Stocks Fail To Soar Despite Global Geopolitical Risk Contagion

Tyler Durden's picture

It's one of those days: despite the Iraq conflict spilling out of control and about to involve US drones and warplanes, despite China's naval conflict with Vietnam over an oil rig in disputed territory set to go "kinetic" at any moment, despite the Ukraine civil war having its deadliest day yet this weekend and adding insult to injury Russia halting gas supplies to Ukraine (letting Kiev and Berlin fight for the scraps), despite crude prices rising ever higher and about to unleash a "discretionary income" shockwave on America's summertime motorists, despite yet another massive tax inversion M&A deal in which the buyer has made abundantly clear its stock is overvalued and will be used as the purchasing currency, stocks are inexplicably not at all time highs this morning.

Oh wait, we know: it must be because that $29 trillion central banks have quietly invested in stocks and other asset classes is clearly not enough. Expect a few more billion to be promptly injected by central printers into the "unrigged, unmanipulated" policy vehicles whose only purpose is to boost consumer confidence these days, now that only central banks, prop desks and robots are still trading.

The Shanghai Comp (+0.75%) outperformed overnight, benefiting from upbeat comments from China Premier Li, who stated that the government is confident that this year's 7.5% target will be met and also after the PBoC expanded the number of lenders eligible for cuts to their reserve-requirement ratios.

Sentiment remained somewhat cautious in Europe this morning, amid the uncertainty over the recent rise in geopolitical tensions in Iraq and after Russia has reportedly stopped gas supplies to Ukraine after it missed a bill payment deadline. European shares remain lower with the telecom and financial services sectors underperforming and basic resources, health care outperforming. The Spanish and Italian markets are the worst-performing larger bourses, the Swiss the best. The euro is little changed against the dollar. Greek 10yr bond yields rise; French yields decline. Commodities gain, with soybeans, silver underperforming and nickel outperforming. U.S. Empire manufacturing, NAHB housing market index, industrial production, capacity utilization due later.

Market Update

  • S&P 500 futures down 0.3% to 1923.3
  • Stoxx 600 down 0.4% to 345.8
  • US 10Yr yield down 2bps to 2.59%
  • German 10Yr yield down 1bps to 1.35%
  • MSCI Asia Pacific down 0.3% to 143.7
  • Gold spot up 0.3% to $1280.3/oz


  • 3 out of 19 Stoxx 600 sectors rise; basic resources, health care outperform, telcos, financial services underperform
  • 20.2% of Stoxx 600 members gain, 78.7% decline
  • Eurostoxx 50 -0.5%, FTSE 100 -0.2%, CAC 40 -0.4%, DAX -0.2%, IBEX -0.8%, FTSEMIB -0.6%, SMI -0.2%


  • Asian stocks fall  with the Shanghai Composite outperforming and the Nikkei underperforming.
  • MSCI Asia Pacific down 0.3% to 143.7
  • Nikkei 225 down 1.1%, Hang Seng down 0.1%, Kospi up 0.1%, Shanghai Composite up 0.7%, ASX up 0.1%, Sensex down 0.1%
  • 3 out of 10 sectors rise with materials, tech outperforming and consumer, industrials underperforming

Headline Bulletin Digest from RanSquawk and Bloomberg

  • Treasury curve flattens overnight on flight-to-quality flows as tensions remain elevated in Iraq and Ukraine; highlight this week is FOMC rate decision Wednesday that will also feature updated SEP and Yellen presser.
  • Iraq’s military pummeled the positions of Sunni Muslim insurgents who have captured large chunks of territory north of Baghdad, trying to turn back battlefield advances that threaten to split the country
  • Brent crude was projected by Wall Street analysts to average as much as $116 a barrel by the end of the year. Now, with violence escalating in Iraq, how far the price will rise has become anyone’s guess
  • Ukraine said Russia cut gas supplies after demanding fuel payments be made in advance, the first time fuel shipments have been affected in this year’s crisis
  • The ECB will start to buy asset-backed securities within a year, according to more than three-quarters of respondents in the Bloomberg Monthly Survey
  • Corporate issuers globally will seek about $60t in new debt and refinancing through 2018, as China surpasses the U.S. as the country with the most company debt outstanding, Standard & Poor’s said
  • The boom in fixed-income derivatives trading is exposing a hidden risk in debt markets around the world: the inability of investors to buy and sell bonds
  • Sovereign yields mostly lower. EU peripheral spreads mixed with Greece 10Y up 9bps. Asian equities down; European equity markets, U.S. stock futures drop. WTI crude, gold and copper higher

