Slowly but surely fears about the impact of the unrest in Libya and the rest Middle East are starting to overwhelm the bulls’ belief that the US economic recovery is all powerful.
In Europe there are fears the rise in Middle Eastern tensions and unrest could generate a rise in inflationary expectations which seems to have brought forward a rate rise to next month.
In Asia the concern is that, added to rapidly rising food prices, the jump in oil costs will add to rising inflation pressures in countries such as China, Singapore, Indonesia, South Korea, Taiwan and Thailand.
After ignoring the possibilities the unrest posed for oil prices, inflation and stability of the region (especially Saudi Arabia), investors are now becoming more alarmed.
Saudi Arabia’s share market steadied over the weekend after losing more than 11% in a matter of days.
State-owned banks bought shares to calm fragile investor sentiment and absorb the selling by foreign investors.
The weekend’s news of more unrest, bitter fighting in Libya, Yemen and Bahrain will increase these fears.
With important economic news flow low this week (the Fed meets tomorrow week), US markets will worry over every bit of news from Libya and the rest of the region; every spike in the oil prices will see gold prices rise, bond prices jump around and share prices will become more volatile.
US and European shares fell Friday, but managed a very late partial retracement that kept the index in the black for the weekend.
Asian (and Australian markets) were mostly firmer earlier on Friday.
Oil futures breached $US104 a barrel in the US, which offset the February jobs report’s generally solid tone (see separate story).
Because the news flow will be so sparse, markets will no doubt focus on Friday’s ‘Day of Rage’ protest in Saudi Arabia.
Saudi authorities had to handle a smaller scale demonstration last Friday, but this Friday’s could be a much larger affair.
Protests in that country have been sparse and the King and Royal Family 10 days ago offered $US37 billion in extra welfare and other spending over the next few years, but no progress on democracy, improving the role of women or relaxing the tight hold Islamic fundamentalists have on everyday life in the oil rich Kingdom.
So the swings and changes in sentiment could be extreme, especially if the fighting in Libya becomes even more bitter and massacres start being reported.
A western no fly ban, if introduced, raises the stakes for everybody, especially if it starts being enforced.
So watch for a shaky start to the week here and offshore.
At the finish on Saturday morning, our time, the Dow was down 88.32 points, or 0.7%, to close at 12,160.40, up 0.3% for the week.
The Standard & Poor’s 500 Index fell 9.82 points, or 0.7%, to 1,321.15, leaving it only 0.1% higher over the week, while the Nasdaq Composite Index lost 14.07 points, or 0.5%, to end at 2,784.67, up 0.1% for the week.
In Sydney SPI futures fell 28 points to 4836, pointing to losses at the start of local sharemarket trade this morning.
At the close on Friday, the ASX200 index was up 57.9 points, or 1.2%, at 4864.3, a 0.5% gain for the week. The All Ordinaries index rose 55.8 points, or 1.1%, to 4958.6.
That optimism on Friday seems to have been misplaced, or simply an overly optimistic prior reaction to what was thought to be a big jobs report on Friday night.
The Australian dollar was buying $US1.0143 in overseas trade, virtually unchanged from late Friday in Sydney.
Some US investors and analysts continue to ignore the events in the Middle East, arguing that the strength of the US rebound is such that it will offset any negative events.
The way oil prices continue to rise, US petrol prices are heading for $US4 a barrel by mid year and will get there faster if the greenback continues to soften like it did late last week after the European Central Bank signalled that a rate increase could happen next month.
That change will also send the Australian dollar higher as well, adding to pressure on exporters and some retailers.
The S&P 500 is down less than 2% from a near three-year high hit in late February, but the energy oil sector on Wall Street is up 10% since the middle of January when the Middle East problems first erupted in Tunisia.
Brent crude prices are up 18% in the same period of time and the MISCI Global Index has risen by a few points.
Asian markets were mostly higher on Friday ahead of the sharp jump in violence in Libya and the rise in oil prices.
European markets reacted to the rising oil price and violence and fell.
