Egypt Concern Drives Oil Higher; Markets Mixed

Today is a mixed day for equities and currencies as the robust rally of the past few days becomes digested. In the uncertain environment of the moment traders seem to be determined to sticking to what they believe in, the bullish momentum that has been in place since Ben Bernanke`s hot money promise a few months earlier. Only oil seems to be directly impacted by the events far away in the Middle East.

Meanwhile, in Egypt events continue to progress in an unpredictable fashion, as President Hosni Mubarak`s point man and spymaster Omar Suleiman tries to find a graceful way out of the mess that his employer has placed him in. He seems to be appealing to the fears of the Egyptian people about a breakdown in peace and order, and focusing on the chaos that could break out if the protests go on without a compromise attempt by the opposition.

The regime has done everything in its power to maintain the appearance of a constructive partner, and not an obstructor to the democratization process, and at times even attempted indirectly to characterize the recent turmoil as the natural consequence of its liberalization program which, cynics would say, has been advancing slower than a snail for the past few years. And even that lacklustre program was in fact the consequence of the Bush Administration`s continuous pressure on its authoritarian allies in the Middle East; Hosni Mubarak was not the only one singled out for "guidance" by the Americans, with Jordan`s and Saudi Arabia`s monarchies getting their fair share of hints and suggestions about what should be done to prevent the emergence of a region-wide wave of extremism. That did not work out quite the way Washington had hoped, of course, since we doubt that they had any great excitement about getting the Muslim Brotherhood to power.

The absurdity of the situation in Egypt, and the speed and chaotic nature of events can be seen with greater clarity if one considers the fact that the Egyptian authorities` main partner in the talks, the Muslim Brotherhood, is in fact a banned group even now. Yet they are debating with Omar Sulaiman and his people about how to manage a peaceful transition of power. Power balances are shifting so fast that it is impossible to speak meaningfully about where the country is headed. It is not at all impossible that Egypt will transform into  a free but chaotic emerging market democracy, the scenario favored by most western observers. Yet it could also be overtaken by various more radical forces with extremely serious implications for the entire Middle East. We don`t claim to have any clear insight on where exactly events will proceed at this stage. 

Elsewhere, we have gold and oil appreciating, the latter more strongly on the back of Middle East concerns, while the USD remains without a clear direction against most majors. The momentum trade is still in place, and for now it seems like its drivers will not give up unless a really big shock comes out of the Egypt crisis.