The week began with two record breaking days for the stock market but the momentum couldn’t be carried through to a third day, and instead we saw stock prices treading water on Wednesday for the most part, though the S&P 500 did manage to close above the 2000 mark
By Peter Martin
Thursday, August 28, 2014
The blue chip index has slipped back below that key level today though, as a recurrence of concerns over the situation in Ukraine has served to turn attention away from some a number of moderately encouraging economic reports.
By early afternoon in New York, the Dow Jones Industrial Average was down 0.21% or 36 points at 17,086, while the S&P 500 index slid 0.11% to 1997.9. The NASDAQ 100, meanwhile, kept pace with the losses of the other leading benchmarks, dropping 0.11% to 4068.5.
There are reports that fighting has intensified in the east of Ukraine, while Ukraine President Petro Poroshenko cut short a trip to Turkey, citing a ‘sharp aggravation of the situation in Dontesk region, particularly in Amvrosievka and Starobeshevo’ and accused Russian troops of invading his country. Russia has denied deploying its troops over the border, but Nato says there has been a sharp escalation in Russian military interference in Ukraine in the last couple of weeks, with advanced weaponry being supplied to insurgents in the east of the country.
British Prime Minister David Cameron said, ‘President Putin has said that Russia is willing to find a peaceful solution to the conflict but this is not credible when Russia is supporting pro-Russian separatists in Ukraine with arms and troops’ and warned of ‘further consequences’ if Russia does not pursue a political solution to the conflict. The Obama administration expressed ‘deep concern’: a State Department spokesperson said, ‘These incursions indicate a Russian-directed counteroffensive is likely underway in Donetsk and Luhansk.’
Worries over these signs of escalation have spurred a flight to safety, to the benefit of gold, silver, the Japanese yen, and other assets perceived as less risky. The dollar weakened 0.12% against the yen, while spot gold and silver both advanced more than 0.5%.
Despite the downbeat sentiment in the financial markets, economic news today has been largely positive. The Bureau of Economic Analysis’ second estimate for second-quarter GDP showed growth of an annualised rate of 4.2%, bouncing back even more strongly than previously thought from the first-quarter’s 2.1% contraction. The advance estimate last month was for growth of 4.0% in the second quarter, a calculation based on less complete data than today’s report.
There was also modestly good news for the labor market, as initial jobless claims dropped last week to 298,000 from 299,000 in the week prior, a result that should bolster hopes for a solid showing in next week’s employment report for August.
We have had a succession of encouraging reports on the housing market in the past two weeks, and this trend continued today with the release of the National Association of Realtors’ pending home sales index. The index showed a 3.3% rise for July, significantly higher than expectations, and suggests advances in the labor market, combined with slowing prices and mortgage rates that remain very low by historical standards, are having a positive knock-on effect for the housing sector.
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