Markets React

World financial markets have been facing a litany of worries in recent months - has Chinese growth slowed excessively; can Prime Minister Abe revive Japanese growth and prevent regional political tensions from becoming global; can Europe remain a unified political entity, even as the always-fragile Italian government coalition looks about ready to succumb again to Berlusconi antics, and the peripheral EU economies remain depressed; can anyone expect the dead-locked American political system to prevent yet another impending government debt-ceiling fiasco when members of Congress return to Washington next week; and - what is to be done with ever-broadening conflict and violence in the Middle East and northern Africa?        

Western financial markets have been remarkably sanguine to date. In America, until quite recently, they have been trading at or near record highs, and the focus has been on such matters as when America's Federal Reserve authorities could begin to "taper", that is, begin to withdraw some of its stimulative bond-buying activity, and in Europe, what might be expected once the results of the late-September German elections are evident.

But today, it seems markets were finally tipped over the edge, in a very typical way, as a result principally of geo-political concerns - specifically, imminent American and British military action against Syria in response to what US Secretary of State Kerry has described as "undeniable  evidence" that the Syrian regime carried out chemical weapons attacks in a suburb of Damascus. In Europe, all equity markets dropped by some 2% on the day; in America, safe-market havens were strong, with prices for gold and silver, bonds, and oil all up significantly, while equity markets sank. The flight from risk to safety was also evident in emerging markets, with their stock indices all down dramatically on the day.  

Reports today suggest that American military actions against Syria will be focused and limited. Whether political reaction in the Middle East, especially in Iran and Israel, will be similarly restrained, forms the basis for uncertainty with which world equity markets must deal in coming weeks.