Dollar, Bonds Flat On Unemployment Claims

U.S. 10-year Treasury bonds fell slightly today after a
government report was released that showed weekly jobless claims declined last
week. Bonds continue to waver near highs, awaiting an unemployment report
tomorrow which could shed more light on the economic situation in the U.S.
Bonds initially shot higher at the end of June when the Fed began a rate-pause
to deal with the pressures of a cooling economy with little inflation.
Bonds have hovered near 11-month highs as conflicting reports and announcements
continue to roll out of the Fed. A positive jobs number could send bond
prices lower, but interest rate futures are still showing about a 25% chance
that the Fed will reduce rates by March.

The dollar was little changed against the yen and the euro
today. The ECB lifted rates for the sixth time this year, pushing rates to
3.5%. Euro gains were limited for the day by ECB President Trichet, who
lowered the inflationary forecast for 2007. The global currency market has
been dominated by interest rate and inflationary news, as investors seek to
support currencies backed by growing, hot economies. Although Europe’s
growth was enough to necessitate a rate-hike today, Trichet’s forecast for
weakening inflation hurt the euro and kept gains to a minimum.

Crude oil futures rose 0.4% to close at $62.46 on combined
pressure from falling U.S. inventories and fears that OPEC will effectively
reduce output. OPEC has been calling for a global reduction in crude oil
output, and the organization meets again next week to further discuss specifying
and implementing its plan to curb the falling price of oil. Crude prices
are down 25% from record July highs, and OPEC’s attempts to create a unified
front of countries committed to reducing output has yet to succeed.
Natural gas fell 0.8% after the U.S. Energy Department reported a small decline
in inventories, which kept supplies well above levels from a year ago.
Warm weathers and ample supplies continue to keep a ceiling over natural gas in
the market.

Gold was nearly flat on the day, as the dollar treaded water
on the international market. A positive jobs report kept the dollar afloat
as the ECB raised rates. Lack of movement in the currency market helped to
stabilize the price of gold, which usually moves inversely to the dollar.
Traders turn to gold in times of dollar weakness, so the lack of currency
movement kept gold futures flat for the day. Copper fell nearly 2% as
traders continue to wager that ample supplies and a global economic slowdown
will keep copper demand low.

Wheat futures continued to decline today, down 0.3%, as the
record-high prices of grains continue to dampen U.S. demand. Corn futures
rose 1.4% on speculation that yesterday’s price decline will attract higher
demand. Cocoa rose 2% to a 3-week high on speculation that strong demand
will create larger deficits in global supplies.

Economic News

Initial jobless claims fell by 34,000 last week, falling from
a 13-month high from the week before.

John Lee

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