Dollar and Oil on the Rise

U.S. 10-year Treasury notes were little changed
today, as bond prices traded near the lowest levels of the month. Bonds
plummeted yesterday after the retail sales report came in better than expected,
easing bets that the Fed will be forced to lower rates early next year.
Traders had been betting heavily that the U.S. was in for a round of rate cuts,
but a string of positive economic reports forced investors into more neutral
territory. Bonds initially shot up in June when the Fed initiated a
rate-pause on the grounds of a slowing economy and cooling inflation.
Bonds wavered near 9-month highs for months, as conflicting economic reports and
Fed announcements rolled out, until the retail sales report yesterday finally
eased prices significantly.

The dollar rose to the highest levels in nearly a
month against the yen, after a jobless report showed a drop in first-time
jobless claims last week. The dollar also rose against the euro on the
positive news. The dollar has been under pressure in the last few months,
falling to a 20-month low against the euro. However, the U.S. currency has
rebounded strongly in the past few days on positive news and reports from the
Fed that inflation is still a concern. The global currency market has been
dominated by interest rate and inflationary news, with investors seeking to buy
into growing, inflationary economies. The ECB raised rates for the last
time this year last week, warning that future hikes might not come as easily.
Both Japan and the U.S. see little chance of a hike in the coming months.

Crude oil futures rose nearly 2% to close at
$62.48 a barrel today, after OPEC agreed to cut 500,000 more barrels a day in
international output, in addition to the 1.2 million barrels a day already
agreed upon. OPEC has had a hard time convincing the world that the cuts
will follow through, but the outcome of today’s decision led to a sharp rise in
the price of crude. Crude is down 25% from record July highs, and OPEC is
trying to curb losses by cutting global supplies. Natural gas futures fell
nearly 2% as forecasts called for continued mild weather across the U.S.

Gold traded fractionally lower today as the
dollar rose on the global market. Gold usually moves inversely to the
dollar, and with rising oil, as investors seek to hedge against rising inflation
and oil prices. Today, the dollar action overpowered oil’s move, as gold’s
value diminished in-step with a rising dollar. Copper prices rose nearly
1% after a Chilean mining company announced that a cave-in in July is affecting
output.

Wheat prices rose 1.4% as the lower prices
induced more demand in grain exports. Wheat has fallen recently off of
recent 10-year highs. Soybeans rose 4.5% after a government report showed
that overseas demand picked up in the last month.

Economic News

Manufacturing growth in New York fell more than
expected in a report released today.

U.S. initial jobless claims fell more than
expected last month.

John Lee

johnl@tradingmarkets.com


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