The massive influx of money from the US Fed and Treasury has led to a
substantial increase in both crude oil and gold prices today. Crude
prices have pushed higher and look set to register the first meaningful
move about the $50 level since the start of 2009. Gold endured a
remarkable days trading yesterday and is trading up at $955 on the day
today. It is no coincidence that these two markets are trading higher in
tandem as they are both linked with inflation expectations. Gold is
traditionally seen as an inflation hedge while oil is a barometer for
global economic activity. With the Fed turning on the printing presses
yesterday, inflation fears are once again creeping into investor's
conscience.
The Fed's plans have been described as a shock and awe tactic, a phrase
used to describe the initial stages of the conflict in Iraq. Yesterday
was certainly a shock with the dollar registering its 3^rd biggest
single day decline ever. However, equities markets aren't exactly in awe
today as investors fret that like the Iraq conflict, there are no plans
in place to tidy up the inflation mess that could be round the corner.
The Greenback's weakness has dampened what would have been an excellent
day for oil majors such as BP which derives much of its income in the
form of US dollars. This has taken the shine of the early promise from
European markets. Surprisingly it is financials that helped to push
markets into the black on the back of the news that Citigroup is going
to perform a reverse stock split. Citi is now down on the day, but
Barclays, Lloyds, RBS and HSBC are all performing well today. The
success of HSBC's rights issue may have also encouraged financials.
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