Bonds Fall, Dollar Surges

U.S. 10-year Treasury bonds fell significantly today after a
government report showed that the U.S. added more jobs in November than what was
previously expected. Bonds have fallen off of recent highs on a string of
positive economic reports, including jobs reports and regional Fed updates.
Bonds shot higher initially in June, when the Fed began to hold rates steady at
5.25%, ending a long rate-tightening schedule. The slump today in bond
prices represents a swing in investor sentiment, specifically on speculation
that the Fed will be forced to lower rates before March to deal with slowing
growth and cooling inflation.

The dollar surged against the euro and yen today on a positive
U.S. jobs report, and after Japan lowered its estimate of economic growth.
The dollar has pulled up off of 20-month lows against the euro on a wave of
positive U.S. economic reports which point away from the speculated rate cuts.
Japan has been struggling to assert itself on the global market, with the yen
floundering as the BoJ tries to talk up the Japanese economy. However,
with this recent negative report, Japan will see no chance of a rate hike for
some time, which will affect the yen’s standing on the market. The global
currency market has been dominated by interest rate and inflationary fears, as
investors seek to buy into currencies backed by hot, inflationary economies.
The ECB lifted rates yesterday, but warned that more hikes are not guaranteed;
the future of both the dollar and the yen has remained to be seen.

Crude oil futures fell around 0.5%, clamping down speculation
that OPEC will come to terms with a reduction agreement next week. Warm
weather continues to pervade the U.S., lessening demand for all energies.
OPEC has called for international output reductions from its member countries to
curb losses on the falling price of oil; crude is down around 25% from its
record July highs. Despite continuous warnings, OPEC has yet to produce a
united front committed to reducing oil supply and keeping prices up.
Natural gas fell 1.5% on continued warm weather and ample storage supplies.

Gold fell nearly 1% as the dollar gained on the global market.
Gold usually moves inversely to the dollar, as investors use the metal to hedge
against dollar weakness and inflation. Therefore, a strong move higher on
the dollar led to gold selling across the board. Gold is down around 20%
from its May highs. Copper prices rose around 0.3% on signs that demand in
China is picking up for the metal, which is commonly used in home building.

Wheat futures fell around 2% to secure the biggest weekly loss
in six months, as U.S. exports dried up on the record-high prices. Cocoa
rose to a 4-month high on speculation that production will be slower next year
due to a slow start in the farming season.

Economic News

The U.S. added about 132,000 jobs in November, which was more
than forecast; unemployment rose slightly to 4.5%.

John 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.