Kerry’s Strong Case Raises Dollar, Sinks Equities
On Friday, Secretary of State John Kerry addressed the world about US sentiment after a shocking series of chemical weapons were used against civilians in the war torn state of Syria. Even as more evidence of napalm-like attacks on schools and population centers surfaced in the presence of UN inspectors, Russia and China continued to stonewall UN negotiations. The US received another setback as Great Britain’s Parliament voted to abstain from participating in a response against the regime of Syrian President Bashar al-Assad, who is responsible for the use of the chemical weapons.
The strong case built and presented by Kerry sent global equities tumbling and the US dollar climbing as investors fled to safety. UN inspectors have now left Syria with the lead inspector arriving in New York on Saturday morning. It could take a week or longer before a full disclosure is presented to the UN. However, the UN mandate is only to determine if chemical weapons were used, not who deployed them.
The British Parliament expressed distrust in the country’s intelligence regarding the matter. Anxious to avoid another catastrophe like Iraq, British diplomats pushed for more definition. The British departure has left the US virtually alone to take military action as a deterrent to the future use of chemical weapons and as a statement that under no condition will the world tolerate the use of chemical weapons.
A war-weary American population may not have the stomach for this fight. It is unclear how Washington politicians feel about the US role in a response. The rhetoric has been low as the Obama Administration presents facts to Congressional leaders.
US forces are poised to strike although the exact nature of military strikes has not been fully revealed. It is also unclear if the Commander-in-Chief will authorize military action without Congressional approval. It is likely that Congress would want to see the full UN report. However, Kerry built a stronger case than the UN will likely provide. To date, al-Assad has shown no remorse for the attacks which killed more than 1,400 persons, many of whom were children.
Obama has said that US strikes would not include “boots on the ground” an action that would require Congressional approval. Syria has said it will resist any act of aggression and defend its land. In the capital city of Damascus, civilians have begun to exit areas surrounding potential military targets. It is clear that Syria believes the US will strike. The only question is when.
In anticipation of military action, US and global equities fell sharply. The Dow Jones industrial average slipped 37.79 points, 0.25 percent. The S&P 500 fell 5.83 points, 0.36 percent and the Nasdaq lost 30.44 points, 0.84 points.
For the S&P 500, August saw stocks fall 3.1 percent for the month. For the final week, losses hit 1.8 percent, the steepest decline in the last four weeks.
The MSCI’s World Equity Index, which tracks equities in 45 countries, fell 0.3 percent. The August close was the lowest since June 21.
US equities were also hit with disappointing consumer confidence data. Trading was light but the CBOE Volatility Index rose another 2.2 percent bringing the weekly rise to a whopping 22 percent. The Dow recorded its fourth consecutive weekly loss. 73 percent of equities listed on the New York Stock Exchange lost ground.
The STOXX Europe 600 Index lost 0.9 percent rolling up losses of 2.4 percent for the week. New unemployment figures in Europe weighed on equities and upon the euro.
Brent crude hit a high 0f $117 before trimming to $114 per barrel. US crude shed $1.13 to $107.69 per barrel. If the US attacks, oil prices will move higher as the supply chain suffers.
The yield on the US 10-year Treasury lowered to 2.7747. The DXY closed close to a four-week high at 82.067. The dollar index posted gains of 0.8 percent in August after sustaining losses for the past two months.
Emerging currencies are feeling the pinch as cautious investors run from higher yields to safety. This trend could see Europe’s southern tier come under pressure. The Indian rupee has lost 10.54 percent against the USD in August.
The euro slumped 0.2 percent to $1.3214 after briefly touching a five week low at $1.3172. A report from Europe revealed that the benign inflation rate was 12.1 percent.