US equity markets finished the week with losses after a rising jihadist offensive in Iraq drove oil prices to nine-month highs and stoked further concerns about Middle East stability.
The Dow Jones Industrial Average shed 148.54 points (0.88 percent) over the week, closing at 16,775.74 on Friday, while the broad-market S&P 500 dropped 13.28 (0.68 percent) to 1,936.16.
The NASDAQ declined 10.75 (0.25 percent) to 4,310.65. The losses snapped three straight weeks of gains for equity markets that had translated into fresh records for the Dow and S&P 500.
However, geopolitics returned with force to the market’s radar as Iraq was hit by an insurgent offensive.
On Tuesday, militants spearheaded by the Islamic State of Iraq and the Levant captured Iraq’s second-biggest city of Mosul as part of a multi-pronged assault that by Friday brought the insurgents just 80km away from Baghdad. On Friday, Shiite Grand Ayatollah Ali al-Sistani urged Iraqis to take up arms against the rebels, while US President Barack Obama said he might take military action to support the government, but ruled out sending in ground troops.
US equity markets fell sharply on Thursday, as US oil prices soared more than 2 percent to their highest level since September last year. However, equity markets steadied on Friday, as all three indices finished the day with gains. Oil prices continued to rise, but not nearly as much as they had on Thursday.
“Some of the element of surprise regarding the ease with which the Islamic militants overran Iraqi security forces is wearing off,” Citi Futures energy analyst Tim Evans said.
Investors are now “clearly focused on Iraq rather than ignoring it as they had as recently as Wednesday,” he said.
Opinions varied on the seriousness of the Iraqi situation.
Marblehead Asset Management director Mace Blicksilver described it as “very unsettling.”
“Iraq is a place we forgot about and suddenly we see this unraveling and it has very dramatic implications,” he said.
However, BTIG chief global strategist Dan Greenhaus said US equity markets have been “fantastically resilient” in the face of previous geopolitical scares over Ukraine and Syria.
It is too soon to say if Iraq will be different, he said.
“We’ve had three strong weeks of gains. We’re sitting at close to record highs,” Greenhaus said.
“You obviously don’t go straight up in perpetuity, and this was a week we chose to take break,” he said.
The Iraq story stood out in part because it was a fairly light week as far as economic data.
The US Department of Commerce said retail and food sales last month rose by just 0.3 percent, well below the 0.7 percent increase expected by analysts.
The World Bank trimmed its global growth forecast for this year to 2.8 percent from its January forecast of 3.2 percent, citing in part the sluggish first quarter in the US due to severe winter weather and the Ukraine crisis.
Corporate headlines were dominated by merger news. Tyson Foods won the bidding war for hot dog maker Hillshire Foods after offering US$8.6 billion. Online travel giant Priceline unveiled a US$2.6 billion acquisition of restaurant reservation service OpenTable. And pharmaceutical giant Merck announced a US$3.9 billion takeover of antiviral drug developer Idenix Pharmaceuticals. However, a transaction between Valeant Pharmaceuticals International and Botox-maker Allergan remained far from certain after Allergan rejected the latest bid from the Canadian company.
Corporate stories next week include earnings from FedEx and Oracle, and a mystery announcement from Amazon that analysts say could be the launching of a new smartphone.
Investors will also be awaiting the US Federal Reserve’s conclusion of a two-day policy meeting on Wednesday, accompanied by new economic projections and a news conference with Fed Chair Janet Yellen. The Fed is not expected to alter its measured reduction of stimulus, but analysts will be watching for clues on the time frame for a move to raise the near-zero benchmark interest rate.
GROWING OWINGS: While Luxembourg and China swapped the top three spots, the US continued to be the largest exposure for Taiwan for the 41st consecutive quarter The US remained the largest debtor nation to Taiwan’s banking sector for the 41st consecutive quarter at the end of September, after local banks’ exposure to the US market rose more than 2 percent from three months earlier, the central bank said. Exposure to the US increased to US$198.896 billion, up US$4.026 billion, or 2.07 percent, from US$194.87 billion in the previous quarter, data released by the central bank showed on Friday. Of the increase, about US$1.4 billion came from banks’ investments in securitized products and interbank loans in the US, while another US$2.6 billion stemmed from trust assets, including mutual funds,
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RESPONSE: The Japanese Ministry of Finance might have to intervene in the currency markets should the yen keep weakening toward the 160 level against the US dollar Japan’s chief currency official yesterday sent a warning on recent foreign exchange moves, after the yen weakened against the US dollar following Friday last week’s Bank of Japan (BOJ) decision. “We’re seeing one-directional, sudden moves especially after last week’s monetary policy meeting, so I’m deeply concerned,” Japanese Vice Finance Minister for International Affairs Atsushi Mimura told reporters. “We’d like to take appropriate responses against excessive moves.” The central bank on Friday raised its benchmark interest rate to the highest in 30 years, but Bank of Japan Governor Kazuo Ueda chose to keep his options open rather than bolster the yen,
Even as the US is embarked on a bitter rivalry with China over the deployment of artificial intelligence (AI), Chinese technology is quietly making inroads into the US market. Despite considerable geopolitical tensions, Chinese open-source AI models are winning over a growing number of programmers and companies in the US. These are different from the closed generative AI models that have become household names — ChatGPT-maker OpenAI or Google’s Gemini — whose inner workings are fiercely protected. In contrast, “open” models offered by many Chinese rivals, from Alibaba (阿里巴巴) to DeepSeek (深度求索), allow programmers to customize parts of the software to suit their
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