After initially selling off hard on the Middle East war news, markets reversed sharply to the upside after some interesting moves in interest rates. More on that in a minute. But for now, most markets are flat (stocks, dollar) or mixed (gold and silver).

On the news front...

Israeli forces have pushed Palestinian invaders out of towns and villages on the Israeli side of the Gaza Strip border. Now, the focus will shift to when/if the army will push into Gaza proper. The country has called up a total of 360,000 reservists to date, the largest mobilization in Israel’s history.

Punishing airstrikes have leveled several buildings in Gaza and the death toll has risen to 765 there at last count. At least 900 deaths are being reported in Israel. Iranian officials, meanwhile, denied involvement in the attack though they expressed support for it.

Shifting to markets, we saw a powerful upside move after an initial selloff. What gives? A couple of Federal Reserve speakers suggested they want to stay on “pause” with interest rates through year end.

Both Fed Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan noted the rise in long-term yields over the past few weeks as something that could restrain economic activity by tightening financial conditions. That, in turn, would lessen the need for more short-term rate hikes.

Two Fed policy meetings remain in 2023, one concluding on Nov. 1 and one on Dec. 13. The comments yesterday caused traders to de-price the risk of a hike at either of them, helping fuel the rally in stocks and rate-sensitive assets like gold. But key inflation reports, including the September Producer Price Index tomorrow and September Consumer Price Index on Thursday, could change the market dynamic depending on what the data shows.