US equities had opened weak overnight on news that the US and EU had enacted additional, harsh sanctions against Russia in response to the continuing violence in Ukraine. Also, Israel had called a five-hour ceasefire that was scheduled to end this morning, and market participants assumed that it would precede a ground invasion. A large ground invasion into Gaza indeed did begin in the afternoon, shortly before the market closed, and prompted further selling.
The S&P 500 (INDEXSP:INX) closed down by more than 1%, the first time it has experienced a move greater than 1% in either direction in more than four months, an unprecedented streak. Other major indices in the US suffered similar losses.
St. Louis Fed President James Bullard said that due to a recent increase in employment and inflation, the Fed should tighten policy earlier than it had originally planned. Along with Presidents Fisher and Plosser, Bullard is the third FOMC member to advocate this idea. Dovish members are waiting to see if the current positive economic trend continues before they change their positions on accelerating the timetable for policy normalization.
Housing starts for the month of June fell by 9.3% from the prior month to an annualized rate of 893,000. Economists had been expecting a 1.9% increase to 1.020 million. Similarly, building permits declined by 4.2% to 963,000, which was below the 1.035 million expected. Homebuilder stocks were down more than 2% per day.
Tomorrow's Financial Outlook
Overnight, investors will be watching for details to emerge from the Ukraine plane crash and from the fighting between Israel and Gaza. This will largely determine the overnight action in risk assets and the tone before tomorrow. Most likely, investors will not want to own excessive risk over the weekend with the possibility that either of these regional conflicts go global. The only economic report of note scheduled for tomorrow is the preliminary University of Michigan/Reuters consumer confidence index for July. Economists expect the index to rise to 83.0 from 82.5 last month.
China will release its report of property prices for June and Canada will release its consumer prices index. In China, last month was the first month in more than two years in which more regions had declining, versus rising, prices.
Notable earnings reports due out tomorrow are: General Electric (NYSE:GE), Kansas City Southern (NYSE:KSU), Bank of NY Mellon (NYSE:BNY), and Honeywell (NYSE:HON).
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