Global equity markets opened lower this morning. The primary catalyst overnight was the World Bank's downgrade of global growth prospects for this year. Global growth was downgraded to 2.8% for 2014 from the bank's January forecast of 3.2%, while the 2015 forecast for 3.5% growth was unchanged. Current-year growth forecasts were also lowered; the US forecast was reduced to 2.1% from 2.8%, China's to 7.6% from 7.7%, and India's to 5.5% from 6.2%. Notably, the US number is now below the 2.5% consensus forecast by economists for 2014. The Italian FTSEMIB
(INDEXBIT:FTSEMIB) was the worst performer in European stocks today, down 1.24%.
In Japan, Yasuhiro Yonezawa, head of the country's public investment committee, said plans were underway for Japan's $1.3 trillion Government Pension Investment Fund (GPIF) to reduce its domestic government bond holdings by 20%, to 40% of its total allocation. Those holdings would then be rotated into investments in foreign equities, bonds, and domestic equities. Investors had already begun preparing for this eventuality, but nevertheless it caused pressure on two major currency crosses, the USDJPY and EURJPY.
Tensions continued to escalate in Iraq. After yesterday's capture of Mosul, the country's second largest city, by rebels, Tikrit was overrun without opposition. Middle Eastern stock markets continued to be under pressure, the most notable being Turkey, which was down 2.24%.
US stocks continued to follow Europe's lead and were lower across the board today. The S&P 500
(INDEXSP:.INX) opened the day lower and didn't gather any significant momentum to the upside, mostly trading in a range between 1942 and 1946. Many traders are eyeing a continued selloff towards the 1925 area. Tech stocks, namely large caps, continued to show relative outperformance. Utilities stocks remained weak.
Tomorrow's Financial Outlook
A big economic report will be released tomorrow morning: May retail sales. Economists are expecting an increase of 0.6%, up from a 0.1% gain in the month prior. Last month's auto and chain store sales showed a similar level of strength, implying that the economists' forecast is not off the mark. The auto sales category is the largest contributor to top line growth. Markets, particularly interest rates, have become increasingly sensitive to this report. The retail sales report now causes a high amount of volatility in the markets -- only the government payrolls report and FOMC rate decisions wreak more havoc.
The New Zealand central bank decision tonight should have a significant effect on Asian markets. The market is already priced for a 25bps increase in the bank's policy rate, so any response to tonight's news will likely be a reaction to the accompanying commentary. The New Zealand kiwi has sold off recently, since recent milk auctions have shown increasing inflation in the country. Also scheduled for release is Australia's unemployment rate and eurozone industrial production.
The only earnings report scheduled for tomorrow is Finisar
No positions in stocks mentioned.
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