Gold, Oil Take a Step Back

U.S. 10-year Treasury bond prices fell back
today, after major gains yesterday on weak inflation numbers that came out this
week. With the Dow Industrials pushing towards new record highs today,
traders speculated that the U.S. economy was in good shape, and that the Fed
would not cut rates this year. After weak housing numbers and
disappointing inflation data, traders are turning to the stock market for signs
of economic strength; bonds fell on those positive sentiments, giving up early
gains after an inflationary Chinese report.

The yen rose against the dollar and the euro
today, on speculation that hot growth in China is indicative of higher rates in
Japan to come. Traders exited the carry trade, buying back borrowed yen to
cover positions in other asset classes. If rates in Japan were to
increase, the carry trade would be less profitable, which is why traders bought
back the yen today. The currency market favors currencies backed by
inflationary, positive-growth economies, which Europe has proven itself to be.
Both Japan and the U.S. have struggled to convince their central banks that rate
hikes are necessary.

Crude oil futures fell over 2% after a key
pipeline was restored and put back into use yesterday in Canada. The
pipeline had been out of service due to a leak, and the fixed supply line helped
to drive prices lower. Crude prices are trading back near $60 a barrel,
after reaching nearly 67 on the Iran/UK hostage situation. Natural gas
futures fell about 0.5% on continued speculation that winter and cold weather
will be done for the rest of the year in the Northern U.S.

Gold futures fell about 1%, on speculation that
the euro will not keep surging against the dollar. Gold has been gaining
on dollar weakness against the euro, but with the dollar holding against the
euro for today, gold also stalled its rally. Gold usually moves inversely
to the dollar and with oil, but it was the dollar/euro move that moved gold
lower today. Copper fell about 1%, moving lower on Asian equities

Grains all moved higher today. Soybeans
gained the least, up 0.2%. Corn jumped over 2%, and wheat rose 4.3%.


The Conference
Board’s index of leading economic indicators rose only 0.1% in March.

John Lee

Associate Editor