For all the talk of a 21st century new world order, recent days are a reminder that the US remains unrivalled, if
more reluctant, on the international stage. While American military action looms against the Assad regime in
Syria, a tightening of US central bank policy is awaited across the world’s economies. Markets and investors
are moving to the drum beat of US financial and foreign policy and anticipating what next step this will require
for the world’s largest economy and the rest of the globe.
Investors and markets oscillated in the dying days of August to the unfolding response of the US and the
international community to Syria’s use of chemical weapons. Global equities dipped over the week amid the
uncertainty surrounding the US-led military action and the waiting game on Fed monetary policy. The threat
of military strikes also pushed up the price of Brent crude mid-week to a six-month high of more than $117 a
barrel, although this fell back to $114 at close on Friday as supply concerns eased.
Although Syria is a minnow among the world’s energy producers, a conflagration of its conflict would have
repercussions across the Middle East, potentially disrupting supplies from oil-producer neighbours Iran and
Iraq and the wider region, and through the Strait of Hormuz as well as the Suez Canal. An oil-price spike is
likely to be offset, however, by increased production from Saudi Arabia, which would help minimise any short term
turbulence for stock markets and the world economy.
US Federal Reserve chairman Ben Bernanke, however, may well have a more lasting influence on world
fortunes than President Barack Obama and his response to Syria’s gas attacks. The world’s policymakers and
investors are waiting for a decision on 17–18 September from the Fed on whether or not it will start to trim
the US’s $85 billion-a-month asset-purchase scheme. An anticipation of this retreat from the quantitative
easing (QE) programme, however gradual when it comes, has shaped emerging and advanced markets and
economies since Bernanke set out on 22 May the economic criteria required to start the tapering.
Last week an upward revision of US second-quarter annualised growth figures to 2.5% from an initial 1.7%
estimate brought divided opinion on which way it would influence the Fed’s decision. August employment
figures – which are expected to keep the overall unemployment rate at 7.4% – are due this week, as well as
trade and purchasing manager survey data. Markets will also anticipate the European Central Bank president
Mario Draghi’s interest rate statement on Thursday, and news from the Bank of Japan’s policy board meeting.
Eurozone retail sales and German industrial production data this week will give further detail of how the
region is building on its recent pull-back from recession.
The S&P 500 index fell 0.3% to 1,633 on Friday which was a loss of 1.8% over the five days and 3% for the
month – its biggest monthly decline for more than a year. Across the Atlantic, the FTSEurofirst 300 fell 1% to
1,195 on the last trading day in August, which was a weekly fall of 2.3% and its biggest five-day decline since
June. The FTSE 100 also ended the week at 6,413, down 1% on the day and 3% over the month. In Tokyo,
the Nikkei 225 Stock Average fell 0.5% to 13,389 on Friday, leaving it down 2% over both the week and the