Bonds Down, Dollar Flat on Positive Sentiment

U.S. 10-year Treasury bonds continued pushing
further into 3-month lows today, as traders bet that the Fed will not cut rates
by the end of the year. Bonds have fallen continuously since the Fed
announcement two weeks ago; key wording and use of the word “vigilance” hinted
that the Fed was still more concerned about inflation than slowing growth,
meaning that the central bank would not lower rates. Traders took this hawkish
stance as a positive for the economy. Bonds typically rise on economic weakness
and fall on strength.

The euro bounced back against the yen and dollar
this morning, but gave up gains to close flat on the dollar and up just slightly
over the yen. The euro hit new record highs against the yen before falling back
some. This week, the dollar rallied strongly against the euro on more and more
signs that the U.S. economy is turning itself around. The Fed kept key wording
in its rate announcement two weeks ago, promising continued vigilance over
inflation. The U. of Michigan sentiment index on Friday also came in stronger
than expected, boosting the dollar. The Canadian dollar also stepped up to the
dollar today, pushing back to recent near-yearly lows. The British pound surged
today over the dollar, after minutes from the last BoE were released and showed
a hawkish mentality amongst voting members.

Crude oil futures rose about 0.5% today, on
speculation that summer demand will exceed refiner capacity and gasoline
stockpiles. Despite a rise in gasoline reserves, U.S. gasoline stockpiles are
about 7% lower than the 5-year average, heightening fears that the U.S. won’t be
able to handle the summertime surge. Summer is typically a period of high demand
for energy, and prices usually rise during the season. Natural gas futures were
down slightly on U.S. supplies.

Gold was basically flat, in line with the euro.
Gold initially rose on euro strength, but as the dollar fought off losses, gold
fell back to flat. Gold usually trades inversely to the dollar and with oil, and
it was dollar action that dominated today’s trading. Copper futures were up

Grains traded mixed today. Soybeans rose about
1%, wheat rose 1% and corn dropped about 0.2%.


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

John Lee

Associate Editor