For the week ending June 14, 2014, the markets retraced on the worsening situation in Iraq and the revised economic growth forecast by the World Bank. This is the first week of decline after advancing to new record highs over the last three weeks.
This week's loss is the highest in the last two months with the Dow dropping -0.88 percent to 16,775.74; the S&P500 dropping -0.68 percent to 1,936.16; and the Nasdaq Composite dropping -0.25 percent to 4,310.65.
The chaotic situation in Iraq made headlines Thursday and Friday as ISIS militants advanced on Baghdad. Heavily armed Islamist militants, connected with Al Qaeda, are just 40 miles from Baghdad after overrunning Mosul. American-trained Iraqi troops have been deserting and surrendering to the militants in large numbers, providing the militants with weapons and vehicles.
Oil prices have spiked in response to the growing crisis in Iraq, with oil futures (/CL) rising 3.89 percent to $106.79 per barrel. Experts are worried that the conflict will disrupt supplies at a time when Iraq is becoming a key supplier (offsetting the loss of oil from Iran and Libya).
On Wednesday, the World Bank offered a stark warning which shook-up the markets. The bank lowered its global economic outlook for 2014 from 3.2 percent to 2.8 percent, while holding its 2015 estimate unchanged at 3.4 percent. The bank warned that "now is the time to prepare for the next financial crisis, identifying markets as still skittish and vulnerable to slowing global growth."
Bank of America (BofA) could face over $12 billion to settle probes by the U.S. Justice Department and a number of states. The probes allege that the bank handled shoddy mortgages. BofA is the second largest U.S. bank facing multiple government probes related to " underwriting, sale and securitization of residential mortgage bonds before the financial crisis."
The focus next week in the U.S. will be on Manufacturing (Empire State, Industrial Production, Philly Fed Survey), Consumer (CPI), Housing (Housing Market Index, Housing Starts), and the FOMC (Announcement, Forecasts, Conference).
Globally, the focus will be on China's Consumer and Producer Price Indexes; and EU Industrial Production and Merchandise Trade.
With an abundance of economic news and the geopolitical chaos in Iraq, we expect the markets to be choppy next week with a potential large drop. The data from China will come out on Monday and could add to the volatility. Pundits are still expecting the S&P to hit 2,000 by the end of this month.
Year-to-date the markets are up: Dow 1.8%; S&P500 4.8%; Nasdaq 3.2%.
The Markets for the past week were: DJIA down -0.3%; S&P500 down -0.7%; Nasdaq COMP down -0.2%.
Commodities (ETFs) for the past week were: Gold (GLD) up 1.95%; Silver (SLV) up 3.50%; Oil (OIH) up 1.36%; Dollar (UUP) up 0.33%; 30-yr Bonds (TYX) dropped 3 basis points to 3.41%.
The VIX this past week (a measure of market sentiment and volatility) rose to 12.18% due to the World Bank's revised global economic growth forecast and the chaos in Iraq.
The economic calendar for next week is full: on Monday – Empire State Mfg Survey, Treasury International Capital, Industrial Production, Housing Market Index; on Tuesday – Consumer Price Index, Housing Starts; on Wednesday –Weekly EIA Petroleum Status Report, FOMC Meeting Announcement, FOMC Forecasts, Chair Press Conference; on Thursday –Weekly Jobless Claims, Philadelphia Fed Survey; and Friday – Quadruple Witching.
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