Bonds, Euro Bounce on Weak U.S. Data

U.S. 10-year Treasury bonds bounced today, after
prices plummeted on more positive news from the U.S. Today, a weak factory
orders report was released, which led investors to hedge aggressive bets that
bonds would continue to fall. Bonds have been falling steadily since the Fed’s
early May decision, which emphasized continued vigilance over inflation.

The euro bounced back against the dollar, and
notched a new record over the yen, on speculation that the ECB will be forced
to raise rates more sooner than expected on rising inflation across Europe.
After losing to the dollar much of last week, the euro turned the tables, and
rose moderately against the dollar, after U.S. factor orders came in weaker
than expected today. The PPI numbers out of Europe this morning suggested that
European inflation will need to be more tightly contained sometime this year.
Traders bet today that the ECB will raise rates soon. The yen gained
significantly over the dollar on the weak factor orders, but could not carry
that strength against the euro. The yen gave up some dollar gains as the day
progressed. The U.S. dollar fell even further against the Canadian dollar

Crude oil futures rose about 1.7% today, on
speculation that high fuel prices are not slowing demand, and on Nigeria
supply worries. With summer at the door, traders are betting that the usually
high-demand season will boost prices even higher. Oil strike worries have
surfaced in Nigeria, causing prices to rise on worries that the corruption and
terrorist-prone country could cut supplies in the event of a major disaster or
event. Natural gas futures rose 4% as hurricane worries led traders to bid up
gas prices.

Gold futures were fractionally changed today,
despite dollar weakness against the euro. Gold usually trades inversely to the
dollar and with oil, but today, nothing seemed to dominated gold trading. Gold
should move higher if oil prices continue to climb, and if the dollar weakens
more against the euro. Copper futures rose about 2.5% on inventory supply

Grains mostly fell today. Soybeans dropped
0.1%, wheat fell 0.2% and corn fell 0.6%.


U.S. factory
orders increased 0.3%, versus expectations of 0.7%.

John Lee

Associate Editor