Tensions that have been simmering away in Yemen lately have boiled over onto the front pages as Saudi Arabia led air strikes against rebel forces and threatened to send in ground troops to shore up the country’s government. These actions also increased fears of a wider conflict in the Middle East between Sunni countries led by Saudi Arabia and Shiite countries led by Iran. Although Yemen does produce some oil, its main impact on energy is that it sits astride the straits that join the Red Sea/Suez Canal with the Arabian Sea/Indian, an important energy trade route. Recall the piracy in the Indian Ocean from countries like Somalia has been targeting freighters heading toward these straits. The initial reaction to today’s escalation has been for both WTI and Brent crude to jump with WTI regaining the $50.00 level. It’s important for traders to remember that war related spikes in oil can be short lived and prices may subside again if the conflict becomes contained. Middle East instability, meanwhile, keeps the pressure on the US to keep growing domestic production to lessen the country’s exposure to politically riskier energy sources. Because of this, in the coming days we could see the Brent to WTI spread widen out again. Growing political instability in Yemen has also sparked capital flows back into defensive havens, particularly gold, which is back above $1,200, CHF and JPY. Oil sensitive currencies have also benefitted from the crude rally with CAD outpacing NOK to the upside. Stock markets, on the other hand, have been knocked back as traders have been jolted out of complacency, US indices are trading sharply lower for a second straight day with European and Asia Pacific indices following them lower. There are a number of central bankers speaking today including ECB President Draghi and Bank of Canada Poloz but these may be overshadowed by the political situation. This evening may find Japan in focus with the country’s main basket of economic figures on the way. Corporate News Lululemon $0.78 vs street $0.72, Sales $602M vs street $599M, guides next Q adj EPS $0.31-$0.33 below street $0.39, guides next Q sales to $413-$418M below street $440M SanDisk Cuts Q1 sales guidance to $1.30B from $1.40-$1.45B Economic News Economic reports released overnight and this morning include: US jobless claims 282K vs street 290K UK retail sales 5.7% vs street 4.7% UK retail es auto 5.1% vs street 4.2% France GDP 0.2% as expected Norway unemployment rate 3.9% vs street 3.7% Sweden trade balance SEK 4.6B vs street SEK 4.0B Sweden producer prices 1.9% vs previous 0.2% Singapore industrial production (3.6%) vs street (2.2%) Economic reports due later today include: 9:00 am EDT US FOMC member Lockhart speaking 9:15 am EDT ECB President Draghi speaking 9:30 am EDT Bank of Canada Governor Poloz speaking 9:45 am EDT US flash service PMI street 57.0 10:30 am EDT US natural gas street 8 BCF vs previous (45 BCF)