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Stocks are soaring as oil falls further towards $120 on speculation that a slowing global economy will check demand. It will be further bad news for hedge funds who recently endured their worse month for many years as the leveraged oil trades unwound with falling prices. Stalling oil prices are also not helping BP as it pulls back further from the days opening highs. The previous results were impressive, but a significant proportion of those profits come from their Russian joint venture which looks like it will be torn apart over the coming months.

Financials are a mixed bag today with Barclays and RBS falling heavily at the open and struggling to catch up. The US financial sector as whole isn’t having too bad a day despite Merrill Lynch’s write down and plans to raise capital. Merrill is being punished for releasing their announcement less than a fortnight after their earnings figures. Elsewhere the US house price collapse continues to accelerate. The S&P/Case-Schiller Index shows annual declines in prices of existing single family homes of 15.8%. With UK politicians discussing plans to help out mortgage lenders, they would be well served to use the US housing market as an advanced proxy of what could happen in the UK.

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The FTSE is currently indicating a lower opening, as traders are awaiting the release of the UK lending data which will come out around 8.30am GMT. Analysts are expecting another month of contracting mortgage approvals and loan issues as financial institutions are tightening the lending qualification requirements after being burned by the current credit squeeze. Banks have been announcing write downs for 3 quarters totalling more then 250 billion dollars, and some suggest that this is not over just yet. Look for the FTSE financials to take it on the chin this morning if the lending numbers come out worse then expected.

Oil stood its ground yesterday, as traders are waiting to see if demand has returned with what is now called somewhat cheap oil prices. Crude has given up more then 20 dollars since it hit an all time high earlier this month, however oil prices are up more then 75% from its August 2007 prices. If on Wednesday we do not see the return of consumer demand it is very possible for oil prices to dip below 120 dollars per barrel. Gold which lost more then 50 dollars last week due to the strength of the US dollar, seems to be recovering as some experts are saying that the selloff was overdone. We expect for gold to keep creeping up possibly hitting 940 dollars per barrel before Fridays employment numbers out of the US.

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