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US retail sales beat expectations, fueled Federal Reserve (Fed) hawks and bets of another rate hike in December – or January – yesterday. The US 2-year yield spiked to a fresh high since 2007, and the 10-year yield spiked above the 4.80% mark regardless of mounting tensions in Gaza – reminding those who seek protection against geopolitical tensions that the US sovereigns’ safety is limited by potentially sharp reaction to economic data, a crowded issuance calendar, the possibility of a further belt-tightening from the Fed and concerns about US deficit in an environment where the US is not only expected to help Ukrainians, but finance the Israeli war in Gaza, as well.

Gold spike above its 200-DMA defying mountains, and the rising US yields. Crude oil spiked to the highest levels since the beginning of tensions in Gaza. Stocks fell as a big selloff in chip stocks – on further export curbs to China – led major US indices lower. Bank results were mixed.

On the economic data front, Chinese growth beat expectations, inflation in Canada eased, wages in the UK grew slower than expected, but British inflation didn’t fall as much as expected.

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Stocks gained, and bonds fell yesterday on US and allies’ efforts to deescalate tensions in the Middle East. Yet Israel told the US ‘to embrace for a long war’. Gold, US treasuries and franc could rapidly jump in case of further escalation of tensions.

The Gaza situation is not helping to improve relations between the US and China as the US considers further limit China’s – and its military’s - access to advanced chips.

On the data front, the Empire Manufacturing index showed a slower-than-expected contraction in October, and the retail sales data for September will be released today. A strong sales data could boost optimism if the Federal Reserve (Fed) speakers maintain their expectation that the Fed has done hiking the interest rates. But nothing is less sure with the Middle East situation. If oil prices spike to unbearable levels, inflation expectations would take a lift.

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The first set of bank results released last Friday looked good, although the outlook remained dark and cloudy. The earnings season will be at full speed this week with the rest of the US big banks due to report in the coming days, alongside Tesla, Netflix and TSM.

But this earnings season will likely remain under the shadow of mounting geopolitical tensions in the Middle East and a broad-based discomfort and lack of appetite that comes along with it. Gold and crude oil rallied before the weekly closing bell, and US treasuries are demanded as investors seek safely on a potential Israel offensive in Gaza at any time.

On corporate calendar, US retail sales, UK & Canadian inflation numbers, Chinese growth data and Federal Reserve (Fed) speakers will be closely followed.

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US inflation data wasn’t very soothing for investors at yesterday’s release. The stickiness in yesterday’s inflation data wasn’t a surprise and the latest set of jobs and inflation data will unlikely change the Federal Reserve’s (Fed) mind for the November meeting. The Fed is expected to sit on its hands, wait and see. But the first Fed rate cut won’t come so soon, and the Fed will try to capitalize on the ‘higher for longer’ policy to avoid having an accident on what they call ‘the last mile’.

The market reaction to yesterday’s data was very clear, however. The rebound in yields sent the US dollar rallying, and equities tumbling. The EURUSD sank below 1.06, the dollar-yen remains cautiously bid near the 150 level, while Cable – which could’ve rallied above both a short-term and a long-term bearish trend channel, simply couldn’t take the chance after yesterday’s data showed a meagre GDP growth.

The selloff in crude oil extended to below $82pb as the EIA revealed a more than 10-mio barrel build in US crude inventories last week, but buyers gently return into the $80pb psychological level, which is – we know – the Saudi’s limit for eventually taking more action to restrict demand.

Stock investors’ attention shifts to US earnings as three US big banks are expected to reveal their Q3 earnings today.

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Flight to safety continued on Wednesday, as Middle East tensions rose by another notch after Iran-backed Hezbollah said it fired missiles to an Israeli military post near the Lebanese border. US Treasuries, gold and Swiss franc gained.

The easing US yields and the dollar’s depreciation are due to mounting tensions in the Mid East, but they are also due to a recent softening in Federal Reserve (Fed) speakers’ policy approach.

The probability of a no rate hike in November jumped above 90% after the Fed minutes, whereas this probability stood at around the 70% level at the beginning of this week. US fed funds futures price in more than 70% for a no hike in December as well, whereas this probability closer to 50/50 a few days ago.

But, but, but… revealed yesterday, the producer price inflation in the US came in higher than expected. And due today, the US CPI data could, or could not show a further fall in headline and core inflation. A higher-than-expected set of inflation data could scale back a part of the recent dovishness regarding the Fed and reverse a part of the recent gains in US Treasuries.

