Syria impact on markets to be limited

by: Nick Kounis

Following Monday’s weaker than expected durable goods orders report, equities edged slightly higher, in line with Treasuries, on hopes that the Federal Reserve might sustain the pace of its asset purchases at the September meeting, pushing back tapering to later in the year. The positive relationship between Treasury and equity prices is typical for a QE-dominated market landscape. However, concerns surrounding Syria pushed equities lower in the last two trading hours of the day and subsequently weighed on Asian and European markets, as investor risk appetite took a turn for the worse. The US dollar and Japanese yen received support due to safe haven demand. Looking ahead, we remain of the view that a US-led global recovery will take hold, while the removal of monetary stimulus will be gradual and absorbable for the economy. Meanwhile, the fall-out from Syria for the global economy look likely to be limited given that it is a small economy and a rather modest oil producer. As such, we think market drivers will once again shift towards growth and investor sentiment will improve.