 63.0 expected
• BOJ likely to raise CPI forecast to 2% range – report
• Atlanta Fed GDPNow initial estimate for Q4 growth debuts at 2.3%
• Baker Hughes US weekly oil rig count 504 vs 502 prior
• Israel refused to respond to a long truce requested by Hamas – report
• Israeli military spokesman: Ground forces are expanding their operations tonight
• Reports suggest Israel ground incursion in Gaza; others suggest the US urges restraint
• There has been a ‚breakthrough‘ on Hamas hostage negotiations — CNN
• Sam Bankman-Fried takes the stand

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.

This article was written by Adam Button at www.forexlive.com.