LONDON (AP) — Growing concerns over a military intervention in Syria hit stock markets hard Tuesday but gave a lift to oil prices as well as supposedly safe assets such as the Japanese yen and gold.
A day after U.S. Secretary of State John Kerry Monday claimed it was “undeniable” that the Syrian government used chemical weapons, the country’s Defense Secretary Chuck Hagel said the U.S. military stands ready to strike against the regime of President Bashar Assad if President Barack Obama gives the order.
At times of uncertainty, investors often move out of perceived risky assets such as stocks and into supposedly safe havens such as gold, the yen and U.S. government bonds.
“Geopolitical risks are rearing their ugly head again as news reports suggest that the U.S. and its allies are preparing for a missile attack on Syria,” said Neil MacKinnon, global macro strategist at VTB Capital. “The law of unintended consequences and the history of previous military interventions in the region is not a recipe for political and economic stability.”
In Europe, the FTSE 100 index of leading British shares closed down 0.7 percent at 6,440.97 while Germany’s DAX slid 2.3 percent to 8,242.56. The CAC-40 in France ended 2.4 percent lower at 3,968.73.
In the U.S., the Dow Jones industrial average was down 0.6 percent at 14,852 while the broader S&P 500 index fell 1 percent to 1,641.
Other assets though were supported by the uncertainty, including oil. The benchmark New York rate was up $2.91 a barrel at $108.83, having earlier hit its highest level this year of $109.32.
The Japanese yen and the price of gold also got a lift as they often garner support at times of global tension. The dollar was 1.2 percent lower at 97.28 yen while an ounce of gold was $24.50 higher, or 1.8 percent, higher at $1,418.
Developments over Syria have driven sentiment though a surprisingly upbeat survey of U.S. consumer confidence made sure there was some interest in the state of the U.S. economy. The Conference Board said its measure of U.S. consumer confidence increased slightly to 81.5 in August from 81.0 the previous month. The rise was unexpected — the consensus in the markets was for a modest decline to 79.
The survey will likely feed into the deliberations of officials at the U.S. Federal Reserve as they mull whether to reduce their monetary stimulus at next month’s policy meeting. However, few analysts think it will make much difference.
“This was an unexpected surprise but will quickly be forgotten,” said Michael Woolfolk, an analyst at Bank of New York Mellon. “Confidence is currently both uneven and fickle.”
At present, the Fed is buying $85 billion of financial assets a month in order to lower long-term interest rates and shore up the U.S. economic recovery. Up until recently, a run of data, particularly related to the labor market, had ratcheted up expectations that the so-called tapering will begin in September.
And that growing view has made for fairly choppy markets this summer, albeit on low trading volumes. Emerging economies, such as India and Turkey, have also been hit hard by the uncertainty over U.S. monetary policy. Both countries have seen their currencies slide because investors have been paring back their positions in emerging economies as the prospect of less new U.S. money looms.
For all financial markets, the next set U.S. nonfarm payrolls report will likely prove the pivotal point of the second half of the year. A big increase in August payrolls may be enough to prompt the Fed into tapering the stimulus at the next policy meeting.
Earlier in Asia, Japan’s Nikkei 225 index fell 0.7 percent to close at 13,542.37 while Hong Kong’s Hang Seng dropped 0.6 percent to 21,874.77. South Korea’s Kospi shed 0.1 percent to 1,885.84. Mainland Chinese shares rose.