June 16 2014
Investors remain oddly complacent even in the face of unexpected events that have the potential to disrupt global markets.
Last week, news media reported civil war in Syria has boiled over into Iraq, and ISIS (Islamic State of Iraq and Syria), a Sunni extremist group, has seized control of hundreds of square miles. According to CNN.com, the group’s ambition is to create an Islamic state that encompasses the Sunni regions of both Iraq and Syria. The Economist pointed out the potential for volatility in world energy prices is enormous because significant portions of the world’s energy reserves are controlled by Middle Eastern nations (factor in Russia and Venezuela, too).
Governor of the Bank of England, Mark Carney, let markets know the United Kingdom’s central bank may raise rates sooner than expected to help turn the country’s recovery into a durable expansion. His speech sparked speculation about the timing of rate hikes in the United States. President of the Federal Reserve Bank of St. Louis, James Bullard, told The Wall Street Journal the Fed is likely to raise rates sooner than expected if the U.S. economy meets performance expectations during 2014.
Russian politicians are encouraging a de-dollarization of their economy, and leaders of several Russian banks have indicated they are bypassing the U.S. dollar in their international transactions. China and Brazil are settling some of their trade with their currencies, the renminbi and the real (respectively). According to Barron’s, “The world is actively seeking an alternative to the greenback. Major nations don’t want to pay the virtual toll in the cost of acquiring dollars to conduct trade. The maturation of their own financial markets increasingly allows them to bypass the dollar-centric financial system.”
U.S. stock markets largely finished the week lower; however, the CBOE Volatility Index (VIX) (the so-called fear gauge) remained at levels suggesting investors remain relatively unruffled.
- Data as of 6/13/141- WeekY-T-D1-Year3-Year5-Year10-Year
- Standard & Poor’s 500 (Domestic Stocks)-0.0074.8%18.3%0.1516.0%5.6%
- 10-year Treasury Note (Yield Only)2.6N/A2.23.03.74.9
- Gold (per ounce) 2.0 6.0-8.1-5.96.412.7
- DJ-UBS Commodity Index0.87.23.6-6.31.4-0.7
- DJ Equity All REIT TR Index-2.214.410.312.722.810.0