03|03|2016

Bipolar Week in Geopolitical Unrest

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Every day came with reluctance from investors with a constant flow of geopolitical change. That being said, the S&P 500 still managed to end the week in positive territory.

Despite a strong flow of positive domestic economic data, concerns over Ukraine, Gaza, and Iraq have continued to weigh on investor confidence. The following are the various things across the globe that occurred though out the week.

US
Initial jobless claims fell below 300,000 at 289,000 . Continued strong employment data as well as firm inflation at 1.9% repeatedly sets investors on edge that the Federal Reserve (FR) may raise rates sooner than expected. Language from the FR, however, does not support that claim and forward guidance should be clear on whether or not to expect any change.

ISM nonmanufacturing PMI increased to 58.7 from 56.0 (over 50 indicates expansionary) supporting a strengthening economic environment for the US and potentially stronger revisions to Q2 2014 GDP.

US foreclosures reached an eight year low during the 2nd quarter, 2014 (Q2 2014). This data supports the increasing stability in the housing market.

Eurozone
The landscape in the Eurozone continues to be mixed. After reporting Q2 2014 GDP, Italy has officially slipped back into recession. Services PMI across the largest EU economies came in above 50 across the board. German Factory orders slid substantially, perhaps in response to Ukrainian tensions/sanctions.

Ukraine & Russia
Russia issued sanctions against western nations in retaliation to sanctions against them. While this should have an impact and mainly on Germany, the larger impact has already hit Russia. Their economy has already slipped into recession and has lost $100B this year in capitalization. Russia’s GDP is approximately the size of California’s GDP, so while meaningful perspective should be maintained.

When word broke on Friday that Russia was going to terminate military exercises along the Ukrainian border markets surged. It appeared as though hopes of decreased tensions allowed the markets to digest the positive economic data of the week.

Iraq
US air strikes in Iraq were unable to dampen investor sentiment on Friday. As often happens with geopolitical concerns, as the details surrounding activities develop they either affirm or go against the initial market reaction. This may have merely been an affirmation that US involvement was going to increase.

Gaza
Currently in a 72 hour cease fire tensions in the Gaza strip is heightened but market response has been limited as the cease fire has held up for 2 days.

China
HSBC Services PMI came in at 50 , imports fell, and exports rose; none of which support the economic shift towards domestic consumption.

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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment. Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.