Real Reason for Crude Spike

The real reason for the spike in crude is 'FED Printing press which is printing dollars' since there are more number of dollars printed hence a drop in value of a dollar which makes the asset denominated in dollars cheaper. And in turn to maintain the real value of the asset (in demand) denominated in dollars the asset price moves up. Since Crude was considerably less priced , yah because while the stock markets in Emerging market space and also most other commodities have multiplied by 6-7 times there 2002 - 2003 lows when they reached there 2008 highs, the crude which was more than 35 dollars in 1981 itself, while as low as 23 dollars in 2002 was lagging behind, and also since most analyst uptil somedays back were saying that China will grow above 10 - 11% followed by India which too would be growing 8 - 9%, hence it was assumed the demand for Crude in India and China, which meant that crude was an asset in demand and hence chased from 120 - 140 in a matter of few days. Now Since the FED has stopped the printing press somewhat (because the rate cuts have stopped, but accepting junks from investment banks as collateral for lending treasuries is a still a way of printing money) the crude is in a phase of distrubution, If the FED continues to hold rates at 2% for more 2-3 months, while the Central Banks in Emerging markets say India, China keep on rising rates and also decrease the subsidy on Crude Oil then the Crude might start a Correction.

How would the Dow Jones Close today?

Two Major Economic data were released in the US today

1) Producer Price Index (PPI)

The PPI increased by 1.1% while the expectation was for an increase of mere 0.4%, while the core PPI which excludes volatile food and energy was up 0.2% and was as expected, but since the FED had said at its last meeting that ‘risk of downturn of economy is bigger while inflation although not showing signs of cooling down is likely to moderate over a period of time’ hence this is likely to be ignored by the Market participants over there.

2) Empire State Index

The Empire State Index put in a reading of + 0.6 from -22.2 in March, readings over 0 indicate growth while that below 0 indicate contraction. The Expectation was for -17 so it is a hefty increase beyond expectation. This data is likely to move the markets over there as the participants over there would like to believe that the worst of subprime is behind them and mild recession is likely to be the outcome.

While on the earning front Johnson & Johnson which is also a component of Dow Jones Index has reported a better than forecast earning, also it has raised it forecast for 2008 earnings.

As of writing this the Futures of Dow Jones were trading positive 60 points, looking at what happened until now closing looks likely to be in a positive territory.

Will Markets Break the Range?

As I had said in my earlier post http://niftywhatcanhappen.blogspot.com/2008/04/players-want-indices-to-stay-range.html The Nifty could not break 4800 and gave the opportunity to sell 4800 calls while hedging was done with 5000 call. But now one thing has changed in the global scenario, General Electric (the most conservative company while giving earnings guidance) results declared on Friday were a big disappointment, they could not even achieve what they had predicted and what had seen said was always in the pocket. Now most of the Asian markets reacted by breaking down by 2-4% on Monday, since our very own market was closed on Monday we were left out. So as I had said in my post that every fall towards 4620 is supported by the optimism that most markets are trading at there monthly highs, now that optimism might be broken down because some have posted biggest falls in a month. Since most Emerging markets Indices have broken down now the best case scenario would be too think 4800 or lower to be April F&O (24th April 2008) closing on the spot Nifty and act accordingly so 5000 put could be bought will 4800 put could be sold.