Dollar Stalls, Oil Falls

U.S. 10-year Treasury Bonds were little changed
today, ahead of housing reports which are due out Tuesday. Analysts expect
to see a decline in building permits, and little change from U.S. housing
starts, which are at 6-year lows. The housing market has been a key focus
for bond traders, who look to the housing sector as an overall gauge of the
economy. Bond prices have fallen off of their recent 11-month highs,
brought on by fears that the U.S. economy is slowing quickly enough to warrant
rate-cuts in early 2007. A string of positive economic reports, including
housing and retail sales, have boosted widespread investor sentiment about the
U.S. economy, which has helped to send bond prices lower in the last two weeks.

The dollar stalled today against the euro and the
yen, as investors backing the dollar locked in gains ahead of tomorrow’s housing
reports. Tomorrow’s reports could open the gate for more dollar weakness,
if the reports come in worse than expected, or help the dollar in its climb off
of 20-month lows against the euro. International investors this year have
favored currencies backed by hot, inflationary economies, which led to strong
moves higher by the euro, especially in the last few months. Japan and the
U.S. have wavered in their public announcements concerning possible future rate
hikes, but both countries’ economic reports have warranted concern over the
strength of their economies. The ECB has said that rate hikes during early
2007 have not been guaranteed, but Europe looks more poised to raise rates
before both Japan and the U.S.

Crude oil futures fell more than 0.5% on
continued warm weather across the U.S. Crude oil is the basis for heating
oil, which is used to heat homes; cold weather usually equates to a rise in
crude price. However, warm weather across the country has kept a lid on
crude gains, despite a well-publicized OPEC decision to cut international
production by 500,000 barrels a day, in addition to the 1.2 million barrels
previously agreed upon. OPEC has been calling for output reductions to
curb the falling price of crude oil, but as today’s price action has shown, the
organization is having a hard time effectively raising prices. Natural gas
futures fell 4.5% to nearly 2-month lows, as ample supplies and warm weather
continue to keep a lid on gas price.

Gold fell fractionally today, as the price of oil
continued to fall and the dollar’s rally stalled. Gold usually moves
inversely to the dollar and with oil, so today’s move comes as no real surprise.
Investors use the metal to hedge against rising oil and inflation, and oil’s
weakness carried over to the precious metal. Gold is down around 20% since
May highs, but is still well-up for the year. Copper futures rose nearly
1% as workers began a strike in the 4th largest producer of the metal in Chile.

Wheat futures fell 1.4% on signs that increased
planting across the globe will keep supplies up and prices down. Corn and
soybeans fell around 2% on continued signs that favorable weather in South
America will boost global supplies.

Economic News

U.S. current-account deficit grew to a record
$225.6 billion last quarter.

U.S. homebuilder confidence fell unexpectedly in

John Lee

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