US Event Calendar

  • 8:30am: Empire Manufacturing, June, est. 15 (prior 19.01)
  • 9:00am: Net Long-Term TIC Flows, April, est. $37.5b (prior $4b)
  • Total Net TIC Flows, April (prior -$126.1b)
  • 9:15am: Industrial Production m/m, May, est. 0.5% (prior -0.6%)
  • Capacity Utilization, May, est. 78.9% (prior 78.6%)
  • Manufacturing Production, May, est. 0.6% (prior -0.4%)
  • 10:00am: NAHB Housing Market Index, June, est. 47 (prior 45) Central Banks
  • 11:00am POMO: Fed to purchase $2.25b-$3b in 2018-2019 sector


Sentiment remained somewhat cautious in Europe this morning, amid the uncertainty over the recent rise in geopolitical tensions in Iraq and also after Pro-Russian separatists shot down a Ukrainian military transport plane, killing all 49 people on board, which was the deadliest day in the recent unrest in eastern Ukraine. Adding fuel to the fire were reports that Russia has reportedly stopped gas supplies to Ukraine after it missed a bill payment deadline.
There was little in terms of tier 1 macroeconomic releases this morning, with the Eurozone CPI data coming in line with prev. and in turn offering little new information for market participants to digest. Similar reaction was observed to weekend comments by ECB's Coeure who said ECB would stand ready to do more if the Bank still sees extended period of low inflation later on, together with comments by ECB’s Weidmann who has rejected calls from France and Italy for a purposeful devaluation of the EUR.

Policy divergence between the BoE and the ECB continued to manifest itself, with comments by BoE’s Bean who said higher interest rates should be welcomed, together with S&P’s decision to revise the UK’s outlook up to stable from negative leading to underperformance of UK rates.


Risk averse sentiment meant that stocks traded lower since the get-go in Europe this morning (Eurostoxx 50, -0.50%), with financials underperforming as widening credit spreads made high beta plays look less attractive. In stock specific news, Actelion shares surged over 10% after company’s experimental heart and lung drug Selexipag met its primary goal in a late-stage study. In terms of US related news, Medtronic has agreed to buy Covidien for USD 42.9bln in cash and stock as it transforms into a broader based Co. bolstered by new tax advantages. Medtronic will pay the equivalent of USD 93.22 for each Covidien share, a 29% premium over the Co.’s Friday closing price of USD 72.02. (BBG)


General risk averse tone meant that GBP/USD failed to hold onto its best levels of the session after moving above 1.7000 level for the first time since August 2009 amid monetary policy divergence between the BoE and the ECB, together with comments by BoE’s Bean and S&P UK upgrade. Elsewhere, JPY benefited from the ongoing flight to quality, with USD/JPY and EUR/JPY trading lower overnight and in Europe this morning. At the same time, rising precious metal prices failed to support AUD, which too suffered from depressed sentiment for riskier assets.


Geopolitical concerns continued to support gold and silver prices overnight and in Europe this morning, with spot gold rising to its highest level in three weeks and silver rising for sixth day in what is the longest rally since February.

Elsewhere, iron ore futures fell to its lowest level since April 2013 overnight as concerns over the oversupply and the recent probe into collateral financing in China weighed on sentiment. On the other hand, copper prices rose for a second day as and remained supported overnight as the Qingdao Port probe has reduced the supply of copper in the short run.

* * *

DB's Jim Reid concludes the overnight recap

Taking a look at markets to start the week, geopolitical concerns in Iraq and to a lesser extent Ukraine are weighing on risk sentiment. Over the weekend it was reported that Sunni insurgents had made further progress in northern Iraq but their progress in advancing on Baghdad had stalled as PM Maliki’s government forces countered ISIS momentum about 100km from Baghdad’s city limits.

There are also growing indications that the conflict may widen - the Guardian wrote over the weekend that Iran has sent 2000 advance troops to Iraq in the last few days to help tackle the insurgency. Indeed, the WSJ is reporting that the White House is preparing to open direct talks with Iran about how to  provide support to the Iraqi government. The talks are expected to begin this week and mark a rapid move toward rapprochement between Washington and Tehran over the past year. According to the article, the US has begun positioning military assets throughout the region. Brent is up another 0.5% this morning after ending last week 4.3% higher.

With the exception of China and Korea, Asian equities are trading weaker this morning led by the Nikkei (-1.05%). Dollar-yen is down 0.25% today, and there is a firmer bid for treasuries where 10yr yields are down 2bp at 2.58%. Chinese iron ore futures are down 0.5% today amid reports that 17 banks have been drawn in multiple collateral pledging investigations at the port of Qingdao. Losses are feared to run into billions of dollars according to China’s Caijing magazine. Iron ore prices are down by one-third in the year-to-date Ukraine may return to the front page today after talks broke down between the Ukrainian and Russian governments over gas prices. Kiev said heading into the negotiations that it was ready to make a $US1.95 billion payment demanded by Gazprom if Russia agreed to cut its ongoing price to $US326 from $US485.50 for 1000 cubic metres of gas. However Putin says $US385 per 1000 cubic metres was his final offer and Gazprom has threatened to turn off gas supplies to Ukraine by 6am GMT today, if the latter’s gas debt was not paid on time. The WSJ reports that Ukraine's government has ordered  state-owned utility Naftogaz and the local authorities to prepare for a complete halt of Russian gas deliveries on Monday. Naftogaz said the country could meet its gas needs until the end of the summer through its own production and stored gas (WSJ).

