After Egypt`s Hosni Mubarak agreed to step down as President past week, and handed over his powers and responsibilities to the Egyptian Army, the situation in the country appears to have calmed to a large extent, with the Tahrir Square, the stage for tens of thousands of people demonstrating against the regie for the past weeks, presently being occupied by a tiny group of just 50 people demanding an immediate end to the state of emergency in place. Most of the opposition is satisfied with having achieved its main purpose, the toppling of Hosni Mubarak, and is now preparing for the difficult process of elections in which they will be competing against each other for favor from the Egyptian people.
Bahrain, a wealthy Guld state in the Persian Gulf region was meanwhile the stage to new protests today as the country`s oppressed Shiite majority demands stronger representation and more rights. Bahrain is unique among Gulf Arab States in having a majority of Shiites with strong cultural and ancestral relations with Iran, and it is widely regarded as the most vulnerable among the region`s wealthy nations to some kind democratic upheaval. The Western-oriented, modernizing Sheikh of the country was optimistic about the future of his country, and pragmatic about the opportunities and risks created by the turmoil in today`s comments, but seeing that he owes his position to having toppled his father in a suprise bloodless coup in the 90s, he should know only too well the fluid and unstable nature of Middle Eastern politics and their implications for his and his family`s survivability.
Moving on to markets, we recognize that all these events will have their positive reflections in the commodities market. Still, it seems that this sector is ripe for a pulback after prices breach short- and long-term resistances in spite of seasonal patterns that should see corrections during the first half of the year. Silver, gold and cotton are reported to have touched multi-month highs in of CFTC numbers, apparently boosted by general supply concerns on the back of potential turmoil in the crucial Middle East region. But we think that the markets have outbidded themselves a little on this particular issue, and with interest rates rising, and the Egypt crisis out of the radar for now, the conditions for a pullback may well come into place soon.
Should we expect the bull momentum to be sustained beyond this month perhaps into the second half of 2011? One way or the other, we know at least that Ben Bernanke`s Federal Reserve is never too far around the corner if the market action shows a degree of weakness that can have adverse consequences for unemployment. We know that the economy has been doing reasonably well since October, a short time after the Fed Chief unveiled his bond purchase plans. We know at the same time that inflationary pressures in much of the developing world are at levels that would challenge credibility of authorities, and call for rapid and convincing reaction if price trends are to be kept under contol.
With these two forces, largely driven by central banks and amplified by speculators continuing to define market trends, we believe that a near-term correction may be inevitable, but that the period stretching to the end of the Obama Presidency probably presents a good scenario for continued bullishness. Middle East events show the fragile nature of such conjectures, but as long the geopolitical situation remains under control, the grounds for (market) optimism remains in place.
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