adminLONDON. – Concern that probable military strikes by Western powers against Syria could cause upheaval in the Middle East pushed oil up by more than US$2 a barrel yesterday, sent world shares lower for a second day and extended a rout in emerging markets. Washington and its allies appeared to be gearing up for a strike against President Bashar al-Assad’s forces, blamed for last week’s chemical weapons attacks, a move that could prompt retaliatory action and hit crude supply in the region.
The rand touched R10,50 to the dollar – its worst level since December 2008 – in early morning trade yesterday as the sell-off in emerging-market currencies continued, before recovering slightly later in the day.
Brent crude traded above US$117 at a six-month high and the US benchmark soared to its highest level in more than two years.
A scramble for safety sent MSCI’s world equity index to a seven-week low led by a sharp sell-off on Wall Street, while the safe-haven yen hit a two-week high against the dollar. Emerging markets such as Syria’s neighbour Turkey, pummelled by an expected reduction in US stimulus measures, were also hit, with some flows providing support in western Europe.
“The market feels an attack on Syria is highly probable but what they’re concerned about is the retaliation,” IDEAglobal MD Mike Gallagher said.
In the Middle East, Dubai’s stock index tumbled 5,2 percent after already plunging 7 percent on Tuesday, leaving it at a six-week low. It is still up 49 percent in 2013.
“We could see a wider spillover into the region, which could easily push oil prices up, at least temporarily, to US$120 or US$125 a barrel,” Mr Gallagher said.
The heightened Middle East tension has come as markets were already on edge about an expected reduction in stimulus by the US Federal Reserve, which has seen US bond yields climb and triggered a shift by investors away from emerging markets.
Syria’s neighbour Turkey has proved vulnerable on both fronts – its currency, the lira, hit a record low of 2,07 lire to the dollar in early trade. The main Istanbul share index was down 1,5 percent, after tumbling 4,7 percent on Tuesday to close at its lowest level in a year.
The rout in the emerging world has extended, with the Indian rupee losing 3,7 percent to hit a new record low of 68,75 rupees to the dollar, while some southeast Asian currencies reached multi-year lows.
Indonesia’s rupiah posted a new four-year low as investors wait for a hastily convened Bank Indonesia board meeting set for today. Speculation is mounting it will opt for another rate increase to defend the currency.
The sell-off brought MSCI’s broadest index of Asia-Pacific shares outside Japan down 1,7 percent to its lowest level since July 9, extending the previous day’s 1,2 percent drop.
In Europe, the picture was steadier after a recent run of good economic data added to the region’s appeal. The single currency had inched up 0,1 percent versus the yen to about 30,03 and was little changed against the dollar at US$1,3380.
The flight to quality lifted German government bonds, sending the 10-year Bund yield down three basis points to 1,824 percent as it moves further away from Friday’s one-and-a-half-year highs of 1,98 percent. However, European stocks were down for a third day as the concern about a reduction in bond buying by the Fed and a political crisis in Italy added to the worry over military action, fuelling profit-taking on an 8 percent rally seen since late June.
The FTSEurofirst 300 index of top European shares was down 0,3 percent at 1 198,43 points in early trade yesterday after recording its largest daily drop in two months on Tuesday.
“The focus on Syria and the spike in oil prices was all that was needed to start the move (down),” BTIG strategy head Nick Xanders said. – Bdlive.
He said there was room for the market to fall further.
Gold shared in the safe-haven buying, extending its gains into a fifth consecutive session and climbing more than 1 percent to its highest in more than three months.
Spot gold traded around US$1,425 an ounce having hit a high of US$1 433,31, its highest since May 14. Silver was up 2,3 percent to US$25,02 an ounce. – Bdlive.
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