Oil Breaks Support at $60

U.S. 10-year Treasury bond prices rose today, as
investors feared that weakness in the subprime mortgage sector could spread to
the general economy.  A major subprime lender, New Century Financial,
announced today that it could not repay creditors, heightening anxiety that
weakness in the housing market will affect the entire economy.  Bonds had
fallen for the past two days on a rebound in U.S. stocks.  Bonds usually
rise on economic strength and fall on weakness, so investors are taking subprime
weakness as a major negative for the economy.  Watch for the housing market
to continue to remain a focal point for bond investors.

The dollar fell against the yen and the euro
today, as investors took weakness in the subprime sector as a negative for the
U.S. economy.  Investors speculated that a weak dollar would cause the yen
carry trade to unwind as well, which led to a solid spike in the yen.  The
major selloff that occurred two weeks ago led to a jump in yen strength, as the
international carry trade unwound, and investors bought the yen back as they
exited other positions.  The international currency market has favored
currencies backed by inflationary, positive-growth economies, which Europe has
proven itself to be.  The U.S. will probably hold rates this March, while
the prospects for a hike in Japan are still up in the air.

Crude oil fell nearly 2% to break crucial support
at $60 a barrel today, on speculation that OPEC will not cut global output any
more at a meeting this week.  OPEC is currently holding about 2 million
barrels a day from the global economy, which helped to stabilize prices from a
+30% fall from record July highs.  Crude’s fall below 60 today is
significant because 60 a barrel acts as a major watermark, and price usually
needs a lot of momentum to get over that point.  Natural gas fell over 2%
on continued warm weather demand issues.

Gold futures rose fractionally today.  Gold
futures usually trade inversely to the dollar and with oil, but gold did neither
today.  For the past two weeks, gold has been heavily influenced by the
global equities markets, as weakness in the markets forced investors to
liquidate all asset classes, which led to losses in gold.  Copper prices
rose over 2% on a demand surge in China.

Grain prices traded mixed today.  Soybeans
rose 0.7%, corn fell nearly 2% and wheat fell just over 1%.


No major economic
news to report for the U.S. today.

John Lee

Associate Editor