Scoreboard: Syrian snag

Commodities took a hit as the legal nitty gritty of a Syrian intervention unfolded, while strong US GDP boosted the greenback.

It was a pretty simple session overnight. Syria is still on the mind of investors, but it is increasingly clear that concerns are being raised firstly about the legality of action and secondly the strategy. So no attack is imminent it seems. The latest I’ve read is that the UK won’t commit to an attack without parliamentary approval, and most of the parliament appears to want see some evidence and at least try to get UN backing.

This isn’t just a UK issue, either. The US congress is increasingly pressuring the Obama administration to seek congressional approval before attacking Syria. 116 members of congress signed a letter demanding just that. House speaker John Boehner went further, rightly demanding that Obama outline and inform the American public – and not just the American public I would add, this is something the world is owed – what the objectives of an attack would be, what the policy goals are and strategy etc. The plan, basically – and what they’d do after. The Germans. for their part, have said – alongside with the Russians – that the problems in Syria can only be addressed politically and that the ‘consequences’ for using chemical weapons should be addressed by the Security Council (i.e. not just unilaterally by the US). The latest I’ve heard is that the earliest UN inspectors can report is Saturday.

Against that backdrop we saw some decent falls in the commodity space, especially crude. which was off 0.8 per cent to $108.17 (West Texas Intermediate), but copper was off 2.1 per cent, silver fell 2.2 per cent and gold was down $11 to $1407. Obviously the broad-based nature of the fall points to more than just Syria and there was some US dollar strength as well following the stronger GDP figures – the euro down 30 pips to 1.3241, the yen at 98.35 from 97.75 and the Australian dollar down about 23 pips to 0.8931.

As to those US GDP figures, growth was revised up, but it turns out it was even better than expected at 2.5 per cent versus 2.2 per cent, and 1.7 per cent in the first estimate. This is a significant upgrade because all of a sudden growth in the second quarter has gone from being below trend to be above trend, if only just. Trend growth is about 2.4 per cent, recall, and this is what was recorded during the pre-GFC boom years (on average, obviously). So this quarter’s growth is good.

Why the upgrade? Stronger exports, basically, which were up nearly 9 per cent in the quarter (imports up 7 per cent). Consumption growth was softer in the quarter which will alarm those who want to be alarmed, but at 1.8 per cent it isn’t a bad result and consumption growth for the first half at 2.1 per cent isn’t too different from the previous few years.

So, with that data, the S&P500 closed 0.2 per cent higher (1638), the Dow was up 16 points to 14,840 while the Nasdaq rose 0.8 per cent (3620). By sector, energy and utilities were the key underperformers with some solid falls (1 per cent in the case of energy stocks). Most other sectors recorded modest gains.

Over in Europe, markets generally outperformed those in the US, getting a boost from some company news – specifically Carrefour’s strong profit results. The major indices showed stocks up 0.5 per cent on the Dax, 0.7 per cent on the CaC and 0.8 per cent on the FTSE.

Bits and pieces otherwise: the APEX numbers yesterday showed once again that the mining boom isn’t over, with investment a strong 4 per cent for the June quarter, most of it mining. Investment intentions were reined in but this reflects poor confidence and what have proven to be incorrect underlying assumptions about global and domestic growth prospects from business and policy leaders.

In the emerging market space we’re seeing some central banks hike rates to deal with rising inflation and falling currencies. Indonesia’s central bank hiked rates 50 bps to 7 per cent yesterday following Brazil’s move to combat inflation when it too hiked rates to 9 per cent from 8.5 per cent.

In the US, jobless claims were at 331,000 in the week to August 23, down modestly from 337,000 the week prior.

Finally in Europe, German unemployment was 7000 higher and the unemployment rate at 6.8 per cent (unchanged), while inflation fell to 1.6 per cent year-on-year in August from 1.9 per cent.

Looking at the day ahead, the SPI suggests our market will fall 0.2 per cent. The major data is the Reserve Bank’s private sector credit measure at 1130 AEST, while tonight the key US data is personal spending and income, although we see some third-tier manufacturing surveys for Chicago and Milwaukee too.

Enjoy…