The financial markets are once again feeding through to real markets and affecting real people around the globe. When you have many prices spiking on commodity exchanges these are reflected in underlying prices as yesterday proved when the UN’s food price index hit a new record high. The last time this happened there was social unrest and rioting within many developing countries as the high food prices simply became unaffordable. We will see the same again as the money people have to spend on simple food stuffs not only depletes what little spending power they may have had, but people could be driven to a Zimbabwe style situation whereby they have to forage for food.
The recent pull back in many commodity prices so far this year will not be enough to stop underlying prices from rising and the biggest risk faced this year is a poor global harvest like we saw in 2010. Supplies of soft commodities are very low so a bumper crop is needed and the current high prices should help investment in production and bring prices back to more normalised levels. This is rather hopeful thinking and for the time being we will have to learn to get used to a more expensive cup of coffee, bowl of cereal or sandwich in future.
Risk assets bounced last on in yesterday’s session with gold oil and equities all rallying from their lows. Markets started the day concerned about the spike in Portuguese bond yields following their sale, but the sale was fully purchased and later on the good US employment data, a mere prelude to tomorrow’s big NFP number, recovered the situation.
So the FTSE 100 (UKX) is flat this morning with the pick of the bunch being BP (LON:BP.) once again and miners also seeing some interest after a bit of profit taking recently. Despite the negative headlines about BP’s failure to avoid the Gulf spill (all stuff we already know), the share price has enjoyed an exceptional start to the year and is now back above £5, benefiting from firmer oil prices and bid speculatio
Economic data to focus on this morning is the UK’s PMI service number which is expected to remain flat at 53.0, above the 50.0 level suggesting expansion in the sector. Then there’s the weekly US jobless claims which have…
