Bonds Continue To Ease On Jobs Number

U.S. 10-year Treasury bonds fell for the second straight day
today after a private industry report said that more jobs were created last
month than previously expected. ADP, a private data company, announced its
report ahead of Friday’s jobs number; although the forecast was balmy, the
company has been known to err significantly in its forecasts.
Nevertheless, investors saw the forecast in a favorable light for the U.S.
economy, which has been under pressure on negative economic reports. Bond
prices have been trading at near-yearly highs on continued reports of economic
weakness in the U.S. However, over the last two days, prices have receded
on positive data.

The dollar climbed against the euro and the yen today on the
positive jobs number from ADP. The dollar had fallen to a 20-month low on
negative economic reports and fears that the Fed would be forced to cut interest
rates by March. However, the past two days have seen the dollar rallying
against other currencies as economic reports have taken a turn for the positive.
The global currency market has been dominated by interest rate and inflationary
news, as investors seek to buy into currencies backed by hot, inflationary
economies. Europe has practically guaranteed rate hikes before 2007, while
both Japan and the U.S. have little chance of a hike this year.

Crude oil futures fell fractionally today, despite a
government report that showed crude and fuel supplies fell last week. The
warm weather seemed to keep any demand-induced rally from making a move; warm
weather usually drives energy prices lower on weak demand. Crude oil is
down 25% from record highs in July, and OPEC has called for a global reduction
in output, but has yet to find a united front to battle falling prices.
Natural gas futures rose 0.6% as investors took advantage of low prices ahead of

Gold futures fell 1.8% as the dollar gained on the euro and
yen. Gold usually moves inversely to the dollar; investors use the metal
as a safe-haven against weakness in the dollar and inflation. Gold’s fall
today can be directly linked to the dollar’s strength on the global market, as
investors dumped the metal in favor for a stronger U.S. currency. Gold is
down around 20% from its May highs. Copper fell nearly 3% as investors
feared slowing economic growth and full inventories will hurt demand for the
metal, which is commonly used in home construction.

Wheat prices fell over 4%, the most in six months, on reports
that U.S. exports are slowing on extremely high grain prices. Corn fell
2.2% and soybeans fell 0.5% on good farming weather in Brazil and Argentina.

Economic News

ADP released a private report which showed that the government
added more jobs than previously expected last month.

John Patrick Lee

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