Shares are set to pare this week's rally after the prospect of intervention in Syria cast a pall over solid economic news overnight.
The September SPI 200 futures contract dived 38 points or 0.7% to 5152 as futures traders concluded that Wall Street's tepid return to trade following the Labor Day market holiday was insufficient to support this week's 60-point surge on the ASX 200.
The S&P 500 cut an opening rise of 1.1% to a closing gain of seven points or 0.43% as the White House ramped up pressure on Congress to support a military strike on Syria. The Nasdaq added 0.64% but the Dow put on just 24 points or 0.16% as Microsoft and Verizon were sold down following take-over announcements.
"We're more worried about Syria," Paul Nolte, managing director at Dearborn Partners in the US told Reuters. "The markets reacted very well to economic data out of China and Europe over the weekend and yesterday, and our data was pretty good as well, but it looks like we started fading from early gains as Obama was talking about his goals for Syria. It hasn't gone well for us in that region."
US data continued a run of strong economic signals this week. The Institute for Supply Management's manufacturing index improved from 55.4 to 55.7 last month, the highest reading since June 2011. A separate report showed spending on construction increased in July to the highest level in four years as the real-estate market revived. The US reports followed upbeat manufacturing figures earlier this week from the euro-zone and China.
The market began to ease after President Obama secured the backing of two key Republicans in the House of Representatives for punitive action against Syria for the use of chemical weapons. Secretary of State John Kerry and Defense Secretary Chuck Hagel appeared before a Senate Committee hearing to promote the President's call for a "prompt" vote to authorise the use of military force.
A nervy session in Europe included a sudden plunge following reports that missiles had been fired in the Mediterranean. Israel later confirmed it had held a joint military exercise with the US. European markets recovered some of their initial losses but still finished in the red after several days of gains. Germany's DAX lost 0.76%, France's CAC 0.8% and Britain's FTSE 0.59%.
BHP and Rio Tinto enjoyed healthy bounces as their US-traded shares caught up with gains in the UK and Australia during the Labor Day US holiday. BHP jumped 3.59% and Rio 5.54%. Spot iron ore for import to China yesterday closed unchanged at US$138.70 per dry metric tonne.
Oil and gold were beneficiaries as the spotlight swung back to Syria. West Texas Intermediate crude for October delivery was lately up 82 cents or 0.8% at US$108.48 a barrel. Gold for December delivery was ahead $16 or 1.1% at US$1,412.10 an ounce.
"The rise in gold prices is mainly due to safe-haven demand after Israel test-fired rockets in the Mediterranean Sea," the chief analyst at Insignia Consultants in India told MarketWatch. "There are concerns that there could be indirect forms of attack on Syria before the US Congress [meets] next week."
Copper staged a sharp rebound in US trade, despite a lacklustre session on the London Metal Exchange. US copper for December delivery was recently up five cents or 1.6% at US$3.31 a pound. In London, copper edged up less than 0.1%, zinc less than 0.1% and tin 1.6%. Aluminium lost 0.4%, lead 0.9% and nickel 0.4%.
TRADING THEMES TODAY
SYRIA CLOUDS OUTLOOK: So much for Syria going on the backburner this week. The threat of action in the Middle East dominated trade overnight, with obvious winners in oil and precious metals and an obvious loser in the Australian stock market, which had pre-empted a much brighter session on Wall Street following promising Chinese and European economic figures earlier in the week. The result is that our market likely has a bit to give back today unless the quarterly GDP report at 11.30am EST delivers happy news. Economists expect growth of around 0.6% for the quarter.
ECONOMIC NEWS: The AIG Services Index is due at 9.30am EST, followed by the more significant quarterly GDP report at 11.30am. Europe has services, retail sales and GDP reports due tonight. Highlights tonight in the US include the Federal Reserve's Beige Book, trade balance, economic optimism and vehicle sales.
