All I can say is ‘wow!’ Thursday morning crude oil was just below $122 per barrel and Friday it touched $139 per barrel. That is a 14% move in less than two days! The Commodity Futures Trade Commission (CFTC) has mentioned price manipulation in certain markets and I am becoming more and more convinced with this recent move in crude oil prices. To put this move in perspective, just ten years ago crude oil was at $11 per barrel. On Friday the price of one barrel increased by $11. Off of this ridiculous move in crude oil prices, the national average for a gallon of gas surpassed $4 for the first time.
Thursday, the markets got a nice boost from Wal-Mart and CostCo after the companies posted better-than-expected same store sales for May. Oil did manage to gain $5 on the day thanks to comments from the European Central Bank President Jean-Claude Trichet. Trichet said the ECB might raise rates to combat inflation. This statement put downward pressure on the dollar because the Euro will become relatively stronger and consequently, commodity prices rallied. I was a little surprised the markets did not sell off in the afternoon after the release of this statement. Also, S&P finally lowered its ratings on Ambac and MBIA, but it was not too much of a market moving event because S&P and the other credit rating agencies have been so far behind the curve.
Friday was a completely different story for the markets as they finished down about 3%. The unemployment number came in at 5.5%, much higher than the expected 5.0%. This unexpected news caused the markets to open significantly lower and the selling pressures increased when Morgan Stanley said it expects oil prices to be at $150 by July 4th. Off of this news, the dollar and stocks tanked while crude oil surged to another new record.
Financials were also very weak the entire week. There have been concerns regarding Lehman Brother’s liquidity and speculation that the company will be raising capital. Washington Mutual and Wachovia both gave their CEOs the ax. Right now, the markets are on edge waiting for the next shoe to drop in the financial sector. Adding to the uncertainty is surging crude oil and gas prices which are significantly pinching the consumer.
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