Oil Breaks $60, Bonds Continue to Slide

U.S. 10-year Treasury bonds continued to fall
today on weak demand at an auction of government 5-year bonds. Bonds slid
yesterday after the CPI report showed that consumer prices rose more than
expected in January. The 2-day drop comes after a significant push higher
in bond prices, which was spurred on by weak housing reports and dovish comments
from Fed Chief Bernanke. Bonds usually fall on economic strength and rise
on weakness, so investors took the CPI report and today’s weak demand as
positive signs for the future of the economy.

The yen fell to new record lows against the euro
today, and also fell against the dollar, after BoJ Governor Fukui said that the
central bank will keep interest rates low, and that there will not be a
consecutive hike after yesterday’s announcement to raise rates. The yen
has been struggling against the major currencies, falling to record lows against
the euro and yearly lows against the dollar on weak economic strength and
reports. The international currency market has favored currencies backed
by inflationary, positive-growth economies, which puts the euro in the best
light and the yen in the worst.

Crude oil surged over 1% to close higher than $60
a barrel, breaking through key resistance levels that have acted as a ceiling
for the past few weeks. An energy report released today showed a
substantial drop in energy reserves, which led to a spike in crude prices.
Crude has been struggling to break and hold 60 for weeks now, and
today’s energy report helped to push prices over the edge. Crude has been
consolidating for weeks, after bouncing sharply on the arrival of cold weather
in mid-January. Natural gas futures rose 1% on similar supply issues.

Gold fell off of 9-month highs, after a major
rally yesterday. Gold futures usually trade inversely to the dollar and
with oil, neither of which happened today. Traders turn to gold in the
face of dollar weakness and rising oil prices, but today’s gold action was a
rest after yesterday’s solid move higher. Gold shot up on rising consumer
prices yesterday. Copper rose over 3% as a part of a broader commodities
rally, which is being spurred by inflationary concerns.

Grains rose across the board today. Wheat
rose 2.4%, corn rose just under 2% and soybeans rose fractionally.


Initial jobless
claims fell less than expected last week, by about 27,000.

John Lee

Associate Editor