Bonds Fall Further, Despite Weak GDP

U.S. 10-year Treasury bond prices fell today,
after bouncing yesterday, on continued positive U.S. economic sentiment. The
Chicago PMI index came in stronger than expected today, which helped bonds to
overcome negative momentum from a GDP number that came in weaker than expected.
Bonds have been falling steadily since the Fed kept rates at 5.25% at the
beginning of April, and emphasized continued monitoring of inflation.

The euro rebounded against the dollar today,
and pushed back towards record highs against the euro. A positive Chicago PMI
number boosted investor sentiment to back the U.S. dollar, despite an
initially weak morning against the euro. The dollar has been making a major
turnaround since the beginning of May, on a string of turn-around economic
reports and hawkish wording from the Fed. Despite losses against the euro, the
dollar pushed higher against the yen, after two days of pressure from the yen,
as the carry trade unwound. The dollar also continued to fall against the
Canadian dollar, extending the move lower.

Crude oil futures rose 0.7% today, after the
Energy Department released inventories that showed a decline in crude
reserves. Traders are anxious right now about the coming summer months, which
are typically a period of high demand and higher energy prices. Two days ago,
crude fell about 3% on speculation that U.S. reserves could handle any major
spike in demand, but two days later, prices are about back to where they
started. Natural gas futures were basically flat, after the government
reported an increase in supplies.

Gold rose over 1% today, on euro gains over the
dollar. Gold futures usually trade inversely to the dollar and with oil;
today’s dollar action led to gold buying, as traders covered dollar positions
to buy gold. Copper futures rose nearly 3% after global inventory levels fell
to the lowest in 7 months.

Grains traded mixed, but mostly higher.
Soybeans were down fractionally, corn rose nearly 2% and wheat rose just over


U.S. economy grew
at 0.6% in Q1, the slowest in over 4 years.

Chicago PMI rose to 61.7, more than expected.

John Lee

Associate Editor