Bloody fighting and anti-government unrest in Libya sent shockwaves through various markets yesterday, setting the stage for more turbulence in the sessions ahead. Gold, which has languished for weeks as investors sought riskier assets, vaulted Monday on a renewed flight to safety. Gold futures that trade on the Comex division of the New York Mercantile Exchange (CME) rose $18, or 1.3%, to settle at $1,407 an ounce. The yellow metal hadn't closed above $1,400 since early January.
Oil prices likewise spiked as civil war threatened to overtake Libya, a major energy producer and holder of Africa's largest proven reserves. Benchmark oil futures traded on NYMEX leaped $5.22, or more than 6%, to close at $91.42 a barrel Monday. Brent crude, a benchmark contract traded on the ICE Futures Exchange, broke above $108 a barrel, its highest close since 2008.
Major Economic Reports Are Also Due
The specter of further Middle East instability and higher energy prices left European stocks awash in red as the major averages in the U.K., France and Germany lost anywhere from 1% to 1.4% Monday. The dollar also strengthened on Mideast tensions.
Traders will also have contend with a spate of news on the housing front. The S&P/Case-Shiller Home Price Index for December comes out on Tuesday, while existing-homes sales data are due out Wednesday and new-home sales on Thursday. The week also brings two readings on consumer confidence, durable-goods orders and the second estimate on fourth-quarter U.S. GDP, which is due out Friday.
Possibly offsetting the expected market weakness would be another strong string of fourth-quarter earnings reports. Dow components Walmart (WMT), Home Depot (HD) and Hewlett-Packard (HPQ) are due up Tuesday. The Dow Jones Industrial Average ($INDU), broader S&P 500 ($INX) and Nasdaq Composite ($COMPX) are all up about 7% so far in 2011 in no small part to the ongoing V-shape recovery in corporate profits.
Of the 413 companies in the S&P 500 that have reported earnings to date, 71% have exceeded Wall Street's estimates, according to data from Thomson Reuters. Encouraging economic data and another round of better-than-expected earnings and outlooks may ultimately trump geopolitical concerns. But if the Mideast's oil-producing countries spiral into chaos, all bets are off.