Archived IMT (2011.02.03)

Thoughts on Egypt ... continued (Part 2 of 2) Markets shall remain interested in the fate of the US aid to Egypt (most of which flows to the Military) and in the Military’s ability to safeguard civic order, security and maintain the functioning of commerce, banks and foreign investments. The subsequent question shall revolve around the true successor to Mubarak. ElBaradei may have credibility and respect but he lacks partisan support as long as he does not start his own party.

The other key aspect is to what extent will uncertainty in Egypt raises concerns about the flow of oil through the Suez Canal (through which 8% of world trade passes). I do not think the events in Egypt will arrive to the extent of endangering the flow of oil in the Suez, but if they ever do, ie if say oil prices arrive and REMAIN above $100 long enough to further drive other commodities higher, then inflationary pressures will filter through the broader economy (input and output costs) and the result would be higher bond yields in the G7, and ultimately premature monetary tightening during in an already austere world. Such an outcome would be dangerous for equity indices.