Oil Falls, Bonds Little Changed

Treasuries rose fractionally today to close with
little change, on signs that holiday spending improved less than expected.
Economic data has been coming in conflicted, with the housing market showing
obvious signs of a slowdown; recent retail sales and jobs numbers have been
positive, which has helped to ease bond prices. With the light holiday
trading and few major reports coming out this week, watch for erratic price
movement on weak volume. Bond prices should continue to be heavily
influenced by major housing, industry, sales and manufacturing reports into
2007. Continued economic weakness in the U.S. into 2007 should send bond
prices higher, while economic strength should lead to lower prices.

The yen fell to a 2-month low against the dollar,
and neared its fresh record low against the euro today, after key economic data
today pointed to a rate-pause in Japan into next year. Japan has struggled
lately to produce viable data that supports efforts to raise interest rates,
which is a sign of a hot, inflationary economy. The global currency market
favors currencies backed by growing economies with the need to raise rates, and
the euro seems the best-poised to move higher in the new year. Economic
reports coming out of Europe have consistently and repeatedly pointed to growth
and inflation, which has steadily led the euro higher against the dollar and the
euro. The U.S. is also struggling to keep positive reports rolling out,
but a weak housing market and high energy prices seemed to have dampened the
overall U.S. economy.

Crude oil prices fell over 2% as mild weather in
the U.S. continues to drive prices lower. Mild weather and ample supplies
have been seriously affecting crude oil’s price, sending it down 25% from July
highs. OPEC has called for international output reductions, but the supply
threats have not had a major effect on energy prices. OPEC has agreed to
cut up to nearly 2 million barrels a day in an effort to curb losses, which have
also stemmed from weakness in the dollar. Natural gas fell over 8% today
as warm weather and hefty supplies continue to push energy prices lower across
the board.

Gold futures rose 0.7% today, after Iran rejected
U.N. sanctions against the country’s nuclear programs. Gold usually moves
inversely to the dollar and in-line with oil prices; today’s move could be
viewed as a reaction to the expectations of future oil prices. Iran, on
the top producer’s of the world’s oil supplies, could have a serious effect on
the worldwide market if the country were to remove its supply from the world
market. Gold’s move higher could be viewed in terms of investor’s fear of
Iran removing its global supply of crude. Copper rose 0.8%, boosted by
gold’s move higher; copper’s move higher was also helped by the 8-month price

Grains moved higher across the board, on
expectations that next year will bring more agricultural investment from major
funds. The recent grain rally has sparked major interest in the futures,
and more and more investors are looking to them for investment opportunities.

Economic News

No major U.S. economic news to report at this

John Lee


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