TUESDAY 6/17/14; ISIS Nears Baghdad; CPI; Housing Starts; FOMC Two-Day Meeting Begins

Mount Etna, on the east coast of Sicily, erupts in a fiery display of smoke, ash and molten lava. The active volcano closes the Catania Airport in Sicily. Mount Etna was active in springtime and then again in the Fall of last year with the last full-fledged serious eruption occurring in 1992. The ash in the atmosphere will require monitoring. The World Cup matches continue with Germany and Netherlands looking strong and the US surprisingly beating Ghana. Violence surrounding the World Cup continues as protestors, unhappy that Brazil spends money on sports stadiums instead of hospitals and schools, paint anti-FIFA graffiti on buildings.

Asian markets are mixed which is becoming a regular theme. Japan and Korea stocks are higher but Aussie and China stocks trade lower. Dollar/yen is flat at 101.95. China stocks drop the most in one month as foreign investment is decreasing; the lowest in almost one and one-half years. Chinese banks are weak. China’s Premier Li visits the UK discussing business opportunities with PM Cameron. BP and Shell are looking for lucrative contracts. SNE’s Playstation sales continue to top MSFT’s Xbox. The RBA minutes indicate an accommodative stance going forward so the Aussie dollar eases to 0.9358.

Fighting occurs only 34 miles from Baghdad. The US sends 275 troops to Iraq to provide support especially for the US embassy in Baghdad. President Obama continues weighing options in Iraq as the mess festers and the turmoil shows no signs of abating. Iran sends 2K troops to Iraq to help fight the ISIS extremists. The US is open to constructive talks with Iran which makes for strange bedfellows since the US is imposing sanctions on Iran. Crude oil is stable with WTIC at 106.53 and Brent 112.80. The IEA warns about the potential loss of Iraq oil production.

The Middle East is a confusing mess of tribal, sectarian and religious groups wanting to redraw map boundary lines. The Kurds are slicing off Kurdistan (northern Iraq) as an independent state. The ISIS extremists want to create a homeland that stretches from eastern Syria through Iraq to the border with Iran. The Shiite majority and Sunni minority in southern Iraq control the oil fields. The Syria Civil war continues with Asaad remaining in power. Worries increase over Jordan that becomes shakier by the day since refugees from Syria and Iraq are creating a major strain on neighboring nations. Saudi Arabia (Sunni) is likely content seeing Iran (Shiite) under pressure by ISIS since Saudi Arabia does not want to see Iran’s influence grow in the Middle East.

Russia’s Gazprom says the natural gas moving through pipelines in Ukraine is uninterrupted and the gas supplies to Europe are stable. Russia shut off the gas supply to Ukraine yesterday. Ukraine is seeking new gas supplies from neighbors such as Poland.

European indexes trade higher. Euro 1.356. European auto sales are up for nine consecutive months. The big winners are VW, Renault and Peugeot that bounce from +0.4% to 1.0% higher. Pharma company Shire Jumps nearly +4% higher on news it is exploring options to sell the company. The pharma and biotech M&A party continues. EasyJet pops +2% after increasing forward guidance. The high-flying airline stocks have received a smack down over the last couple weeks so easyJet may provide relief for the sector today.

UK inflation data is -0.1% month on month and 1.5% year on year. Analysts expected +1.7% so recent inflation concerns are overblown with inflation remaining well under the BOE’s target. The pound drops to 1.6947. German ZEW sentiment is a mixed bag with current conditions remaining positive but expectations remain subdued. The ZEW president says further increases in the German economy may prove difficult.

The FOMC two-day meeting begins. The rate decision, forecasts and Fed Chair Yellen’s quarterly press conference with Q&A occur tomorrow afternoon. The Fed is expected to continue the $10 billion per month QE taper but may lower their growth forecasts. The QE asset-purchase program would drop from the current $45 billion per month to $35 billion per month less than on-half the original QE amount and on target to end September-October. Stocks may idle sideways until Yellen brings the tablets down from on high and directs global markets on how to trade.

General Motors continues to shame itself announcing a 3.4 million vehicle recall ...















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The 10-year yield is at 2.65% threatening a breakout of the six-week sideways 2.55%-2.65% channel. The 2-year yield runs to 0.51% the highest level since last Labor Day 10 months ago. Solar stocks soar into a sunny sky on the SCTY news. SPWR jumps +4.3%. TAN gains +3.6%.  FSLR +3.4%.

After the closing bell, GWPH announces a secondary offering and is hit -5%, erasing a portion of the +16% gain today, due to the dilution. ECYT pukes -18% on news that Merck will not further support the development of the lung cancer drug vintafolide. ACT and FRX both sneak about one-half percent higher in AH trading on news the merger will be finalized. Adobe beats on EPS but misses on the top line. ADBE bounces +8%. LZB misses on earnings and collapses -11% into the reclining chair.

US Special Forces capture one of the key terror suspects involved in the 9/11/12 Benghazi, Libya, attack. Abu Khattala is en route to the US but may be held on the ocean for interrogation for up to 30 days before docking. Khattala is the terrorist that has been in free sight and accessible taunting the US ever since the Benghazi attack occurred. After nearly two years of freedom his luck just ran out and perhaps progress will occur to finally find out what happened.

Another poll shows President Obama’s approval rating dropping. Only 41% of Americans approve of the way the president is handling his duties (only 2 of every 5 people). The world’s rarest stamp brings $9.5 million at auction. The global wealthy, made wealthier by the central bankers, continue to buy art, high-priced real estate and other collectables pumping these bubbles larger.

David Tice, noted permabear associated with The Prudent Bear website and funds for many years until 2008, is now involved with inspirational films and education. Tice is currently not short the stock market but is heavily invested in gold. He remains a supporter of Austrian economics and says the intervention by central bankers is going to end very badly but no one knows when.