Oil looking up on taxes and QE2

“Nature thrives on patience; man on impatience.”

Paul Boese

EMI QuickView Short Term Market Overview

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Yesterday’s trading activity was a bit of buy the rumor and sell the fact as most risk assets moved lower after the initial gains attributed to the announcement of the Obama/Republican agreements on extending all of the tax cuts. However, after the dust settled and it starting becoming clear that Obama’s own party was not in agreement with the dea,l most markets retreated on concerns that there was still a possibility that the deal could be derailed. One should never say “never” but I do not think the deal will be derailed and in the end it will be passed in the next week or so. As I said yesterday the deal is a game changer and very supportive for the economic recovery. This supply side stimulus coupled with QE2 should help to accelerate the economic recovery in the US and continue to inflate risk asset prices over the medium term.

Over the last 24 hours, global equity markets have drifted lower as shown in the EMI Global Equity Index table below. The US dollar has moved back into positive territory as many now think the tax cuts/QE2 combo will spur growth in the US and be a positive for the US dollar. As a result most commodity markets have retreated as have the equity markets. In addition there is a growing consensus that the Chinese government is likely to raise interest rates in the short term to continue its fight to mitigate a growing inflation problem…possibly over this coming weekend. If so it would be a negative for most all commodities as China is still the main commodity growth engine in the world. The EMI Index has lost 0.2% for the week narrowing the year to date gains to 3.3%...still well below the highs hit back in early November. Gains in the developed country bourses are still outpacing the emerging market bourses with last year’s big winner…China now this year’s main laggard as it sits at the bottom of the list with a year to date loss of 13.2%.

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