3SOF

Today's Market Focus.......

•   December 10-year T-notes this morning are trading down -2.5 ticks. Dec 10-year T-note prices yesterday tumbled the entire session and closed down -26.5 ticks at 124-244. Bearish factors included (1) reduced concerns about the global economy after China's manufacturing activity accelerated more than expected in August and Australia's economy expanded in Q2 at its fastest pace in 3 years, (2) the unexpected increase in the Aug ISM manufacturing index (+0.8 to 56.3 versus expectations of -2.7 to 52., (3) the unexpected increase in the prices paid sub-index of the Aug ISM manufacturing index (+4.0 to 61.5 versus expectations of -2.2 to 55.3), and (4) reduced safe-haven demand for Treasuries after the stock market rallied sharply. Bullish factors included (1) the unexpected decline in jobs in the Aug ADP employment change (-10,000 versus expectations of +15,000), and (2) the larger-than-expected decline in Jul US construction spending which fell for the third straigh t month and the downward revision to Jun construction spending (Jul -1.0% versus expectations of -0.5% and Jun revised down to -0.8% from +0.1%).

•   The dollar index this morning is slightly weaker with the dollar/yen -0.24 yen and the euro/dollar +0.22 cents. The dollar index yesterday slipped to a 1-1/2 week low and finished moderately lower. Bearish factors included (1) reduced safe-haven demand for the dollar after the stock market rallied sharply, (2) comments from Chinese Premier Jiabao that boosted the euro when he said China and western countries should work together to enhance the world's confidence in the euro and the European Union economy, and (3) the action by Bank of America Merrill Lynch to hike its year-end forecast for the yen to 81 to the dollar from a previous forecast of 90, citing expectations the Fed will increase monetary easing to preserve the US economic recovery. Bullish factors included (1) the unexpected decline in Jul German retail sales which fell for a second month and is negative for the euro, and (2) increased safe-haven demand for the dollar after the Aug ADP employment change une xpectedly declined, which fuels concern about Friday's Aug nonfarm payroll report.

•   October crude oil prices this morning are trading down -32 cents a barrel and October gasoline is -0.20 of a cent per gallon. Oct crude oil prices yesterday moved higher and closed up +$1.99 a barrel. Oct gasoline closed higher by +3.17 cents per gallon. Bullish factors included (1) the fall in the dollar index to a 1-1/2 week low, (2) the acceleration in manufacturing in the US and China, the world's biggest energy-consuming countries, by more than expected last month, (3) the rally in the S&P 500 to a 1-week high, which bolsters confidence in the economic outlook and energy demand, (4) the larger-than-expected increase in weekly crude oil inventories (+3.42 million bbl versus expectations of +1.3 million bbl), (5) the unexpected decline in weekly distillate supplies (-739,000 bbl versus expectations of +1.0 million bbl), and (6) an increase in demand after total US fuel demand rose +0.4% to 19.6 million barrels a day in the past 4 weeks ending Aug 27. Bearish f actors included (1) the unexpected decline in July German retail sales for a second month, (2) the larger-than-expected decline in the Aug UK manufacturing PMI to its lowest level in 9 months, and (3) the larger-than-expected decline in Jul US construction spending which fell for the third straight month.
 

Today's Market Focus.......

•   December 10-year T-notes this morning are trading down -1.5 ticks. Dec 10-year T-note prices yesterday traded weaker most of the day and closed down -8 ticks at 124-175. Bearish factors included (1) the unexpected decrease in weekly initial unemployment claims (-6,000 to 472,000 versus expectations of +2,000 to 475,000), (2) the unexpected increase in Jul pending US home sales (+5.2% m/m versus expectations of -1.0% m/m), and (3) reduced safe-haven demand for Treasuries as the stock market improved. Bullish factors included (1) the weaker-than-expected Jul factory orders (+0.1% versus expectations of +0.2%), and (2) the prediction from the chief economist at FTN Financial that with "the rate of layoffs still uncomfortably high, there's no reason to expect an acceleration in US consumer spending."

•   The dollar index this morning is weaker with the dollar/yen +0.17 yen and the
euro/dollar +0.12 cents. The dollar index yesterday finished little changed. Bullish factors included (1) the action by the ECB to extend its emergency lending measures to banks until Jan 18, which signals the central bank is no where near raising interest rates, (2) the weaker than expected Jul US factory orders, and (3) short-covering in the dollar ahead of Friday's Aug nonfarm payrolls report. Bearish factors included (1) strength in the euro after the ECB raised its 2010 GDP estimate for the Euro-Zone to between 1.4% and 1.8%, up from a previous forecast of between 0.7% and 1.3%, (2) comments from ECB President Trichet who said a double-dip recession in the Euro-Zone is "not in the cards," and (3) comments from the director of the fiscal affairs department of the IMF who said financial markets are "too pessimistic" about the risk of a sovereign government default in t he Euro-Zone.

•   October crude oil prices this morning are trading down -46 cents a barrel and October gasoline is -1.20 cents per gallon. Oct crude oil prices yesterday gyrated on either side of unchanged until an early afternoon rally left them closing up +$1.11 a barrel. Oct gasoline closed higher by +3.25 cents per gallon. Bullish factors included (1) the weaker dollar, (2) the unexpected increase in Jul US pending home sales, which tempered concern that the economic rebound will stall, and (3) the prediction from tanker-tracker Oil Movements that OPEC will reduce crude shipments by 1.2% to 23.26 million barrels a day in the four weeks to Sep 18 as Asian demand slows and refiners conduct seasonal maintenance. Bearish factors included (1) the weaker than expected Jul US factory orders, and (2) concerns that the still high level of weekly US initial unemployment claims (+472,000) signals a weak labor market that will constrain economic growth and energy demand.

