Russian Diplomacy Lengthens US Fuse On Syria

More strong Chinese data overnight has allowed equities to move higher so far this Tuesday. A ratcheting down of fears around an immediate attack on Syria by the US has also boosted market confidence, allowing emerging market and other riskier assets room to scamper higher – with havens unable to benefit.

Industrial production in China rose at fastest pace in nearly a year and a half during August, increasing chances that the Chinese economy is back on an upwards path following a period of stagnation. Retail sales also beat expectations, rising by 13.4% in the month, a sign that a dose of government tinkering with some fiscal levers may have arrested the recent negativity around Chinese prospects. Improving global demand should increase the chances of a good Q3 and Q4 in GDP terms. In the meantime, current plans are working well.

A rebound in markets was also seen after Barack Obama seemingly backed a Russian suggestion that Syrian chemical weapons should be placed under international supervision. The prospect of a deal has caused the Senate vote on proposed action to be delayed after some initial panic in Washington. It is said that the decision to rid Syria of chemical weapons would immediately lessen the chances of a strike by Western powers; it seems it’s not if you’re killing your people but how that is the major issue.

Any path to a more permanent peace will have further positive effects on markets with oil and gold coming lower and the intrinsic bid on USD, JPY and CHF lessening somewhat.

Market participants will keep their focus on diplomatic channels in the absence of tier 1 economic data. Italian GDP is set to confirm that Europe’s 3rd largest economy still remains mired in recession, for all the exuberance around the continent’s recent economic performance.

There seems to have been little news on whether Berlusconi will eventually be expelled from parliament or not. Berlusconi has threatened to take down the government by withdrawing his support for the fragile coalition in the event that the Italian Supreme Court votes against him. No date has been set on the decision.

Whether the overnight news from the UK can be characterised as good depends very much whether you are on the housing ladder or not. The Royal Institute of Chartered Surveyors’ price balance index rose to its highest since November 2006 in August. This measures the proportion of surveyors reporting a rise in house prices versus those reporting a fall. Alongside news that first time buyers are at their most active since 1999, the bubble like tendencies in the housing market are becoming only greater. Sterling was fairly unreactive to the news.