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Jun 19, 201411:24 AMOpen Mic

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Market and economic update: Data calm, geopolitics uneasy

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Last week saw further increases in geopolitical risks. The Islamic State of Iraq and Syria (ISIS) began military operations in Iraq, appealing to Sunni militants in an effort to undermine the Shiite-led government of Prime Minister Maliki and carve out a new Sunni state. Shiite militia and government troops are mobilizing to confront the threat, while Kurdish militia in Iraqi Kurdistan have taken control of Kirkuk, site of oil infrastructure and 15% of Iraq’s petroleum supplies.

We believe the conflict will remain contained to Iraq at this time, but there is a risk that Iran, a Shiite Muslim-ruled country, and Saudi Arabia, a Sunni Muslim-ruled caliphate, could become embroiled in the conflict. Adding to macro risks was the surprise defeat of Republican House Majority Leader Eric Cantor by a Tea Party candidate in his primary election. We believe market risk may increase if this defeat is a sign of future political conflict as we approach mid-term elections.

U.S. economic data saw a relatively quiet week. Jobs data indicated employment continues to be healthy. Retail sales data for May were somewhat lower than April, but likely indicative of month-to-month volatility. Survey data indicated modest improvements to confidence, but measures remain shy of levels historically consistent with economic recovery.

  • Weekly initial jobless claims rose slightly to 317,000, but levels remain consistent with improving payroll growth. The Job Openings and Labor Turnover Survey (JOLTS) indicated job openings have reached their highest level since 2007, and while the number of people quitting jobs rose, the rate remains well below average levels pre-financial crisis.
  • Retail sales grew 0.3% in May, slightly lower than the 0.5% rate in April but consistent with a relatively strong pace of sales over the quarter. The National Federation of Independent Business (NFIB) Small Business Optimism Index rose to its highest level since 2007. However, the mid-month University of Michigan Consumer Confidence survey slipped by 0.7 points from May to 81.2.

(Continued)

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