The month ahead

It was a fairly dull August, with taper speculation being the only real news of importance, but as we head into September investors need to juggle this with the prospect of Western intervention in Syria.

Darkened horizon

First, Syria. The west has long warned President Assad that the use of chemical weapons would be a trigger for action – it now appears that line has been crossed. The UK may not be taking part, but it still seems likely that the US will be forced to act. Markets were not happy at the prospect, and have remained jittery since. Reports of missile launches in early September prompted some sharp moves on equity indices, and it is probable that things will only calm down when and if the US takes action. Oil and gold both benefited, with the latter entering a bull market after having risen 20% from its late June lows.

Meanwhile, the US Federal Reserve is now widely expected to act in September, scaling back its QE3 asset purchases as the US economy shows signs of health. The prospect still holds a degree of terror for investors, as it will be the first sign of a tightening of monetary policy. If it does taper at the September meeting, it will be just a small one, but it will only the beginning. However it is important to note that if economic data gets worse then the Fed can easily change course and increase purchases.

In addition, the end of 2013 sees the end of Ben Bernanke’s tenure at the helm of the Fed. No clear successor has yet emerged, but now only two names are still in the running: Larry Summers and Janet Yellen. Of these, the latter is perceived as the more sympathetic to additional easing, so if she takes the job the reaction may be more positive.

Oil boosted by Syria worries

The news of potential Western action over Syria prompted a sharp rise in oil prices, as investors began to worry about potential disruptions to supply. The fear is that intervention will draw in other powers such as Iran and Saudi Arabia, which could have effects on oil shipments in the region.

Daily Brent Crude chart

For now the rally in oil has faltered around the $116 area, with $118 being the longer-term level of resistance, the high from early February. Support is likely around $106, with the ‘magic’ $100 level also being important.

IG clients expect further gains in oil as the likelihood of a Western strike goes. Improving economic data should also result in increased demand for oil as well, with sentiment being 60% long as of midday on 3 September.

IG client sentiment for oil

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