Bonds Bounce on Weak Data

U.S. 10-year Treasury bonds rallied today, after
a U.S. report showed that job creation fell to 2-year lows and wage growth
slowed in April. Bonds shot up on the news, which was soft on inflation and
growth. Bonds fell during the middle of the week on a string of positive,
inflationary reports, but today’s report sent bonds shooting higher to levels
seen early in the week. Bonds typically fall on positive news, and rise on
economic weakness, so traders took today’s reports as big negatives for the U.S.

The U.S. dollar fell to within a fraction of
record lows against the euro today, and also dropped against the yen. A
private report earlier this week forecast weakness, but other government
reports through the week came out positive, and the dollar rose accordingly.
Today’s reports, however, erased some dollar gains from earlier this week. The
Canadian dollar has been surging on the dollar for weeks now, regardless of
any positive U.S. data. Traders are betting that foreign money is investing in
Canadian companies, boosting the country’s currency values. After falling
slightly against the yen yesterday, the euro is back up against the Japanese

Crude oil futures fell over 2% today, on
speculations that U.S. reserve supplies will be able to meet the coming
demands for summer gasoline production. Summer is usually a period of
high-energy use, especially gasoline, and traders bet today that U.S. supplies
will be able to handle the extra load. This marks crude’s first major push
lower, after spiking higher on Iran/UK tensions late in March. Natural gas
futures rose over 1% as traders bet that this summer’s energy use will put a
strain on gas supplies.

Gold futures rose nearly 1% today on dollar
weakness. Gold usually trades inversely to the dollar and with oil, and it was
dollar trading that dominated today’s gold action. Traders bought gold as a
safety against a falling dollar, which was sent lower on weak economic data.
Copper futures rose nearly 1% to 11-month highs on weak U.S. growth and supply
fears over a mining strike in Peru.

Grains traded mixed today. Soybeans were
basically flat, wheat rose about 0.1% and corn gained 0.3%.


U.S. job growth
fell to lowest levels in 2 years.

John Lee

Associate Editor

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