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The IMF lowered its global growth forecast to 2.9% but boosted its inflation projection from 5.2% to 5.8% for next year, but investors preferred listening to the growing choir of Federal Reserve (Fed) members singing the dovish tune. The US yields remained under pressure.

But be careful, due today, the FOMC minutes will remind investors that ‘the rates will stay higher for longer’ if inflation remains above target.

For now, softer yields please equity investors. The S&P500 extended its rebound into the third straight session yesterday, and Nasdaq pulled out its 50-DMA resistance and closed above this level. Chinese equities, on the other hand, rallied after the IMF recommended Beijing to take ‘forceful action’ on its real estate troubles, and on news that China was considering fresh stimulus measures to boost growth, anyway. Let’s see if this time is the charm – I am not convinced.

In the FX, the US dollar is giving back strength globally, the EURUSD extended gains above the 1.06 mark, and Cable is preparing to test the 1.23 offers.

The barrel of American crude sees solid support near the 50-DMA ($85.50pb level); mounting tensions in the Middle East threaten the bears; daring a short position in oil is risky beyond a corrective move.

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The reaction rally in oil is easing, with the barrel of crude settling around $86pb this morning. Brent crude remains offered near the 50-DMA, near $88pb level. Upside risks prevail.

Safe haven assets and oil companies amassed important capital inflows on Monday. Exxon Mobil jumped 3.5% and rally in oil stocks helped the British FTSE 100 limit gains in an otherwise depressive European trading session. Gold hit $1860 per ounce, as the US 10-year yield fell by a big chunk, around 18bp, on the back of increased inflows into the ten-year papers. The 2-year yield slipped below the 5% mark on dovish Federal Reserve (Fed) comments. The S&P500 – which opened the week on a bearish note, rapidly recovered losses and closed the session 0.63% higher. Nasdaq advanced above the 100-DMA, but the European Stoxx 600 started the week on a bearish note.

In currencies, the US dollar gave back early gains, the EURUSD stabilized between 1.0560 and 1.0580 while the USDJPY eased to 148. More Fed members will be speaking today, the IMF will soon release its latest growth forecasts and investors will remain cautious before the release of the latest PPI and CPI figures due Wednesday and Thursday respectively.

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Capital flows into the safety of US dollar and gold this morning, while oil is up almost 4% after Hamas’ unexpected attack on Israel wreaked havoc in the region, and tensions have been mounting since then.

It is difficult to predict the extent of the price action on geopolitical shocks. The fact that the US and Iran are pulled into the turmoil hints that tensions may further escalate. From a price perspective, the $90pb level is expected to shelter decent offers in US crude, as escalation and prolongation of Mid-East tensions could be the final straw that could bring the world very close to the brink of recession, and temper appetite for oil. It's too early to call.

Trading in Asia was mixed, stocks in Tel Aviv lost 6.5%, sentiment in Europe is sour and the US equity futures are down. Gold acts as a strong safe haven. The price of an ounce jumped past the $1850 level this morning, and further escalation of tensions should drive capital into the safety of gold.

This week, the market attention will shift to the big bank earnings, and to the latest US inflation update.

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It’s US jobs day, and today’s data could be one of the most important jobs data of the year because the US bond and equity markets are at a crossroads. The US 2-year yield refuses to lose the 5% mark from sight, while the US 10 and 30-year claim a further rise to 5% on expectations that inflation will remain higher for longer and that would require interest rates to stay higher for longer. The S&P500 on the other hand is waiting in ambush, a few points above the critical 200-DMA (4205). Below, at 4180, the major 38.2% Fibonacci retracement is waiting to judge whether the S&P500 should remain in the positive trend, or sink its teeth into a medium-term bearish consolidation zone.

A reasonable wages growth data combined with another NFP number below 200K, preferably near the expectation of 170K, or ideally lower, should pour some cold water on bond yields, especially on the longer portion of the yield curve. But the impact of a cool down in US sovereign markets doesn’t mean that the stocks are out of the woods.

In energy, the oil selloff extended to a second day, prices fell in five over the past six trading days. The barrel of US crude hit the $82.5pb level yesterday. The selloff could extend toward $80pb level no matter what, if the market focus remains on ‘growth’ and ‘demand’.

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