Gold and Oil Caught Between Fed Taper Bets, Syria Risk

FRANKFURT (Sept 9)  Commodity prices are little-changed in early European trade as investors weigh up a supportive set of Chinese trade figures released over the weekend, a possible Western intervention in the conflict in Syria and lingering speculation surrounding the Fed’s intention to reduce its “QE3” stimulus effort. China reported that exports rose 7.2 percent year-on-year in August, marking the largest increase in four months and topping forecasts calling for a 5.5 percent increase.

The release sent Asian bourses higher but Europe has been reluctant to follow as the US Senate begins the process of setting up for a vote on the resolution to authorize the use of force in Syria amid allegations of chemical weapons use. The markets are worried that outside involvement could widen the scope of the conflict and destabilize the Middle East at large, disrupting oil shipments and undermining the global recovery. US President Barack Obama will be making the rounds on major news outlets before a major speech on Tuesday where he will make the case for military involvement.

Betting on Fed policy likewise continues with just over a week left before this month’s FOMC meeting. All eyes will be on a scheduled speech from San Francisco Fed President John Williams. While Williams is not a member of the rate-setting committee this year, his comments amount to the last bit of “fed-speak” before officials sit down to hash out where they will take policy this month. An initial cutback of asset purchases seems all but priced-in at this point, putting the spotlight on what is likely to happen thereafter.

 If Mr Williams adopts a dovish tone that is perceived as arguing against a sustained stimulus reduction cycle through the year-end, this is likely to boostprecious metals and growth-geared commodities (crude oil, copper)amid a pickup in risk appetite. Needless to say, a hawkish outing stands to yield the opposite dynamic. S&P 500 futures are pointing higher ahead of the opening on Wall Street, arguing in favor of the risk-on scenario. The Syria situation is a wild card however, with markets highly sensitive to headline risk and prone to knee-jerk reversals that threaten to undermine familiar trading patterns.