U.S. Dollar, Oil Bounce

U.S. 10-year Treasury bonds rose today, after a
U.S. government report showed that employers added fewer jobs than expected in
January.  Bonds fell dramatically yesterday, after a housing report came in
stronger-than-expected, boosting widespread sentiment about the condition of the
U.S. economy.  The Federal Reserve held rates at 5.25% on Wednesday, in
line with expectations, and commented that the economy was growing moderately
but steadily, and that the Fed was looking for future rate-hikes, not cuts. 
Bonds shot higher last June when the Fed initiated a rate-pause on the grounds
of slowing growth and moderating inflation, and prices moved steadily higher
through the second half of 2006 on consistently weak reports.  However, the
U.S. has been producing positive-growth, inflationary data since the beginning
of December, and bonds have responded by moving lower.  Bond prices usually
rise on economic strength and fall on weakness.

The dollar rose against the yen and the euro,
after the U.S. revised its December jobs number to more positive territory. 
The yen has been the focus of much trader speculation lately, as the currency
pushes against record lows against the euro and yearly lows against the dollar. 
Japan has been consistently unable to produce positive economic data, which has
led to major trouble for the yen.  Political intervention might even come
into play, in the form of a G-7 committee meeting which is set for next week. 
The currency market usually favors currencies backed by inflationary,
high-growth economies, which Europe has proven itself to have.  The U.S.
has recently turned itself around, with a string of positive reports starting in
early December.

Crude oil futures rose about 1% on Friday, as
cold weather in the U.S. continues to drive prices higher, and on speculations
that the OPEC cuts are finally affecting the market.  OPEC has implemented
a global production cut of nearly 2 million barrels a day, and has threatened
for more if prices do not stabilize.  The U.S. also recently announced
plans to double its strategic oil reserve, which would also remove a chunk of
global supplies.  Crude oil fell more than 34% from its July record highs,
but has bounced back since mid-January on cold weather and increased demand. 
Energy prices usually rise across the board on cold weather, as more energy is
needed to heat homes.  Natural gas fell just over 1% on speculation that
U.S. supplies can easily handle any winter-related spike in demand.

Gold prices fell nearly 2% on speculation that a
rally to 6-month highs was too stretched to sustain prices.  Gold is up
nearly 4% on the year, so a correction could be expected.  Gold prices
usually trade inversely to the dollar and with oil.  Dollar strength could
have contributed to gold’s move lower today, as investors sell the metal in
favor of the U.S. currency.  Copper prices fell over 4% today.

Grains rose across the board today. 
Soybeans gained over 2%, corn rose about 1%, and wheat rose fractionally.


U.S economy added
fewer jobs than expected in January, and revised December’s numbers upward.

John Lee

Associate Editor