Egyptian stocks bounce, Asian equities fall, oil still high, eurozone bond markets nervous
Posted on 28 March 2011 with no comments from readers
After falling 12 per cent when the Cairo bourse reopened last week – just in time to avoid relegation from the important MSCI emerging markets index – stocks rebounded by 7.8 per cent on Sunday amid buying by a $42 million government fund and pledges of support from top businessmen.
However, a sharp sell off in Asian equities on Monday was a reminder that the global position for stock markets is very delicate with many markets looking toppy and ripe for a correction after a two-year rally from the bottom of 2009. Oil prices remained very elevated at around $105-a-barrel while the debt position in the smaller eurozone countries is again worrying bond markets.
Toppy markets
Is it any wonder that many investors are sat on the sidelines in cash, or betting on even higher oil and precious metal prices. Silver was the best performing asset class last week but would most likely take an equally big downstep in a global sell-off (click here).
The nuclear crisis in Japan is also far from resolved with the sea now found to be hugely irradiated posing a major threat to the enormous Japanese fishing industry and the local food chain. Meanwhile, engineers struggle to bring the reactors under control.
It is also far from certain that the Middle East and North Africa is finally settling down. Anybody except Colonel Gaddafi would give up but he remains as unpredictable and dangerous as ever. Meanwhile, popular unrest in both Yemen and Syria has turned into bloody conflict, with Syria another oil exporter now in trouble, albeit only around 500,000 barrels per day.
Inflationary policy response
If you wanted to imagine more upward pressure on energy prices and therefore inflation, and by extention global interest rates, you would need to sit down and think very hard. And the policy response to these events just pours petrol on the fire in terms of inflation.
For monetary injections – $246 billion from Japan a week ago, $67 billion from Saudi Arabia last week – only serve to increase the supply of money pursuing scarcer resources and so push up their price.
The argument that gold and silver may go into a parabolic price increase in this inflationary brew is a strong one (click here).
