Good morning! Here’s what you need to know:
275 To Iraq. On Monday evening, President Barack Obama sent a letter to Speaker of the House John Boehner saying he would be sending 275 U.S. troops to Iraq to “provide support and security for U.S. personnel and the U.S. Embassy in Baghdad” in the wake of violence and political turmoil triggered by the jihadist group Islamic State of Iraq and the Levant (ISIS).
The Nightmare Scenario For Oil. Energy analysts warn that if ISIS advances toward the southern Iraqi oil fields, we could see a major supply disruption that could send energy prices surging. Here’s Societe Generale analyst Michael Wittner: “Prices went up last week because of the fear and possibility of a much larger volume of crude produced in the southern Iraqi oil fields and exported through the Basrah port complex. Exports of Basrah crude have been in the 2.5-2.6 Mb/d range in recent months, and that is what is at risk. This volume of crude is greater than Saudi Arabia’s spare capacity, which we currently estimate at 1.75 Mb/d (9.75 Mb/d of crude output in May vs. capacity of 11.5 Mb/d available within 30 days).”
Argentina Says It’s A Victim Of Extortion. “Argentina will fulfil its obligations and it will not default on its restructured debt,” said Argentine President Cristina Fernandez after the U.S. Supreme Court declined to hear her country’s appeal that it shouldn’t have to pay a consortium of hedge funds billions in debt. However, she continued to reiterate her disapproval of the hedge funds’ demands. “Argentina has shown it is willing to negotiate, but it does not have to submit itself to such extortion,” she said.
Prices Cool In The UK. UK consumer prices climbed 1.5%, slowing from 1.8% the month prior. From UK’s Office of National Statistics: “Falls in transport services costs, notably air fares, provided the largest contribution to the decrease in the rate. Other large downward effects came from the food & non-alcoholic drinks and clothing sectors. The largest offsetting upward effects came from motor fuels and recreation & culture.”
German Investor Sentiment Drops. Germany’s ZEW Investors Expectations index unexpectedly fell to 29.8 in June from 33.1 in May. This also missed economists’ expectations fro a 35.0 print. “We are slightly surprised by the continuing fall given positive catalysts from the ECB, lower bond yields and generally decent economic data,” said Pantheon Macroeconomics’ Claus Vistesen. “If recent positive data points and announcements in the eurozone are not enough to buoy investor sentiment, we dread to see what happens if the news flow changes for the worse.”
Markets Are Up. Most markets around the world are in the green. In Europe, France’s CAC 40 is up 0.1%, Germany’s DAX is up 0.2%, Spain’s IBEX is up 0.1%. Japan’s Nikkei closed up 0.3%. U.S. stock market futures are modestly in the green.
Here Comes The Fed. The Federal Reserve’s Federal Open Market Committee (FOMC) begins its two-day monetary policy meeting today. Here’s a summary of what former Fed Vice Chair Don Kohn has said about the Fed (via Potomac Research Group’s Greg Valliere): “The Fed remains dovish, with a solid majority of officials in the camp that believes there’s still plenty of slack in the labour market. Despite the disappointing first half economic figures, the central bankers anticipate improvement in the second half — but not enough to alter their accommodative policies any time soon. “
US Inflation Update. Consumer prices accelerated a little more than expected in May. Headline CPI climbed by 0.4% month-over-month and 2.1% year-over-year. Excluding food and energy, prices were up 0.3% and 2.0%, respectively. The food price index saw its largest increase since August 2011.
US Housing Market Update. Housing starts fell 6.5% in May to an annualized pace of 1.00 million units. Permits dropped 6.4% to 991,000 units. Both numbers were muc worse than expected.
GM. Late Monday afternoon, GM announced it would be recalling another 3.16 million cars with model years 2000-2014. This brings GM’s total recalls since the beginning of the year to over 20 million.
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