One day does not a bull market make. And we saw
that clearly yesterday, when Tuesday’s strong rally was reversed. We also
got an answer to the question “At what point does the rally for the U.S.
dollar push stocks and commodities lower?”

Oil prices dropped below $100 a barrel as more
inventory builds, combined with the stronger dollar, brought out
sellers.

Of course, oil is a tale of two regions. Demand
may be stagnant in the U.S., but in China, and other merging markets, oil
demand is surging. Despite higher prices, oil demand is already growing
faster than the 7% some expected just a few months ago.

Price does not affect demand in China the same way
to does here in the U.S. That’s because China wasn’t built on cheap oil
prices. So, because cheap oil and gasoline isn’t built into China’s
economy, consumer spending there is less affected by higher gas
prices.

*****Speaking of China, its efforts to slow
inflation seem to be working. Inflation slowed slightly in April, to
5.3%. Now, that’s a small drop from March’s 5.4% reading. And the
government raised reserve requirements for banks again.

Still, given that the inflation story in China is
a significant part of the slowing- global-growth story, any sign that
China may be engineering a soft landing for inflation is a
positive.

Published by Wyatt Investment Research at