US stocks closed out their second straight week of gains on Friday with a rally sparked after President Hosni Mubarak resigned.
But tensions in the Middle East haven’t ended and will remain elevated as demonstrations in Yemen and Algeria at the weekend show.
They were shut down by government supporters or police, but that they happened is an indication of the pressures ignited in Tunisia and then Egypt, are still playing through the region.
In fact Algeria is a bigger oil and gas exporter than Egypt, while Yemen is especially sensitive where a fight between the government and breakaway tribes in the north, has been increased by the pressure from terrorist groups training in the country. Yemen is also next door to the world’s biggest oil producer, Saudi Arabia.
Reuters reported at the weekend, "The toppling of President Hosni Mubarak on Friday marked the beginning of a new, uncertain era in Egypt that promises to empower Islamist movements like the Muslim Brotherhood, long viewed with deep suspicion in the West.
"Al Qaeda is widely seen as weak in Egypt thanks partly to Mubarak, and his departure is raising fears in the U.S. Congress that the rise of even moderate Islamists may give radical elements more room to operate.
"James Clapper, the U.S. director of national intelligence, sought to play down fears about the Muslim Brotherhood this week, saying it "has eschewed violence and has decried al Qaeda as a perversion of Islam."
So while investors are wondering about where the next problem might emerge in a region that will be unsettled for months to come, keep an eye on Egypt.
Its fate will be the big story on 2010 if Islamists get hold of power and try to follow an Iran-style of opposition to the West, especially America.
And while also pondering this question, watch what happens with inflation news this week.
These factors are now becoming more firmly linked because rising food prices have been a constant source of tension in the Middle East since 2007-08.
The US, China and the UK gets updates on cost pressures in their economies this week.
China’s will be the most important and last week’s interest rate rise seems to have been aimed at pre-empting concerns from the figure (rumoured to be an annual rate of 5.4%).
The rate rise was swallowed by the market without any worry; the inflation news will be a bigger test.
Australian shares are poised to rise when local markets reopen today after Wall Street finished higher in the wake of the Mubarak resignation news.
The SPI futures index was up by around 40 points on Saturday morning at about 4891 for the ASX 200.
That was after the index lost 35 points, or 0.7%, to close at 4880.9 on Friday.
That cut the week’s gain to just 0.4%.
The All Ordinaries index fell 31.1 points, or 0.6%, to 4970.6.
In New York the Dow was up 43.97 points, or 0.36%, at the close early Saturday morning our time, at 12,273.26.
The Standard & Poor’s 500 Index rose 7.28 points, or 0.55%, to 1,329.15 and the Nasdaq Composite Index was up 18.99 points, or 0.68%, at 2,809.44.
For the week, the Dow rose 1.5% and both the S&P and Nasdaq were up 1.4%.
But impressive as those figures look, plus the 27% five month rise for the S&P 500, it’s not dragging more money into the market.
Reuters pointed out on Friday that volume is still soft, "undercutting the unfailingly bullish direction in equities".
Only 7.7 billion shares traded on the New York Stock Exchange on Friday, the American Stock Exchange and Nasdaq, below last year’s daily average of 8.47 billion.
For a market to be in a true bull phase we should be seeing solid increases in daily volumes as more and more buyers appear.
With inflation fears rising, especially about food costs, Kraft Foods on Friday cut its 2011 profit growth forecast, sending the stock down 1.4 %.
That is a worry for some investors (especially after the huge Cadbury takeover a year ago, which seems to have done nothing for Kraft).
Food and inflation costs will be at the forefront of many investors this week. A trend to be aware of and follow.
Watch wheat and corn prices in particular.
In Europe shares ended a three day losing streak on Friday as they were boosted by the Mubarak resignation.
The FTEurofirst index of leading European shares ended 0.4% on Friday and 0.8% for the week.
And the Stoxx Europe 600 Index also added 0.4% to be up 0.7% for the year and 0.3% for the month so far.
The index rose 0.7% for the week and it’s up nearly 3% so far this month.
In Asia, the MSCI Asia Pacific Index was off around 0.2% on Friday and more than 3% for the week.
