Syria woes: Obama‘s speech negative for crude, gold

David Lennox, Fat Prophets says, markets seem to have reacted positively to the news that there won’t be an immediate strike on Syria by the US, but it is negative for both crude and gold prices, he adds. Crude and gold prices, which have been surging on the back of Syria crisis, dropped quite sharply overnight after US President Obama's speech. 

Lennox told CNBC-TV18 that the underlying strength in the US economy is gaining more traction and one can expect dollar to strengthen. However, if US carries out the strike on Syria then dollar could weaken. Seth Freeman, CEO, EM Capital Management also agrees that this news is very positive from market sentiment point of view. "The fact that President Obama would hold on taking a vote in Congress would not only provide an opening for some negotiations but also would provide time to gain consensus in Washington," he elaborates.  Meanwhile, he expects the momentum in Indian equities to continue for some more time. "For the next few days other than profit taking, I would expect both, the market to go up and the rupee to strengthen," adds Freeman Also read: Worst seems over for Indian mkt; bullish on IT: StanChart Below is the verbatim transcript of their interview on CNBC-TV18 Q: We have already seen overnight drops in both crude as well as gold; do you see further downside given that Syria fears look to be receding? Lennox: Certainly the market reacted to the news that in the imminent near-term there is not going to be any strike. But if you have a look at Obama’s speech, it suggests that he has left the door open for the American military to at some point in time perhaps to strike again. He has indicated that he is the commander-in-chief of the US military and as such, he does not require any approvals for action to be taken. So, at his point he is probably left the door open but markets have certainly reacted positively in terms of there not be an imminent strike but unfortunately negative for both crude and gold in terms of pricing. Q: What did you make of Barack Obama’s speech and also the market was looking for cues this evening because the vote was likely to come about but that has been postponed? Freeman: My initial reaction when Obama said they are going to hold on taking a vote in Congress was a wonder thing because earlier in the day both he and John Kerry had said that the threat of an attack is necessary to reach a political resolution.  However, thinking about it little more, I think it is a brilliant political move because it gives the Obama administration the next few days to muster the support of Congress so that when a final vote is taken it will be behind the President. So, this not only provides an opening for some negotiations but also provides time to gain a consensus in Washington. Q: In the interim that this does take place, how do you expect equity markets and currencies to move from here? Freeman: From the sentiment standpoint, I think this is very positive. We certainly saw quite a rally in India over the last few days. I think this will carry the momentum for sometime, although I don’t know how long. For the next few days other than profit taking, I would expect both, the market to go up and the rupee to strengthen. There is a lot of excitement about Dr Raghuram Rajan. Q: What are you making with regard to the dollar movement now over the next few days, do you think we can see some bit of weakening, how do you expect it to behave? Lennox: We certainly think that the US dollar probably in the near-term will also arise. If you have a look at the economic data that is starting to perhaps become a little more consistent, there is an underlying strength in the US economy that is gaining a little more traction as the months roll on. So I would expect that it is going to be driver of the direction of the US dollar and that thrust would be upwards. If the US does in fact perhaps carry out a limited strike on Syria, we may see some weakness in the dollar as they will await the response from the people being attacked. Q: We have seen the US treasuries had earlier hit that 3 percent mark, they are now trading just a tad shy of that but in the interim that things move on Syria etc, there is better data coming out of China, where do you see the US treasury yield headed in the short-term? Lennox: Looking at the US treasuries unfortunately, again going back to the underlying factors that have been influencing the yields in the medium-term and short-term and that is the quantitative easing (QE) and the risk of the QE tapering, we think that it is still too early on the Federal to start tapering its QE. Hence that would keep US yields from realizing significantly but if they did stop their QE programme, there is only one way for US yields to go and that is upwards. So QE is going to be on the table now for sometime to come we believe. Q: We have seen that the emerging markets have had a run over the past few trading sessions, do you think that the next trigger would be the Fed tapering or do you think we do have more in store because some of these markets have run close to 4.5-5 percent in just two-three trading sessions? Freeman: Yes, it has been remarkable. I would expect a decent momentum to carry this forward. The big thing will be the acceptance of Dr Rajan’s next public talks and TV appearances and to get more specifics about the proposed enhancements to foreign exchange and exports from India.