Bonds Fall on Employment, ISM Reports

U.S. 10-year Treasury bonds fell the most in 3 weeks today, after two
inflation reports came out unexpectedly positive in the U.S. A private jobs
report said that the U.S. added more jobs than expected last month, and the ISM
index came in better than traders were looking for. Bonds plummeted on positive
sentiment for the U.S., which has struggled lately in the housing sector.
Interest rate futures are showing a 15% chance that the Fed will be forced to
cut rates this year.

The euro fell against the dollar, giving up some early gains, and also
fell against the yen. The ECB decided to hold rates at 4.0%, when most
traders and analysts were looking for the central bank to raise rates. ECB
President Trichet did not single out inflation as a factor, and many took that
as a negative sign for the coming months of the European economy. The euro
managed to hit new record highs over the yen this morning, but fell back to
trade fractionally lower at the end of the day. The dollar rallied against the
British pound today, after falling this morning. The dollar fell slightly
against the Canadian dollar today.

Crude oil gained about 0.5% today, on fears of unrest in Nigeria, and also
on an unexpected refinery shutdown in Kansas. Crude trades very sensitively to
any negative news surrounding oil-producing countries. Nigeria has been in the
spotlight for the past year, as rebels continue to threaten foreign
oil-producers who do business in the country. A refinery was also unexpectedly
shut down last week in Kansas due to major flooding in the area, and traders
are concerned that without full capacity, the U.S. won’t be able to keep up
with summertime demand.

Gold futures fell about 0.7%, as the euro stalled against the dollar. The
ECB held the overnight rate at 4% today, and the euro initally reacted
positively, but fell through the day to close down on the dollar. Gold
normally trades inversely to the dollar and with oil; today’s dollar strength
led to gold selling, as traders turned to the dollar for safety. Copper
futures rose 1.4% on supply worries and strike threats in South America.

Grains mostly rose today. Soybeans gained 0.4%, wheat is up over 3% and
corn rose just over 1%.


The ISM index for non-manufacturing businesses
for to 60.7, at the fastest pace in over a year.

John Lee

Associate Editor