Geopolitical Concerns Steer Us Markets
Geopolitical concerns continue to steer financial markets as we start a new week, with stock prices pushed lower and assets perceived to be safer in the ascendance.
By Peter Martin
Monday, July 21, 2014 - 00:00
After a torrid morning in New York, which saw the Dow Jones Industrial Average down by as much as 125 points, stocks managed to regain at least some of their losses after President Obama said his preference continues to be for finding a diplomatic resolution within Ukraine and thinks that can still happen. The President said that Russia had armed the separatists with weapons, including anti-aircraft weapons, and warned that if Russia continues to back the separatists ‘ the costs for Russia’s behaviour will only continue to increase’, but shied away from further sanctions.
By early afternoon in New York, the Dow Jones Industrial Average was down 0.43% or 73 points at 17026, while the S&P 500 index’s losses were a little less at 7 points or 0.36%.
Russia is a major exporter of key fuels to the EU, particularly oil and gas and the prospect of relations worsening between the country and the West has deepened fears that supplies could be disrupted or the recovery in the Eurozone might be undermined. WTI oil futures rose 0.32% to $102.25 per barrel.
Risk aversion has also been fuelled by the situation in the Middle East, where Israel continues its assault on the Gaza strip. In the face of calls for a cease fire from the UN Security Council, the Israeli strikes appears to be escalating, with Sunday seeing the highest death toll in the two weeks since the offensive began. Israel is attempting to stop Hamas launching rocket fire from the Gaza strip and says it has no choice but to send in troops to the densely populated urban area of Shejiya, but UN Secretary General Ban Ki-moon has condemned the shelling of the neighbourhood, in which many Palestinian civilians have been killed, as ‘an atrocious action.’
Worries over the situations in Ukraine and the Middle East have supported safe-haven assets. Spot gold rose 0.2% to $1314 per ounce and silver rose 0.43% to $20.95 per ounce, having broken above $21 per ounce just before midday in New York.
Macroeconomic news has been sparse today, with the Chicago Fed’s national activity index the only significant domestic release. The report showed a slight loss in momentum for the economy last month, slipping to 0.12 after a level of 0.21 reached by the index in May. The softening was concentrated in production, which is no great surprise given last month’s weakness in industrial production, but overall growth remains above trend (the index is composed so as to have a mean value of zero, which represents the average growth trend). Some big names report in the next few days, including Apple, Microsoft, Coca-Cola and McDonald’s on Tuesday alone. Netflix reports after the market close tonight.
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