Muted Market Reaction Muted To Syrian Air Strikes

Asian markets fared well overnight with the West’s air strikes on targets in Syria showing limited impact on the financial markets. Consequently, European markets are also pointing to a stronger open. The fact that the stock market reaction has been muted to US led military attacks on Assad’s regime, so far, suggests that investors are not expecting a major escalation on the back of this action. Universal condemnation and overwhelming support for the military action makes any retaliation from Syria main supports, Russia or Iran, doubtful. Meanwhile the US, UK and France appear to be viewing this as mission accomplished with no more imminent air strikes anticipated.

Sentiment is unlikely to take a big hit given the negligible effect that these attacks are expected to have on economic activities across the globe. We are therefore not expecting to see large flows in the flight to safety trade. Flows in stocks remain supported, with some small signs of the event being played out on the currency markets.

Yen edges lower

Whilst the dollar has remained relatively stable as it started trading for the new week, flows into the Japanese yen, the traditional safe have currency have increased. The USD/JPY has fallen steadily across the Asian session and is looking to target 107.00 in the near term.

Geopolitical risk not going anywhere fast

Geopolitics are expected to stay in focus this week, with US-China trade war fears still simmering in the background and now the bombing against Assad’s regime; risk sentiment could well remain on edge across the week, meaning large swings could stay with us across coming sessions. Whilst the Chinese US trade war scenario has been well documented, and it appears that they are trying to work things out behind the scenes, the situation remains tense meaning it could sour quickly. A negative headline could quickly catch investors off guard over the coming days.

Crude oil lower remains well supported

Crude oil is already seeing some profit taking as the markets open, however with geopolitical tensions in the Middle East strained, the price of crude is expected to remain supported at these elevated levels. Any slight escalation in tensions could impact on global oil supplies which are looking particularly vulnerable. Furthermore, given Iran is a major backer of Syria the re-imposing of Iran sanctions remains a very real possibility.

US Advanced Retail Sales

In the absence of more geopolitical headlines today, and with no high impacting economic data due from Europe, traders will be focusing their attention on US Advanced Retail Sales this afternoon. After the dollars broad sell off last week, the anticipated rebound in Retail sales could provide a rallying point. Retail sales growth of 0.4% would provide fresh reassurance to investors that consumers are continuing to spend, despite an easing in domestic sentiment. Whilst a weaker showing for the release is not expected to impact on the Fed’s general hawkishness and won’t lower expectations of a rate rise in May, it could put fresh legs on GBP/USD as it looks to target $1.43.

Opening calls

FTSE to open 14 points higher at 7278
DAX to open 63 points higher at 12505
CAC to open 20 points higher at 5335