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Shares slide, oil and gold rise as Syria rattles markets
by Chris Marshall on Aug 28, 2013 at 08:23
Global shares slumped, while the prices of oil and gold rose as the threat of Western intervention in Syria rattled markets.
European, US and Asian stocks all fell, with Britain’s FTSE adding to yesterday’s losses with another 0.5% drop to 6,412 on Wednesday morning, even as oil producers resisted the declines.
The price of oil continued to move higher as the US, France and UK considered action against Syria. The potential military strikes would come after the Syrian government’s use of chemical weapons against its own people.
The WTI oil price rose to a more than two year high, while Brent crude futures (Europe’s benchmark price) hit their highest since February, to trade at some $116 per barrel.
Syria is not a major producer of oil, but markets were worried about the impact of an attack on Syria for the wider region. 'The concern is that an attack on Syria will reverberate through the region, increasing the spill over into other countries and possibly resulting in a larger supply disruption elsewhere,' said Michael Wittner, head of oil research at Societe Generale, who expects oil to surge to $120-125 in the coming days.
Gold in favour
Investors sought safe havens, pushing the price of gold to its highest since May, at above $1,433.
'With the current Asian currency dislocations and increased geopolitical risks surrounding Syria/Egypt, we now believe gold is likely to push beyond our near-term target of USD1,500/oz,' commented analysts from Nomura in a research note.
Assets seen as particularly risky were hit hardest. This was the case in emerging markets, where stocks and currencies have been falling as investors withdraw cash in anticipation of the ‘tapering’ of US stimulus money. India’s rupee suffered its biggest one day loss in 20 years, slumping by 3.1% to 68.31 against the US dollar, after almost touching 69 in intra-day trading
The currency is now down 19.5% against the dollar since the start of the year and by 13.5% in the second quarter alone.
Sara Yates, global currency strategist at JP Morgan Private Bank, said: ‘The more the currency depreciates, the greater the chance that foreign holders of the equity market capitulate on their position. However, the greater the outflow of foreign funds, the smaller the capital account surplus, the harder the current account is to finance and the more pressure falls on the currency, creating a vicious spiral of financing concerns.’
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