It seems the market has recovered somewhat over the previous session’s Syrian concerns, although I only say somewhat, as crude is up a further 0.6 per cent ($109). It might be more accurate to say that concerns didn’t intensify. Crude was about the only hint that concerns are building though, as everywhere else price action looks to have decoupled a bit. So, for instance ‘safehaven’ flows into US treasuries unwound somewhat, the US 10-year yield rising about 6 bps to 2.77 per cent. Similarly, gold is down, although only smalls – a few bucks to $1417.
Now there have been a few setbacks in terms of the proposed strike, although how much of a setback is unknown. It all boils down to the debacle that Iraq became. Intelligence sources were incompetent at best or, at worst, and this can’t be ruled out, blatantly deceived the international community in order to justify action. That this strategy failed dismally is apparent to everyone and the consequences, the suffering of the Iraqi people, has been many times worse than what it was under Saddam. Saddam was evil no doubt, but the chaos that was unleashed has been a multiple of that – and the country is still unstable.
This brings us to the set back. No one thinks that any government should be able to just get away with using chemical weapons – especially against civilians. But intelligence sources – the US – have a credibility gap of their own making. Consequently the UK opposition rightly want to see the evidence and would obviously feel more comfortable if the attack was legal and had the sanction of the UN. The UK parliamentary vote on action that was to be held last night has been postponed.
Similarly, a draft resolution that the UK put to the UN Security Council “authorising all necessary measures to protect civilians” may not even get voted on until next week. Russia has said that it wants to see the evidence and even the UN Secretary General has said that procedures must be followed and that the UN inspectors must be given the time they need to investigate and report (due in about four days I think). That’s all we know at this point – although the US could still attack whenever and the British Foreign Secretary has said that UN support isn’t necessary to take action.
With nothing apparently imminent, US equities pushed higher – modestly – with the S&P500 up 0.3 per cent (1634), the Dow 48 points higher (14,824) and the Nasdaq up 0.4 per cent (3593). Energy stocks led the way, followed by health, utilities and tech. Data-wise there wasn’t much – a couple of housing indicators which were weak and will add to the sense that maybe the US acceleration is slowing a bit. Specifically, pending home sales fell by 1.3 per cent in July after a 0.4 per cent fall in June and mortgage applications were off 2.5 per cent in the week to August 23 after a 4.6 per cent fall.
So then that leaves forex and there isn’t really anything exciting to report here. Other than Sterling which whipped around on a big figure range after the BoE Governor Mark Carney said the bank could ease if markets get a head of themselves and bond yields lift too much. Otherwise, the Australian dollar traded within a 50 pips range or there abouts and ended something like 20 pips higher from yesterday (1630) currently at 0.8942 as I write. Euro was one-way traffic, down, although moves were modest off 35 pips from 1630 to 1.334. Yen is at 97.66 from 97.29.
Looking at the day ahead, the SPI suggests our market will be flat today (down a point) although we do get some data out today at 1130 that could stir things up. The Capex estimates are out and there is a lot of focus on these figures given policy makers are trying to convince everyone the mining boom is over. I expect investment intentions to be pulled in further following the policy induced deterioration of confidence, but expect a pick-up over the next year. Tonight we get German labour and inflation figures and the revised estimate of second-quarter US GDP. The previous estimate was that the US economy grew by 1.7 per cent, and this is expected to be revised up to 2.2 per cent.
That’s it, have a great day…
Adam Carr is a leading market economist.