Dollar Holds Steady, Oil Still Rising

U.S. 10-year Treasury bond prices were
fractionally changed today, after a government report showed that manufacturing
growth slowed, while the cost of raw materials jumped. The mixed data kept
bonds hovering near 1-month lows. The jump in raw material prices
reflected growing inflation, while the weak manufacturing report clearly showed
a slow-down in growth. Bonds have been trading in a fairly tight range now
for over a month, with housing remaining one of the key price movers.
Investors use the housing market as a broad economic health indicator, and bond
prices and interest rates can sometimes be closely tied in with relative
weakness and strength in the housing market.

The dollar was fractionally changed against the
euro and the yen after a mixed report, and the euro also moved only slightly
against the yen. The mixed U.S. report showed a slowdown in manufacturing,
but an increase in raw-material costs. The report boosted sentiments that
the U.S. economy is cooling off, and also lent weight to the idea that inflation
is on the rise. The dollar has been showing some weakness lately, falling
most of last week on rising Middle East tensions, and then after a U.S. trade sanction on
China. Interest rate futures show a greater than 50% chance that the Fed
will cut rates to 5% by August.

Crude oil rose higher today on Iran/UK tensions,
moving just over 1%. Crude has been moving steadily higher since Iran
kidnapped 15 British soldiers, which has prompted fears that Iran would remove
its oil supply from the world market were a major conflict to erupt. Iran
concerns were a primary factor in crude’s record July prices, which came in the
midst of an Israeli/Hezbollah showdown. Crude traded around $60 a barrel
for nearly two months before pushing through resistance and moving steadily
higher. Natural gas futures fell about 0.6% on high levels supplies in the

Gold rose about 0.3%, in line with crude’s move
higher. Gold usually trades inversely to the dollar and with oil, and it
was oil prices that dominated today’s gold trading. Traders bought gold as
a safety against rising oil prices. Copper rose to near 4-month highs on
speculations that demand from China will outpace current supplies and production

Grains traded mixed today. Soybeans rose
about 2%, wheat fell just more than 2% and corn fell over 5%.


The ISM index fell
to 50.9, worse than the expected 51.4.

John Lee

Associate Editor