Renewed mass demonstrations in Bahrain, escalating violence in Yemen and Libya, and potential unrest in Saudi Arabia (although still contained, in our view) are driving oil prices higher. Meanwhile, the risks to sustainable economic growth are rising as surging energy costs are overshadowing improving economic news in the US - as evidenced by the Institute for Supply Management (ISM) purchasing manager surveys and the Bureau of Labor Statistics (BLS) nonfarm payroll report released last week. With crowd sentiment still at optimistic extremes, we think rising oil prices will make it harder for stocks to rally to new highs. Furthermore, the expected June 30th end of the Federal Reserve's quantitative easing (QE) purchases is drawing nearer, adding to the stock market's concerns. QE has kept longer-term interest rates lower than they would have otherwise been, helping to support home prices and compress credit spreads. Last year, the SY&P 500 fell by more then 10% after the Fed ended its first QE program and took off again when Ben Bernanke foreshadowed QE2 in an August speech at the Fed's annual Jackson Hole retreat.

David Fuller's view This is a good summary. In the short term, the price of crude oil (Brent & NYME) plus staple foods such as corn, 'are everything' in terms of influence. Given a little respite such as we saw today and markets firm. This tells us that stock markets want to go up, or more accurately, that investors still prefer to buy equities if the commodity headwinds are not too strong. This should be no surprise because real interest rates are still negative (below the rate of inflation); the cyclical bull market has momentum of its own, and the global economic recovery remains on track, subject to the price of crude oil which has been driven up by speculation.

However, the stock market leadership baton is passing from Wall Street, which has run a good race since September, back to Fullermoney themes led by developing (progressing) Asia and South American commodity producers (see 'Today's interesting charts', below).