Oil prices closed significantly higher this week, as there has been increasing uncertainty about the progress of Iraqi oil exports and several terrorist attacks.
Oil prices closed significantly higher this week, as there has been increasing uncertainty about the progress of Iraqi oil exports and several terrorist attacks. Although Iraq managed to boost its oil output over 1 million barrels per day, it is still far behind the prewar level of 2.8 million barrels per day. The terrorist attack on the Jordanian embassy in Baghdad where 11 people were killed and 60 wounded did only show how brittle the security situation is in the country. That is why still several oil majors are reluctant to send personnel to Iraq as their safety cannot be guaranteed by US occupying forces. A further boost to the oil price was the attack on a hotel in Jakarta and the ongoing clashes in Nigeria. There is the fear that the situation in the country could escalate and seriously disrupt crude supplies to the US.
Investors in the United States are still varying if they will see a substantial economic recovery in the second half of the year. Analysts expect corporate earnings to growth 13.4 percent in the third quarter and 21.3 percent in the fourth quarter. However, companies which announced profit expectations assume that profit will only growth 2 to 4 percent. It therefore remains the questions where the rest of the profits will come from. US companies have cut labour cost as fare as they could and it is unlikely that there will remain a significant potential. It is however expected that many companies were very conservative in their earning predictions as nobody want to disappoint the market. It could therefore well be that we will be surprise in the coming months.
However, the market performance in the near future will probably be more determined by geopolitical developments than by corporate news. Equity markets analysts are assuming that continued unrest in Iraq, Nigeria and North Korea is likely to stop the recent performance of stock markets. If geopolitical insecurity decreased, a lot of international investors would go back to the market. But therefore, there need to be a progress in the Middle East and North Korea. The potential is huge as there are over 7 million high net worth individuals with combined funds of more than $27?200 billion.
The Japanese stock market saw a pretty bad week with four straight sessions in the minus. Investors were very cautious as the US stock exchanges and especially Nasdaq have shown some sings of weakness. Additionally, investors await the earning report from NTT DoCoMo, the country?s leading mobile phone provider. Hard hit was Japan Tobacco, which announced that a licensing agreement with Philip Morris to manufacture and market Marlboro cigarettes would end in 2005. The termination of the agreement will decrease Japan Tobacco?s operating profits by Y50 billion a year.
The Iranian stock exchange has had a marvelous performance in the first part of the year and has risen over 80 percent. But the secretary general of the exchange has now decided that the advance was too much and banned any further rise of stocks for the next 15 days. There is however no limit for the shares to fall. The authorities are afraid that the market, supported by high oil prices, high domestic money supply and a lack of alternative investments, could crash soon. After the announcement, the market fell immediately 4 percent.