A late sell-off on Wall Street has Australian shares pointing lower after the US announced it will hold the Syria government accountable for the use of chemical weapons.
The September SPI 200 futures contract skidded 28 points or 0.5% to 5098 as US shares surrendered early gains in the final hour of trade.
The S&P 500, which had been up as much as six points, dived to a closing loss of seven points or 0.39% after Secretary of State John Kerry told a news conference, "President Obama believes there must be accountability for those who would use the world's most heinous weapons against the world's most vulnerable people". The statement appeared to dramatically increase the likelihood of western intervention in the civil war in Syria.
With trading volumes at seasonal lows, the Dow turned a 39-point advance into a loss of 65 points or 0.43%, while the Nasdaq closed virtually unchanged at +0.01%.
"If there's going to be turmoil and then if there's going to be some retaliation and affect US assets, people get a little scared," the head trader at NorthCoast Asset Management in the US told Bloomberg. "It's a bit of a pullback so people are probably taking some risk off the table."
Mr Kerry said the US was consulting with allies and will make "an informed decision about how to respond to this indiscriminate use of chemical weapons". His statement followed reports of an attack on UN weapons inspectors overnight. Read the full text of Kerry's statement here.
Earlier, stocks had advanced as a report showing a sharp decline in orders for durable goods was interpreted as weakening the case for the Federal Reserve to start to unwind its stimulus program next month. Orders for large US-made items dived 7.3% last month, the biggest decline in almost a year. Although economists had anticipated a decline due to a drop-off in orders for Boeing aircraft, the fall was larger than expected amid weakness in other sectors. Randy Frederick, managing director of active trading and derivatives at Charles Schwab, told MarketWatch.the data was "really awful".
The implications for falling demand in the US pushed copper lower. US copper for September delivery was recently down more than two cents or 0.7% at US$3.32 a pound. The London Metal Exchange was closed overnight for a bank holiday.
Also weighing on sentiment was a report that the US will hit its debt limit in less than two months, raising the prospect of a another damaging fight in Congress. The Wall Street Journal said the borrowing ceiling would be reached in mid-October.
Australia's biggest miners lost ground in US trade. BHP dropped 0.73% and Rio Tinto lost 0.55%. Iron ore remained in a holding pattern yesterday, with the spot price for import to China inching up 10 cents to US$138.70 per dry metric tonne.
Oil came off its lows as the prospect of fresh turmoil in the Middle East offset the demand implications of the US durable goods report. West Texas Intermediate crude for October delivery was lately down 27 cents or 0.25% at US$106.18 a barrel.
Gold benefitted from a rush to safe havens following the Secretary of State's announcement. Gold for December delivery, which had earlier settled at US$1,393.10 an ounce, was recently up $8.60 or 0.6% at US$1,404.40. September silver put on 58 cents or 2.4% at US$24.32 an ounce.
Major European share markets closed little changed despite substantial falls in Italy as supporters of Silvio Berlusconi threatened to bring down the coalition government if the former Prime Minister is ejected from parliament after being found guilty of fraud. Germany's DAX rose 0.21%, France's CAC dipped 0.06% and Italy's FTSE MIB sagged 2.1%. Britain's FTSE was closed for a bank holiday.
TRADING THEMES TODAY
SYRIA CLOUDS OUTLOOK: Wall Street choked overnight on the prospect that the west could be drawn into another conflict in the Middle East. We've seen this movie before and it doesn't end well. The market's initial reaction was to cut and run. Unfortunately, the timing of Kerry's news conference left no time for the market to recover, so we don't know whether a rebound was coming once traders had time to digest the news. US futures will therefore have a major say in how the session here develops. There is no economic news due here or in Asia today to change the script, but the earnings season may provide a welcome distraction. Reports are due today from AWE, BBG, BPT, CVW, FLT, MMS, NBL, PSA and WHC, among others (sources: Fairfax, BRR).
ECONOMIC NEWS: No significant domestic news scheduled today. The German Ifo Business Climate is due this evening. Highlights in the US tonight include consumer confidence, the Richmond Manufacturing Index and the house price index.
