For the week ending August 16, 2014, the markets ended up despite the worsening situation in Ukraine. Mixed economic news actually bolstered the markets. Below is a recap of the markets for each day of the week.
The markets rose on Monday as the tension between Ukraine and Russia eased, and talks between Israeli and Palestinian negotiators continued. The 3-day truce between Israel and Hamas held, despite large gaps and little progress made during negotiations held in Cairo.
On Tuesday the markets dropped on the news of a continuing decline in German consumer confidence, and the Iraqi leadership transition issues. Secretary of State John Kerry threatened a cutoff of international support if current Prime Minister Nuri Kamal al-Maliki interfered with the selection and installment of his replacement. This comes in the midst of the U.S. supplying small arms to the Kurds through the CIA.
On Wednesday, the markets rose on a poor Retail Sales report. The news actually reduced fears of an early Fed rate increase, which is currently expected to occur mid-2015. As a result, the S&P rose to a two-week high.
The markets continued to rise on Thursday despite poor second quarter GDP numbers from France, Germany, and the EU. The markets focused attention on President Vladimir Putin's statement that Russia will stop the conflict in eastern Ukraine. This occurs as the standoff over Ukraine is becoming more costly: the U.S. and EU economic sanctions against Russia, and the retaliatory banning of food imports by Russia.
On Friday the markets were mixed as a report came out mid-day that Ukraine partially destroyed a Russian armed convoy as it crossed its border. While the focus was on the "humanitarian" convoy, NATO said a separate military column entered Ukraine territory during the night. The Ukrainian president said its forces destroyed most of the military convoy. The White House is looking into this incident, which currently is unconfirmed. In the interim, the Russian aid convoy at the Ukraine border is awaiting inspection.
Since the crisis in Ukraine erupted in April, allegations have been ongoing that Russia is supporting the rebellion in an attempt to regain eastern Ukraine; or at least control the Ukrainian government. This latest incursion, if confirmed, raises the concern of Russia invading the Ukraine, and what the response will be from the U.S. and EU nations.
The bottom line: the U.S. economy continues to improve in the manufacturing sector (based primarily on domestic demand); the consumer sector continues to vacillate each month over the impact of geopolitical crises (Ukraine, Gaza, Iraq).
The focus next week in the U.S., with a full economic schedule, will be on the following: Housing (NAHB housing market index; housing starts, existing home sales); Manufacturing (Markit Economics; Philly Fed Survey); Consumer (consumer price index); and the FOMC Minutes; .
Globally the focus will be on the following: Bank of England monetary policy committee minutes; UK CPI and PPI; Germany PPI; and China PMI.
Year-to-date the markets are up: Dow 0.5%; S&P500 5.8%; Nasdaq 6.9%.
The Markets for the past week were: DJIA up 0.7%; S&P500 up 1.2%; Nasdaq COMP up 2.2%.
Commodities (ETFs) for the past week were: Gold (GLD) down -0.56%; Silver (SLV) down -1.72%; Oil (OIH) down -0.70%; Dollar (UUP) flat; 30-yr Bonds (TYX) dropped 9 basis points to 3.14%.
The VIX this past week (a measure of market sentiment and volatility) dropped to 13.15% despite concerns of a Russian invasion of Ukraine. What is uncertain is the reaction of the EU and U.S. if reports of an armed Russian convoy is confirmed.
To see what's on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is full: on Monday – Housing Market Index; on Tuesday – Consumer Price Index, Housing Starts; on Wednesday – Weekly EIA Petroleum Status Report, FOMC Minutes; on Thursday – Weekly Jobless Claims, PMI Manufacturing Index Flash, Philadelphia Fed Survey, Existing Home Sales; and Friday – nothing.
If you're trading options, we suggest Put Credit spreads for next week at 2 standard deviations or greater. Expect the price of the SPX to fall within 1885 and 2027 (2 standard deviations).
For more information about options, see the 'Suggested by the author' links below.