Egypt Woes Bring Global Food Inflation Fears to Fore

We are opening with most Asian markets down 1 to 2 percent: the Australia market down 1 percent, key commodity stocks like BHP and Rio Tinto down about 2 percent in Asia, the dollar is stronger, oil is up.S&P futuresnow unchanged after being down almost 10 points earlier in the evening.

As for the trading on Monday, traders have made 3 points to me over the weekend:

1) As long as Egypt's leadership uncertainty persists, market uncertainty will prevail as well. This means flight to safety patterns will continue if the situation deteriorates, but now that the initial shock is over, sideways is probably the most likely scenario.

2) Traders have been eager for a correction to buy lower, but it's too early to play that game. Nobody wants to buy on the first or second day down, so many traders seem willing to move to the sidelines and let the story play out over the next several days.

3) It is food inflation that is ultimately breaking the the back of the Mubarak regime. Traders on Friday noted that Fitch, in downgrading Egypt's outlook to negative, specifically cited the high food inflation, which is running at about 17 percent a year. Staples like meat, sugar and vegetables have been climbing out of the reach of the ordinary Egyptian for a year.

Bottom line: we are watching a major economic story — global food inflation — play out now as a major geopolitical event.

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