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Stocks Choppy as Downed Russian Plane Stirs Geopolitical Tension

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November 24, 2015

It’s a shortened holiday week that’s already testing relationships. U.S. stock futures fell, recovered, and fell anew early Tuesday, after news reports said Turkey shot down a jet fighter claimed by Russia near the Syrian border. It’s the latest in several recent global events that underline geopolitical tensions that can rattle financial markets, at the least inviting extra volatility and potentially aggravating what’s already slower global economic growth.

Those news reports say that Turkey claims the Russian warplane violated Turkey’s airspace and after several warnings, a Turkish military jet shot down the Russian jet. Turkish authorities didn’t identify the nationality of the jet, but Russia separately said one of its jets had been downed, likely by shelling from the ground, the Wall Street Journal and others are reporting.

As for markets, the news plays out against a backdrop already complicated by expectations the Federal Reserve could soon begin a rate-tightening campaign while much of the rest of the world continues to try to pump air into slow-growth economies. As such, the dollar is shooting higher once again, driving commodities prices to multi-year lows and crimping the earnings of multinational U.S. firms (more on both below).

SPX stock chart

FIGURE 1: FORMIDABLE LINE?

The S&P 500 (SPX), charted through Monday here on the new-look thinkorswim® platform, has been stopped short of the psychologically significant 2100 line. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Commodities in Play. The strong dollar story has hit the commodities market in a fresh wave. The ICE U.S. dollar index (DXY) touched 100 to start the week for the first time since March. Gold futures settled sharply lower on Monday, sending prices for the metal back to their lowest level since early 2010 as the U.S. dollar got a fresh lift from growing market expectations that the Federal Reserve will raise interest rates in December. Meanwhile, hints of more stimulus in the euro-zone from European Central Bank President Mario Draghi late last week also played a part in boosting the dollar and other rivals against the euro. December silver is trading hands near $14.032 an ounce, the lowest since August 2009. Crude oil futures kicked off another week of volatile trading after Saudi Arabia reiterated that it was willing to cooperate with fellow producers to stabilize prices.

Q3 GDP Nudged Higher. Gross domestic product—the broadest measure of the nation’s economy—rose at a revised 2.1% annual clip from July through September, data out this morning show. A month ago, an early Q3 reading pegged GDP growth at 1.5%. Street analysts credited a bigger buildup in inventories than first calculated. Spending by consumers—the main engine of the economy—rose at a 3% rate, a few ticks lower than in the first installment. A worrisome sign? Adjusted pretax corporate profits fell at a 1.1% annual rate, marking the third decline in the past four quarters.

Dollar Dents Tiffany. Tiffany (TIF) was out with its latest results, a report that revealed fewer little blue boxes moving out its doors. The high-end jewelry retailer said quarterly profit and sales fell relative to the year-ago comparable, with results hurt by the pinch of a strong dollar on global profits and the crimp on foreign tourist spending on jewelry in the U.S.

Good Trading,

JJ

@TDAJJKinahan

economic report calendar

FIGURE 2: ECONOMIC AGENDA.

This week’s U.S. economic report calendar. Source: Briefing.com.

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