Bonds and Oil on the Rebound

U.S. 10-year Treasury bonds rose today, as
traders took advantage of the 2-month low price levels. Bonds fell to new
lows yesterday, on a continuation move from Friday’s positive jobs report.
Some traders speculated, however, that the report was overstated, and that a
data correction that could come later would show that less jobs were added than initially
reported. Bonds typically fall on economic strength and rise on weakness,
so traders saw Friday’s jobs report as a positive for the economy, while today, some
investors bet that the numbers were not totally accurate.

The euro moved back to record highs against the
yen and 2-year highs against the dollar, after two separate positive European
economic reports were released. An increase in German exports and strong
French industrial production catapulted the euro to new highs, as traders
increased bets that the ECB would be forced to lift rates very soon. The
currency market favors positive-growth, inflationary economies, which Europe has
consistently proven itself to be. Both the Japan and the U.S. have had
trouble producing consistent, positive reports, and that weakness can be
evidenced in their respective struggling currencies.

Crude oil rose about 0.8% after major losses
yesterday, on speculation that tomorrow’s EIA report will show continued
declines in energy reserves. Crude shot higher a few weeks ago, after Iran
captured 15 British soldiers in the Persian Gulf. Tensions with Iran
helped to push crude to record prices over the summer, and this latest incident
proves how touchy Western relations with Iran really are, and how much crude
prices can be affected by political tensions. Natural gas futures jumped
4% on continued cold weather in the Northern U.S.

Gold futures rose about 0.8% on dollar weakness.
Gold usually trades inversely to the dollar and with oil, and it was dollar
action that dominated today’s gold trading. Traders bought the dollar as a
safety alternative to dollar weakness, with the dollar trading at 2-year lows
against the euro. Copper prices rose about 2% today on continued demand
from China.

Grain prices traded mixed today. Soybeans
fell about 0.8%, wheat jumped 2.6% and corn rose about 1.4%.


Economic
News

No major economic
news to report for the U.S. today.

John Lee

Associate Editor

johnl@tradingmarkets.com