Another Record Oil Surge Leans on Stocks and Dollar

Gloom covered the the US financial markets Friday: Oil shot up to a new high of $142.26 in the New York trading session due to an apparent short squeeze in the futures markets. There hasn’t been any “latest” scare news, just that Nigeria and Venezuela are due to meet soon to discuss high oil prices. Already, the idea of $200 oil is floating in the air as people talk about that number in the media.

In the currency markets, the US dollar continued its downward move against the Euro, Swiss franc, British pound and yen, but these major currency pairs have been trading in a narrow range and are likely to do so towards the end of the trading week. US stocks are looking quite battered, with the Dow Jones recently down by more than 120 points.

US consumer confidence data for June from the University of Michigan are a bit weaker than expected, with the headline confidence index at 56.4 (56.5 expected) compared to a mid-month reading of 54.7. May’s reading was higher at 59.8, so consumers’ mood had worsened since last month, dipping to a 28-year low. Wondering what the consumer sentiment registered just last June, before the credit market crisis? It was a high of 85.3, slightly lower than the peak of 96.9 reached in January last year.

Fed’s Rescue Of Bear

According to today’s release of minutes from the two meetings in mid-March, the decision by the Fed to take the never-before step of helping 85-year-old financial firm Bear Stearns avoid a collapse by facilitating its sale to JPMorgan Chase (JPM) was discussed and voted on by four Fed officials. The minutes said that the “funding difficulties” of Bear Stearns and the “likely effects of its bankruptcy on financial markets” were discussed.

“The Board’s decision to establish a facility for primary securities dealers was based on recent, rapidly changing developments,” the minutes read, noting that the credit markets were so tight that “dealers might have difficulty obtaining necessary financing for their operations from alternative sources.”

A few more financial firms aren’t doing that well either and are finding it difficult to raise more capital. Was this the first and last one, or will there be more intervention by the Fed with American taxpayers’ money?

Forex Trading

EUR/USD is only slightly higher today, hitting a high of 1.5785. Euro bulls are not out in force to bid the Euro higher as much of ECB’s rate hike next week has been factored in. USD/CHF has had a bigger fall, dropping to an intraday low of 1.0165, reaching previously mentioned bear targets of 1.0200 and 1.0170.

Comments

[Pauly B]

If the ECB raises rates next week there will be no place safe to hide. It will cause a worldwide recession and a cascading waterfall event over time in all the markets.

[PeterSterling]

All those rented oil tankers filled with sour crude in Iran ports are there to protect against a US attack. Its an oil shield. Don't be surprised if Iran sinks them in the Straits of Hormuz if attacked.

[PeterSterling]

There is a way out of this mess.

Make America energy self sufficient:

www.strategicnine.com/...

[JimHawthorne]

High oil doesn't scare me: what scares me are the looming economic conditions that will eventually drive the price of oil DOWN to BLOW $90/Bbl.
While still over the horizon, world-wide recession/depression is a very real specter.

[DaveinHackensack]

Worldwide recession/depression? Countries such as Australia and Brazil, that are benefiting from the secular bull market in commodities, are booming. Their currencies are strong, and their respective central banks' key interest rates are high, leaving them plenty of dry powder to stimulate domestic demand if economic growth in China should slow, reducing demand for their respective commodity exports.

Things may look gloomy in the U.S., but it's a big world out there.

[Will Rahal]

Oil prices are exacerbating our economic woes.
I still expect the dollar to firm up as we continue to be in a weak economic environment.
Despite the tax rebates the ration od ND to Durable Goods consumption keeps rising, I have been claiming for a year that this would lead to recession. The Stock Market confirmed it this week.

[Reinko]

The Bear rescue by the US FED the author mentions is very interesting:

Many months before the sudden collapse of Bear Stearn Cos I already expected a tidal wave of bankruptcies in the US financial sector.

So I was a bit disappointed when Bear got rescued but I knew I only had to wait some time longer...

And guess what? I have it from a commisioner from Fortis Bank, he stated they needed to raise another 8 billion Euro (that's above 12 billion US$) in order to prepare for 'that what is coming' from the USA.

When asked by the journalist what exactly was coming, the Fortis guy said: "Right now 6000 regional US banks go busted".

__________

So far the Fortis guy, I knew already of a lot of problems in the regional banks. For example they cannot merge because in that case the banking books needed mark to market value...

Let the good times roll & what happens to the petro dollar?????