The tense stand-off in Egypt dominated market sentiment Monday as investors fretted about the potential impact on oil supplies and whether any other government in the region may soon face the wrath of its people.
With the protests against the rule of President Hosni Mubarak showing little sign of abating, a week after they began, investors' appetite for risky trades remains subdued, at best.
There's nothing like a bit of uncertainty to get investors fidgety, especially when the prospect of disrupted oil supplies comes into play. Worries that the Suez Canal — a key route for oil tankers and cargo ships — may be closed has pushed the price of Brent crude oil in London up to a 28-month high near $100 a barrel. U.S. crude, as traded on the New York Mercantile Exchange, is not far behind at around $90 a barrel.
"The most pressing concern for global markets is the potential for knock-on effects on oil flow if turmoil starts to spread from Egypt across other countries in the region," said Jane Foley, an analyst at Rabobank International.
Ratcheting oil prices will do nothing to inspire confidence that the current elevated rates of inflation in a number of economies will prove short-lived. Inflation has risen up the list of investor concerns over the past few weeks and figures earlier showed price rises in the 17 countries that use the euro running at a 27-month high of 2.4 percent in January.
However, not everyone agrees oil's price will soar.
Donald Trump, in an exclusive interview with Newsmax.TV on Friday, said that oil's price could fall.
“It also could go the other way. Frankly, the Middle East is a tinderbox. It’s going to explode. OPEC will probably be destroyed if it explodes, and oil prices could go the other way," he said.
“I understand economics. You break up what would normally be an illegal monopoly, OPEC, and break it up very strongly. The Middle East is exploding, and I’m saying that could have a positive impact on oil prices," he told Newsmax.TV.
“If you look at oil right now, it’s soon going to be $100 a barrel. Far too high. It’s set by OPEC. I think OPEC would explode with the Middle East and that wouldn’t be the worst thing in the world.”
With geopolitical tensions high and inflationary concerns mounting, it's unsurprising that stocks are on the retreat, albeit it in a more muted fashion than Friday when worries over Egypt really took hold.
In Europe, the FTSE 100 index of leading British shares was down 0.2 percent at 5,969.60 while Germany's DAX fell 0.4 percent to 7,075.08. The CAC-40 in France fell 0.3 percent to 3,991.34.
Wall Street was poised for a flat opening — Dow futures were unchanged at 11,775 while the broader Standard & Poor's 500 futures rose 2.5 points to 1,274.
Earlier in Asia, Japan's benchmark Nikkei 225 stock average dropped 122.42 points, or 1.2 percent, to 10,237.92 — its lowest close since Jan. 3. Australia's S&P/ASX 200 shed 0.4 percent to 4,753.90. South Korea's Kospi slid 1.8 percent to 2,069.73 — its biggest one-day drop this year. Shares in New Zealand, India and Singapore were all lower.
But China's Shanghai Composite index gained 1.4 percent to 2,790.69 amid some last-minute buying ahead of the Chinese Lunar New Year that will shut down trading Feb. 2-8. The Shenzhen Composite Index for China's smaller, second market rose 1 percent to 1,197.67.
In the currency markets, trading was fairly subued, following big movements on Friday, when the dollar, the yen and the Swiss franc advanced in varying degrees in light of their supposed status as safe havens.
By late morning London time, the euro, which has been buoyant of late on hopes that Europe is finally getting a handle on its debt crisis, was 0.4 percent firmer at $1.3655, partly on the back of the higher than expected eurozone inflation figures.
Meanwhile, the dollar was 0.3 percent firmer at 82.20 yen.
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