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If you'd been asked to suggest a possible starting point for a solution to the Syrian crisis, I suspect Russia would not have been at the top of the list. Nevertheless, it now seems as if Moscow could find a way to take some of the heat out of the situation. As a result, markets have breathed a sigh of relief, with stock indices gaining and gold and oil giving back much of their recent gains.
Markets in the UK and Europe are performing one of their rapid turnarounds in sentiment today, helped by better China data and the news on Syria. The German DAX has pushed back above 8400, although it is now running into the resistance around 8450 that prevented further progress throughout August.
The FTSE 100 is knocking on the door of 6600 for the first time since mid-August, as investors look to make gains before the crucial Fed meeting next week. Hospitality giant Whitbread is failing to participate however, as it succumbs to profit-taking; given the steady progression that has carried the shares higher for almost two years now it would not be surprising to see the price challenge the all-time highs around £33 per share in short order.
In the US the lack of economic news was compensated for by the biggest shakeup in the Dow Jones Industrial Average since 2004. Aluminium giant Alcoa has been unceremoniously booted out after over half a century of membership. Whatever the problems with the Dow (and it has a number of them), today’s change does signal a move away from commodities and technology and towards a resurgent US consumer, with Visa and Nike entering the hallowed index. Given the strength of these two firms we could see the Dow play catch up, even if it no longer quite deserves the ‘Industrial Average’ moniker.
News of potential peace feelers in Syria have caused gold, silver and oil to slump. These commodities gained on news of potential Western intervention, and with the US now looking more isolated in the international community in its call for action we could see much of the ground being given back. Although President Obama and Secretary Kerry have not ruled out a strike, they will find it much harder to marshal the requisite coalition if Syria appears to be complying with the suggested agreement to put its chemical weapons out of use.
Improving risk appetite has meant that USD/JPY is back above ¥100 once again, back to a seven-week high ahead of the FOMC meeting next week. The Bank of Japan appears to be satisfied with progress so far in its ultra-easing policy, so traders are now expecting more of the same. You don’t escape a 20-year funk with just a few months of loose monetary policy, so Japan is likely to continue on the same path for an extended period of time.