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With the conflict in Georgia seemingly reaching an impasse, financial markets have reacted with the same general disinterest they showed at the start of the conflict. Although the pipeline that crosses Georgia only accounts for around 1% global energy flow, the lack of buying interest in oil is telling. Gold too, is normally seen as a safe haven in times of conflict, but the precious metal is now just $20 or so from being in official bear market territory. The lack of interest in the former 'evil twins of inflation' speaks volumes about the shift in sentiment and attention since financial markets bottomed and oil peaked in July. Before this point, oil was rallying on rumours of supply shortages or conflicts, but mainly pushing higher on pure momentum alone. This momentum has obviously stalled and buyers, hedge funds especially no longer see the commodity as a one way bet. Still, as it ticks closer down to $100 a barrel, it would be surprising if there was
not a rally of sorts from these levels. There is growing chatter that oil will see a bounce sooner rather than later, especially if it dips to the psychologically important $100 a barrel level.

Financial stocks are mixed in the UK, but energy stocks are pushing higher even without the support of rallying crude prices. The Pound is staking a battering from the Dollar as the US trade deficit unexpectedly shrinks. Although the US housing crisis is showing little sign of abating, the UK housing market continues to lurch from bad headline to dire warning. Sterling is being punished today as a result amid speculation that the Bank of England may not be able to hold its inflation fighting line for as long as it wants.

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The FTSE is currently indicating a week open, are awaiting the very important UK Consumer Price Index. The Bank of England has been struggling for the last few months to maintain a balance between controlling inflation, and trying to jump start a sputtering economy. Todays data will show if the BOEs job will become easier or not. A weak CPI number will result in a very strong open for the FTSE.

Renewed worries about a slowing down economy across the world, has pushed oil prices to a 14 week low. While escalating tension in Russia , traders are worried that a slowdown will lower demand will continue to be the overall theme. We will be looking forward to Wednesdays Department of Energy inventory supplies, which tends to move the market. Gold is nearing 800 dollars for the first time this year, as the strength of the US dollar has forced all those holding gold as a hedge to sell out of their positions, While we feel this is overdone, the recover of the US dollar has began.

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