Stocks suffered their biggest one-day loss in nearly six months on Friday as anti-government rioting in Egypt prompted investors to flee to less risky assets to ride out the turmoil.Increased instability in the Middle East drove up the CBOE, the stock market's fear gauge, as investors scrambled for protective positions.As turbulence continued to rock Egypt on Sunday, next-door-neighbor and ally Israel was watching and preparing for possible strategic, diplomatic and even economic repercussions.
As the markets try to play themselves out, the continued unrest in Egypt will have huge implications on world commodity prices, which will in turn impact heavily on the UK and US. Egypt is seen as a keystone in the region despite being a relatively small producer of oil in comparison with its peers in the Middle East. Due to the supply chain in which oil is transported through the Suez Canal, if the unrest has an impact on this key gateway point connecting to the Middle East, then the costs of transporting the oil will rise substantially and hence the cost of oil will rise.De-stabilisation in the region and civil unrest spreading is also cause for great concern on Wall Street as the supply and demand effect will cause oil prices to rise, especially if spread to countries like Saudi Arabia. Last week saw a spike in prices with the price ending at $89.38 per barrel. If the situation continues towards the government being toppled without the transition being initiated by President Hosni Mubarak, then extremists may fill the void being left, in which case the danger becomes very real.
Although the US economy grew slower than forecast in the fourth quarter, consumer spending was strong, heralding a better performance in 2011. Yet fears that riots in Egypt could spread weighed heavily on U.S. equities. The Standard & Poor's 500 ended down by 23 points.
EU-Digest
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