With oil on the rise, what next for equity markets?
That’s the question KBW try to answer in a note out on Monday. The analysts look for correlations over the last 50 years between big (ten and 20 per cent quarter on quarter) WTI rises and changes in the S&P500 and the Keefe Bank Index.
The headline result is, um, choppy: the S&P500 was equally split between higher and lower quarter-over-quarter closes when the WTI rises 20 per cent (click to expand):
(Reuters) Brent crude oil futures surged above $100 a barrel for the first time in 28 months on Monday on concerns that anti-government protests in Egypt could create instability across the Middle East, possibly disrupting oil shipments through the Suez canal.In London, ICE Brent crude for March delivery shot up to $100.05 a barrel, rising 63 cents on the day…
The Dubai Financial Market (DFM) said today that it is keen to introduce the ‘delivery versus payment’ (DvP) settlement system before the end of the first quarter of 2011 in plans to drive forward the implementation of international best practices.
If the DFM’s plans go ahead, Dubai will be the first market in the United Arab Emirates (UAE) to introduce DvP.
Brent crude oil futures surged above $100 a barrel for the first time in 28 months on Monday on concerns that anti-government protests in Egypt could create instability across the Middle East, possibly disrupting oil shipments through the Suez Canal.
Arab financial markets are being rocked by Egypt’s political turmoil, with several stock markets continuing to drop and the cost of insuring against default spiking across the region.
While Egypt’s stock market remains closed after shedding over a fifth of its value in January, credit default swaps – a kind of default insurance – on Egyptian debt rose 17 basis points to 445 basis points on Monday, according to Markit, a data provider.
Moody’s on Monday downgraded Egypt’s debt rating one notch to Ba2, with a negative outlook, citing worries that “escalating political tensions” will worsen the government’s already stretched financial position
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“Markets in the Gulf Cooperation Council are seeing a strong rebound as smart money is picking up names that are unaffected by the geopolitics of North Africa,”said Omair Ansari, equity strategist at Gulfmena Alternative Investments. “Earnings for the majority of the companies in the GCC are insulated to within the region, thus yesterday’s selloff was unjustified.”
The United Arab Emirates’ ADX General Index rose 1.3 per cent to 2,594.29, its biggest increase since mid-October. It suffered its largest fall since November 2009 in Sunday’s session.
Shops, offices and banks across Cairo remained shut on Monday and thousands of people chose not to go to work as evidence mounted that parts of Africa’s second largest economy have been paralysed by ongoing anti-government protests.DIFC – Dubai, January 31, 2011 — Moody’s Investors Service has today downgraded Egypt’s government bond ratings to Ba2 from Ba1 and has changed the outlook to negative from stable.Today’s rating action was prompted by the recent significant rise in political event risk and concern that the policy response could undermineEgypt’s already weak public finances. We had previously signaled that such developments may result in a ratings downgrade (see Moody’s latest Credit Opinion on Egypt published 24th November 2010).Moody’s has today also downgraded the country ceiling for foreign currency bonds to Baa3 from Baa2 and the country ceiling for foreign currency bank deposits to Ba3 from Ba2. The outlook on these ratings was changed to negative from stable. The short-term country ceiling for foreign currency bonds was downgraded to P-3 from P-2. The local currency ceilings were downgraded to Baa1 from A3.
The commodities bull market has many years to go and oil is heading past $150-a-barrel warns legendary investor Jim Rogers who caught the commodities bull a few months early in 1999. Own real assets, not stocks and bonds, he says.
Stocks were not a good place to be in the 1970s. President Obama does not understand what is going on. Only another financial crisis will resolve the debt crisis.
“In the short term, the biggest global economic worry remains oil prices. Egypt itself isn’t a big energy producer. But significant shipments of oil and petroleum products pass through Egypt each day on their way from the Mideast to European and U.S. markets.
The real question is – is the investment flight a short term phenomenon, based upon immediate events or will it continue and expand and turn into a wave of capital pulling out of these assets for longer period. Nobody knows the answer to that.
This is likely to remain an important issue for markets throughout 2011. If monetary policy in the BRICs and other emerging economies is tightened too much, then emerging equities may have a disappointing year, relative to their developed market counterparts. If, on the other hand, there is insufficient monetary tightening in the EMs, then bubbles could develop in their equity and property markets. In January, the markets leaned towards the former view, so many of the most important equity markets in the emerging bloc, including India and China, fell sharply, even before Egypt took centre stage.
Portfolio strategist, hedge fund manager, and sometime Naked Capitalism guest blogger Marshall Auerback spoke on BNN about the implications of unrest in the Middle East for the economy and investors. Enjoy!
You can view the clip here.
