Tuesday, June 3, 2008

The Bearded One Backs the Buck

If you any doubt as to where Fed Chairman Ben Bernanke's mind is these days, there are three words you need to know: Inflation. Inflation. and Inflation.

Bernanke's remarks at an international conference today sent the dollar higher and oil lower. After the big run-up of the EUR/USD, the trade cooled off to the lows of the last 5 days. Take a look at intra-day EUR/USD chart and see the sell off around noon:

Oil followed suit and the front month contract settled at $124.31 after Bernanke hinted the next Fed policy move will NOT be a cut.

Obviously it would be a mistake to start talking rate hikes right now in the face of still-poor housing data and lingering concerns over the financials (namely Lehman Brothers and Wachovia this week). Lehman, rumored to report a loss this quarter, found itself denying more rumors about the firm accessing the Federal Reserve's discount window. Shares of LEH fell close to 10% intraday. And thats just brushing the surface of the ongoing turmoil that the financial sector just can't shake. The clear yet subtle message from Bernanke today was enough to contribute to a red tape among the major indices.

It looks like the chairman is doing his best, intentional or not, to throw a dart at the short term oil bubble. Says Bernanke: "...households continue to face significant headwinds, including falling house prices, a softer job market, tighter credit and higher energy prices."

No comments: