Scoreboard: Syrian fright

Speculation over possible action against Syria saw global stocks take a fall and safehavens like gold and silver rise.

Concerns over Syria hit the market last night, as the US outlined a little more detail as to how exactly they are going to approach it. The first point to note is that neither the US nor the UK are going to rely on evidence provided by the United Nations. Instead, evidence provided by ‘intelligence’ sources will be used given it proved to be so useful and accurate in Iraq – WMD’s people. As for the attack itself, officially, options are ‘still being discussed’ but unofficially all the talk is of sea launched cruise missiles that would hit select military targets.

The stated objective at this point isn’t to destroy stock piles of chemical weapons or even take out the Syrian government. The concern is that this would simply allow Al-Qaida or whoever, to run in there and stock up on some sarin gas or something. Instead the stated aim, at least publically, is to take punitive measures against the government for using chemical weapons at all. Syria for its part has said they will use “all measures available” to repel an attack, although whether that includes a wholesale distribution of chemicals to Hezbollah or whoever else is uncertain.

Stocks were offered and falls were solid. At the bell, the S&P500 was down 1.6 per cent (1630) with the Dow off 170 points (14,776) and the Nasdaq 2.2 per cent lower (3578). In Europe, falls were worse with the Dax off 2.3 per cent and the CaC down 2.4 per cent - the FTSE100 outperformed however falling only 0.8 per cent. Now the big falls came despite fairly decent gains across the commodities spectrum – safe haven flows saw gold up $22 to $145, silver was up 2 per cent and of course, crude, which to this point hadn’t done too much, rose 2.8 per cent to $108.8 – the highest since March 2012. The thing is, even these strong gains failed to help the equity bid and energy stocks and base metals were still smashed, along with every other sector (financials, industrials and tech the key underperformers).

Price action elsewhere was as you would expect – safe haven flows, flight to safety that sort of thing, and so US Treasuries found a decent bid, and the yield on the US 10 year Treasury fell to 2.71 per cent from 2.78 per cent. The exception of course was US dollar, which was slightly weaker against the euro – only about 30 pips higher (from 1630) to sit at 1.3393 at the time of writing. The Australian dollar was then up 30 pips itself to 0.8984, while the yen fell to 97.02 from 98.15.

Other than that, the data was quite positive, especially in Europe where we saw the German IFO business climate index rise to 107.5 from 106.2.  Both the expectations and current assessment index rose, these indexes well above average. Over in the US, house prices for the 20 largest cities rose a further 0.9 per cent in June, to be 12 per cent higher annually. Lastly, the Richmond Fed manufacturing index shot up to 14 in August, from -11 the month prior. Consumer confidence edged higher -81.5 in August, from 81 the month prior.

Looking at the day ahead, the SPI suggests Aussie stocks will be hit hard, though not as hard as Europe and the US – down 1.1 per cent. Data otherwise includes housing affordability statistics and construction work down – both for Oz. Tonight, the key release is pending home sales in the US.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.