The US dollar steadied at lower levels, while equities eased as investors remain focused on the preparations to strike Syria and still tense rhetoric on trade. Reports indicate that the US and France have moved warships into the area and the UK has moved submarines within striking distance as well.   

One thing that complicates matters is Russia’s threats to retaliate in defense of Syria. This obviously risks a larger confrontation with Russia.  That there is a civil war in Yemen that has killed tens of thousands of civilians without much outcry in the many of the same countries who are morally outraged at the deaths in Syria suggests a more complicated narrative. The UN High Commissioner for Human Rights estimates that Saudi-led coalition air attacks caused almost two-thirds of reported civilian deaths, while the Houthis have been accused of causing mass civilian casualties due to their attack on Yemen’s third-largest city.

This is important to understand the general cautiousness of investors throughout the capital markets. The possibility of a large-scale military confrontation, with the civil war in Yemen being another front, is a serious risk. It is not as if there is a large broad decline in equities. It is more a drift lower as potential buyers more to the sidelines. The MSCI Asia Pacific Index snapped a three-day advance with nearly a 0.5% decline today. India, Malaysia, and Thailand are bucking the trend and posting modest gains.  

European equities are mixed, but the major markets are nursing small losses. Consumer staples, real estate, telecom, and materials are trading heavily, while energy and financials are firm. The Dow Jones Stoxx 600 is off for the second consecutive session. During which time it has surrendered the gains scored Tuesday, leaving it slightly higher on the week.  

Several national reports had warned of downside risks to eurozone aggregate industrial production, but the 0.8% decline was considerably larger than expected. It is only partly blunted by a revision to the January data that saw the initial 1.0% decline revised to -0.6%. February was the third consecutive monthly decline, the longest decline since 2009. We suspect poor weather weighed on the regional economy in Q1, but we suspect that the economic cycle has peaked. The implication is that the economy is likely to strengthen in Q2 as the weather effect passes, but is unlikely to return to the level of activity seen in the second half of 2017.  

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