Looking ahead at the weekly calendar, the FOMC will take much of the limelight this week but there is also a busy data docket over the next few days. Today we have the Empire State manufacturing survey, industrial production and the NAHB housing market index. On Tuesday, the latest CPI, housing starts and permits will be released. The Philly Fed is due on Thursday with 2yr, 5yr and 7yr treasury auctions also scheduled.

In Europe, the German ZEW survey and UK inflation is released on Tuesday with the BoE MPC minutes from June 5th published on Wednesday. Following Carney’s comments last week, the MPC minutes are probably worthy of close inspection. On Friday, EU finance ministers meet to discuss the draft 2015 EU budget in Luxembourg. It’s a relatively quiet week in Asia with an update on Chinese property prices, Japanese trade and BoJ minutes on Wednesday. BoJ Governor Kuroda will be speaking on Friday.

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Everybodys All American's picture

I think someone missed the line item where the Fed Reserve accomplices buy the S&P 500 index throughout the day in exchange for a seat at the Bilderberg table.

thisisjustarandomusernameicreatedforzerohedge's picture

it's funny because not overreacting to shit halfway around the world that really has very little impact on joe's 9-5 and his consumer spending or mortgage is probably the MOST rationale the market has acted in ages

Latina Lover's picture

O Ye of Little Faith, believe, and the stock market faires will magically appear.

Arius's picture

apologies ... got caught up in a meeting hence the delay and mishaps in the stock market .... a few computer strokes at the main frame will fix it ... it just that, nothing else ... and nothing else really matter, forget about wars, inflation etc.

29.5 hours's picture



Stocks will re-bound as soon as the "market" hears the IMF is thinking proactively:

"At present, the IMF’s options are limited to a pure bailout or upfront debt restructuring based on whether the fund considers the country’s debt to be sustainable. The mooted idea offers a third way by allowing creditors to agree instead to a “reprofiling” of existing bonds. Maturities would be extended for the duration of the IMF programme with no change to the coupon or principal."

I like that "allowing creditors to agree" part...

FT article



Bemused Observer's picture

" now that only central banks, prop desks and robots are still trading."...

What if that's it? Maybe there IS no one really 'in the market'...and it's all some weird Kabuki-theater and these "all-time highs" are just from a few big players holding the whole thing up themselves, waiting for everyone to 'jump on in'?

LOL!! Let's all just laugh and walk away, go do something else and leave the idiots there...

AdvancingTime's picture

To say the market is rigged is an understatement. After over 30 years of trading commodities I will flat out state without any reservations that lies and manipulation run rampant. If you think anyone is looking out for the small independent trader you are wrong. An unholy alliance of the Federal Reserve, the government, and the too big to fail has left the rest of us in a precarious position.

For the big boys, its insider information and computer trading, this includes computing patterns that exploit where stops are placed, this improves their ability to wash the weak out of their positions. The bottom-line is that the higher the market goes the more vulnerable it becomes to a major collapse and sudden downward move. More on this subject in the article below.


GetZeeGold's picture



lies and manipulation run rampant you think?

Thanks Captain Obvious!

timmeh's picture

well, that's strange...

Kristian's picture

Today one of the biggest pomo days of the week $2.25 - $3.00 billion, also options ex week.

Hindenburg...Oh Man's picture

I thought that the Ukraine situation was "sorted out." Isn't that what precipitated gold's fall from 1390-ish back in March? And then just has free fallen since..

Oldwood's picture

Its still early. They are just looking for a dip somewhere that they can capitalize on as a buying opportunity and then its off to the races again. Shorts get murdered on a regular basis so up is the only game in town. There is way too much money still tied up in this ponzi for them to fail yet. Lets let interest go negative and savings put under greater threat and just wait for the remaining hold out sheep to jump back in ignoring all risk for the sake of not losing out. Only when they have sold nearly all of the worthless paper to the dumb muppets can they let this thing collapse, and if they do it right, maybe not even then. I mean after all, why kill us off when they can keep us a slaves.

jubber's picture

and Oil now negative LOL

The Most Interesting Frog in the World's picture

It's been about 5 years since all executive stock options were re-done at market lows. They about all cashed out... Things will start dropping soon....

timmeh's picture

NASDAQ +0.3%. now we're just fine.