Soft U.S. Data Boosts Euro, Gold

U.S. 10-year Treasury bonds fell today, after conflicting reports were
released today. The producer price index was unchanged in March and April, which
is an essentially neutral economic report, while the retail sales numbers came
out much lower than expected. Analysts were looking for a 0.4% gain, but sales
actually fell 0.2%. The weak numbers led traders to increase bets that the Fed
would be forced to cut rates by the end of the year to handle slowing growth.
However, bond traders decided to focus instead on the neutral PPI numbers, which
led to a slide in bond prices. Bonds typically fall on economic strength and
rise on weakness, so traders chose to focus on the positive aspects of today’s
reports to speculate on a rosy future U.S. economy.

The euro rallied back against the dollar and the yen today, after retail
sales numbers released today missed expectations by a long shot. Yesterday,
the ECB held the overnight rates but promised “vigilance,” specific wording
which often precedes a rate hike. The euro fell yesterday on the wording, but
rebounded today to take back all of yesterday’s losses. The U.S. dollar gave
up gains to close up fractionally over the Canadian dollar, extending a bounce
from near-yearly lows. The U.S. currency also gained against the yen, despite
the weak sales numbers.

Crude oil futures rose about 0.8% yesterday, on further speculation that
summer demand will lead to fuel shortages. Summer is typically a period of
high energy use and demand, and for the last two days, traders have been
focusing on those issues, and trading the price of oil higher as a result.
Crude is still trading fairly close to 60 a barrel, which has acted as a key
support level for most of the year. Natural gas futures rose 2% on similar
summer demand issues.

Gold futures rose about 0.8%, as the dollar fell against the euro. Gold
prices usually trade inversely to the dollar and with oil; today, gold action
was dominated by dollar trading, which fell against the euro on a weak retail
sales report. Traders bought gold and sold the dollar to hedge against dollar
weakness. Copper futures gained just over 1% as traders wagered that the
Chinese economy will continue to grow at a fast pace.

Grains jumped across the board. Soybeans rose just over 2%, wheat gained
2.6% and corn rose 4.3%.


Retail sales fell 0.2% in April versus
expectations of a 0.4% gain.

PPI minus food and energy was unchanged in

John Lee

Associate Editor