Instead of calling him Dr. Bernanke perhaps we should call him
Dr. Frankenstein. You see Fed Chairman Ben Bernanke and the good
doctor has a lot in common. Frankenstein had his monster and Ben
has his and his monster is commodity price inflation. Once again
we see money plowing into commodities as Europe looks to raise
rates while here in the US we stand flat. In fact in the US, a
weak ISM non-manufacturing number is going to give Dr. Bernanke
more ammunition to his argument that we need more stimuli against
his growing ever louder chorus of critics. In Europe we see data
improving. In Switzerland inflation is soaring. The EU has backed
itself into a corner as inflation starts to creep out of its
target rate. Yet a rate increase in Europe may make inflation
worse as it will cause a run on commodities as the world's two
largest economies get out of whack. While the EU and the Fed
Chairman Ben Bernanke might not see what is coming, China's
central bank sure does. A day after raising their interest rate
for the fourth time since last October now it seems they are
going to raise domestic prices for diesel and gasoline in a
desperate measure to slow the pressure. They also allowed their
currency to increase in value. Dow Jones reported that, "China's
yuan edged up to another high against the U.S. dollar under the
current system late Wednesday, after the central bank set a
record-low dollar/yuan central parity following its latest
interest rate hike as it battles against inflation. On the
over-the-counter market, the dollar was at CNY6.5440 around 0830
GMT, down from CNY6.5479 late Friday. China's markets were closed
Monday and Tuesday for a public holiday. The dollar traded
between CNY6.5438, its lowest level since 2005, and CNY6.5480. At
CNY6.5440 to the dollar, the yuan has risen 4.3% against the U.S.
unit since June, when China effectively ended its currency's
two-year-long peg to the dollar. For the third consecutive
session, the People's Bank of China fixed the dollar/yuan central
parity rate lower. The reference point was set at 6.5496, down
from Friday's 6.5527. Dealers said the euro's recent strength
overseas, due to expectations of a rate hike announcement by the
European Central Bank on Thursday, paved the way for a stronger
yuan, which Beijing has reiterated is part of its arsenal of
anti-inflation tools." Of course this might not be enough as
upward pressure from the Fed and EU inspired carry trade might
overwhelm China's inflation fighting measures. Reuters News
reported that, " China may raise retail gasoline and diesel
prices by around 5 percent to new highs from Thursday, a report
by an industry consultancy showed, in what would be the second
Chinese fuel price hike this year amid a sustained rally in
international crude oil prices. The government may raise retail
ceiling prices for gasoline by 500 yuan ($76.43) a ton and diesel
prices by 400 yuan a ton, C1 Energy said in a report on its
website, citing a source close to the National Development and
Reform Commission." Yet is oil feeling a bit left out? While corn
prices and gold hit record highs, oil is having a hard time
breaking out of this 108 resistance area. That is perhaps because
other commodities are catching up to oil. While the oil market
has soared due top geopolitical strife and the dollar, it appears
that more than anything we are seeing the resumption of the carry
trade and could get us carried away with other markets rising.
The key for the markets will be whether China's steps to kill
Bernanke's Monster will be successful or will the Inflation
monster just be too strong. Make sure you do not get carried
away! Tune into the Fox Business Network! where you can see me
every day. Also make sure you get a trial to my daily buy and
sell points! Just call Phil Flynn at 800-935-6487 or email me to
pflynn@pfgbest.com.
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