Oil Bounces Back

U.S. 10-year Treasury bond prices rose today, after falling for 3 straight
days. Bond prices have been moving steadily lower since the beginning of
last December, when the U.S. began to report turn-around economic numbers in key
housing, manufacturing and sentiment reports. Bond prices usually rise on
weakness and fall on strength; prices rose through the second half of 2006 on
continued negative economic reports from the U.S. After a sluggish second
half of 2006, prices are moving lower on a rebounding U.S. economy. Bond
prices basically consolidated today after moving lower for 3 straight sessions.

The dollar was flat on the day against the major averages today, as traders
waited on the Fed decision tomorrow. The U.S. Federal Reserve announces
its interest rate decision tomorrow, which is overwhelmingly expected to be a
“hold.” However, traders will be closely watching the wording of the
announcement for clues of any coming hikes or changes in monetary policy.
Investors were also waiting on tomorrow’s GDP report before jumping into a
position. The yen has been in major trouble lately on the international
market, with traders focused on consistent weakness in Japanese economic
reports. The international currency market has favored currencies backed
by hot, inflationary economies; Europe has consistently been able to prove its
economic worth, and the U.S. is rebounding from a weak second half of 2006 right
now. Yen weakness should remain a focus for traders after tomorrow’s U.S.
economic highlights.

Crude oil futures rose over 5%, the most in 16 months, on speculation that
cold weather and a rebounding U.S. economy will boost oil consumption and
demand. Oil had fallen over 30% from July highs, and OPEC has called for
nearly 2 million barrels a day to be removed from global output to deal with the
falling price. Oil reserves are well above their 5-year average in the
U.S., which has helped to push prices lower. Natural gas futures rose 11%,
the most in 3 months, on speculation that cold weather will impact demand
levels. Analysts are predicting a drop in natural gas inventories for
later this week, which helped to boost prices.

Gold rose fractionally on speculation that energy prices may be on the move
higher. Gold usually trades inversely to the dollar and with oil, and it
was oil action that dominated today’s trading. Traders turn to gold as a
safe-haven in the face of rising energy prices; as oil jumped today, investors
prepared for a longer-term move higher for energy prices across the board.
Copper futures rose just less than 1% today, on speculation that a labor dispute
in Chile will disrupt global supplies.

Grain prices rose across the board today. Corn rose over 1%, wheat rose
nearly 0.5%, and soybeans rose about 1.7%.

Economic News

Consumer confidence rose in January to
near 5-year highs.

John Lee

Associate Editor