Bonds Ease Off Highs

U.S. 10-year Treasury bonds fell today for the first time in
four days, after the ISM report released today showed unexpected growth in the
service sector. Estimates forecast the index at 55.5, but the numbers
easily beat analyst’s guesses at 58.9, an increase from October’s report.
The report quelled fears that the U.S. economy is dramatically slowing, an
assumption based on the plummeting housing market. Interest rate futures
are showing a 30% chance that the Fed will cut rates by March to deal with the
pressures of a slowing economy and easing inflation. Bonds shot up at the
end of June, when the Fed initiated a rate-pause on the grounds of cooling
growth, and have hovered near 11-month highs as conflicting reports and
announcements continue to roll in.

The dollar rallied off of recent lows against the yen and the
euro today, after the ISM index came in higher than expected, highlighting
growth in the service sector. Gains were capped, however, as separate
reports showed slowing factory orders and declining labor costs. The
dollar has been under heavy pressure on the global market lately, as widespread
speculation that the Fed will be forced to cut rates continues to spread.
The global currency market has been focused on inflationary and interest rate
news, as investors seek to buy into currencies backed by a hot, growing economy.
Europe has practically guaranteed rate hikes before the year is out, while Japan
and the U.S. have almost no chance of rate hikes before January.

Crude oil futures rose nearly 1% to close at $62.87, on
speculation that OPEC will settle on a global output reduction number next week
to curb losses stemming from the falling price of oil. Oil has fallen 25%
from record July highs, and OPEC has been pushing its member nations for a
significant global reduction, around 1 million barrels a day, to deal with the
losses. OPEC is also suffering from major losses because OPEC sells its
oil in dollars, and the dollar’s recent slide has helped to exacerbate the
situation. Natural gas fell to a 3-week low, down 1.7%, on continued warm
weather forecasts across the U.S.

Gold fell 0.5% as the dollar gained in the global market.
Gold and the dollar move inversely, as traders use the metal as a hedge against
weakness in the dollar. Strength in the dollar equals weakness in gold,
and the ISM report today was enough of a catalyst to force gold lower on dollar
strength. Copper rose 2.2% on speculation that a growing European economy
will require more of the metal, which is commonly used in home construction.

Coffee rose 2.5% on forecasts that Brazil’s crop next year
will be significantly smaller due to poor weather conditions. Wheat
futures fell 1% as the highest prices in 10 years continue to affect demand for
the grain.

Economic News

The ISM report came in at 58.9, better than expected; the
report highlighted growth in the U.S. service industry.

U.S. worker productivity rose the least this year last
quarter, and labor costs were revised lower than expected.

John Patrick Lee

Start your trading day with

Futures Trend Matrix
designed to help you define the short-, intermediate-, and long-term trend for
more than 40 active futures contracts.