Jobs Report Boosts Dollar

U.S. 10-year Treasury bonds fell the most in over
a week today, after a government jobs report showed that the U.S. added more
jobs in December than previously expected. Personal incomes increased as
well, which helped to fuel positive U.S. economic sentiment. U.S. strength
usually leads to lower bond prices, and weakness equates to high prices.
Bonds have been whipsawing on major reports and speculations as to the future of
the economy and interest rates, with traders heavily focused on the prospects of
rate cuts in March. Bond prices initially shot higher in late June, when
the Fed initiated a rate-pause on slowing growth and moderating inflation.
In the last weeks though, new reports have come in highlighting a turnaround in
housing and manufacturing, including today’s positive jobs report. The
housing sector will probably remain one of the main issues moving into 2007, as
investors will be closely monitoring any new housing reports for fresh signs of
strength or weakness.

The dollar moved to 6-week highs against the euro
today, but fell moderately against the yen, on positive jobs numbers. The
dollar has been pushing hard off 20-month lows against the euro, boosted by new
reports of economic strength in the U.S. The international currency market
has favored currencies backed by hot, inflationary economies; slowing growth and
housing weakness in the U.S. led to major dollar weakness, but recent reports
are helping to push the dollar back higher. Japan has been plagued with
consistent negative reports, leading to record lows for the yen against the
euro, and overall weakness on the world market. The euro has been
performing the best lately, as Europe remains vigilant on inflation, promising
more rate hikes to deal with hot growth and consistent positive reports.

Crude oil rose over 1%, bouncing after a string
of heavy losses, as OPEC warned of even more cuts. OPEC has called for
international output reductions of close to 2 million barrels a day, but those
cuts have yet to produce any sustainable effect on prices. Warm weather in
the U.S. and ample oil supplies have kept a tight lid on gains, and have been
leading oil lower over the last few weeks. Oil is down 25% from record
July highs. Natural gas rose fractionally today, after a U.S. report
showed a smaller-than-expected drop in inventory supplies.

Gold futures fell 3% on major dollar strength.
Traders sold gold in the face of dollar strength; gold usually moves inversely
to the dollar and with oil, but dollar action dominated today’s gold trading.
Copper fell 2.6% today, securing the biggest weekly loss in a decade, as a
building slump continues to affect the metal’s demand. Copper has been
falling lately on U.S. housing weakness and reduced demand, in addition to
plentiful stockpiles of the metal, which is commonly used in home and industrial

Coffee fell 3.6% on speculations that high prices
will significantly reduce demand for the beans. Cocoa futures gave back
gains today to close down over 1%. Wheat futures bounced back fractionally
from recent lows.

Economic News

The U.S. economy added 167,00 jobs in December,
more than the predicted 100,000.

John Lee

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