Bonds Fall, Oil Bounces Back

U.S. 10-year Treasury bond prices fell today,
pushing towards 5-month lows. Traders bet that Bernanke’s comments to come
later this week will carry a hawkish tone, after two Fed Presidents last week
hinted that rate hikes will come before cuts. Bond prices fall on economic
strength and rise on weakness, so investors are viewing a hawkish Fed as a
positive for the U.S. economy. Bond prices shot up last June, and moved
higher through the second half of the year on consistently weak economic
reports. In December, however, a string of turn-around positive reports
were released, and that positive outlook has carried over into the new year,
pushing bond prices lower.

The yen moved higher against the dollar and the
euro today, on anticipation that a report to be released later this week will
highlight a growing Japanese economy. The international currency market
has favored currencies backed by inflationary, positive-growth economies, which
puts the euro in the best light of the 3 major currencies. The dollar has
recently bounced back off of yearly lows against the euro, on a string of
positive reports from the U.S. Japan has struggled to produce positive
numbers, which has led to record lows against the euro; political pressure in
the form of the G-7 committee helped to boost the yen briefly, but the committee
declined to focus on the Japanese currency.

Crude oil futures rose over 2% after the IEA
predicted that global fuel consumption will continue to grow. Crude
dropped more than 30% from record July highs on large supply levels and an
unusually late-arriving winter. Since the middle of January, though, crude
has been moving higher. The U.S. has recently announced to double its
strategic oil reserve over the next decade, which has also helped in crude’s
move up. Natural gas rose over 2% today, on speculation that this week’s
inventory report will show a massive drop in supplies, after a few weeks of cold
weather in the northern U.S.

Gold rose fractionally today, after the dollar
fell against the euro. Gold usually trades inversely to the dollar and
with oil, and it was dollar action that dominated today’s trading. Traders
bought gold as a safe-haven against dollar weakness. Copper prices rose
nearly 5% after Chinese reports of more consumption.

Grains rose across the board today. Corn
rose 1.6%, wheat rose 1% and soybeans rose just over 1%.


The U.S. trade
deficit widened to a new record for the 5th straight year.

John Lee

Associate Editor