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.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)