Today's Market Focus...

•   December 10-year T-notes this morning are trading up +13 ticks. Dec 10-year T-note prices last Friday tumbled to a 3-1/2 week low and closed down -17 ticks at 124-005. The 10-year T-note yield rose to a 3-1/2 week high of 2.763%. Bearish factors included (1) the stronger than expected Aug nonfarm payrolls and the upward revision to Jul (Aug -54,000 versus expectations of -100,000 and Jul -54,000 versus the previously reported -131,000), (2) the larger-than-expected increase in Aug private payrolls and the upward revision to July (Aug +67,000 versus expectations of +42,000 and July +107,000 versus the previously reported +71,000), (3) reduced safe-haven demand for Treasuries after the stock market rallied, (4) comments from Atlanta Fed President Lockhart who said the Fed did not signal that it plans to expand its quantitative easing program with last month's action by the FOMC to keep its asset holdings stable, and (5) supply pressures ahead of the Treasury's $33 b illion auction of 3-year T-notes on Tuesday. Bullish factors included (1) the unexpected decline in Aug US manufacturing payrolls (-27,000 versus expectations of +10,000), and (2) the larger-than-expected decline in the Aug ISM non-manufacturing index which fell to a 7-month low (-2.8 to 51.5 versus expectations of -1.1 to 53.2).

•   The dollar index this morning is higher with the dollar/yen -0.31 yen and the euro/dollar -1.16 cents. The dollar index last Friday slid to a 2-week low and closed lower. Bearish factors included (1) reduced safe-haven demand for the dollar after US private employers added more jobs than forecast in Aug which boosted the stock market, and (2) strength in the euro after ECB Council member Wellink told Market News International that the yen's appreciation against the euro is helping some Euro-Zone exporters and that Q3 should be "okay" for Europe. Bullish factors included (1) increased safe-haven demand for the dollar after the Aug ISM non-manufacturing index fell more than expected to its lowest level in 7 months, and (2) comments from Atlanta Fed President Lockhart who said the Fed did not signal that it plans to expand its balance sheet with last month's action by the FOMC to keep its asset holdings stable.

•   October crude oil prices this morning are trading -$1.68 a barrel and October gasoline is -3.00 cents per gallon. Oct crude oil prices last Friday moved lower after mid-morning and closed down -$0.42 a barrel. Oct gasoline closed lower by -0.21 of a cent per gallon. Bearish factors included (1) the larger-than-expected decline in the Aug ISM non-manufacturing index which fell to its lowest level in 7 months and signals weakened energy demand, (2) the report from the DOE that said US crude oil production increased 1.7% to 5.6 million barrels a day for the week ending Aug 27, a 6-1/4 year high, and (3) speculation that crude oil demand will decline over the next month as US refiners perform seasonal maintenance. Bullish factors included (1) the slump in the dollar index to a 2-week low, which boosts the prices of most commodities priced in dollars, and (2) the larger-than-expected increase in private payrolls in the Aug US payrolls report, which signals the labor marke t is not worsening and may lead to increased economic confidence and energy demand.

Today's Market Focus.......

•   December 10-year T-notes this morning are trading down -1.5 ticks. Dec 10-year T-note prices yesterday strengthened the entire session and closed up +26.5 ticks at 124-270. Bullish factors included (1) strong safe-haven demand for Treasuries after European and US stock markets declined on renewed concerns that Europe's sovereign-debt crisis will undermine the global economic recovery, (2) comments from former Fed Governor Kohn who said the Fed should take further steps to support the economy such as buying government bonds if the recovery continues to slow, (3) overall strong demand for the Treasury's $33 billion 3-year T-note auction which had a bid-to-cover ratio of 3.21, compared with an average of 3.14 for the previous 10 sales, and (4) the prediction from Bank of America Merrill Lynch that the jobless rate in the US is likely to approach 10% in coming months as the economy fails to grow quickly enough to employ people rejoining the labor force. Bearish factor s included (1) concern that President Obama's proposed $50 billion program to update US infrastructure will lead to increased Treasury issuance to pay for the program, and (2) supply pressures ahead of the Treasury's $21 billion auction of 10-year T-notes on Wed.

•   The dollar index this morning is weaker with the dollar/yen -0.06 yen and the euro/dollar +0.35 cents. The dollar index yesterday rallied throughout the day and closed moderately higher. Bullish factors included (1) weakness in the euro on renewed European sovereign-debt concerns after the WSJ reported that European stress tests published in July may have understated some financial institutions' sovereign debt holdings of potentially risky government debt, (2) the report from the Association of German banks that said Germany's top 10 lenders might need about 105 billion euros ($135 billion) in fresh capital, (3) increased safe-haven demand for the dollar after European and US equity markets tumbled, and (4) the prediction from PIMCO that Greece still faces a "substantial" default risk as insolvency prevents them from repaying their debt when its bailout program expires in 3 years. Bearish factors included (1) the surge in the yen to a 15-year high against th e dollar as the fall in global stock markets boosted demand for the yen on risk aversion and after the BOJ refrained from expanding its quantitative easing program following the conclusion of its monetary policy meeting, (2) the action by Morgan Stanley to cut its year-end forecast for the euro against the dollar to $1.36 from a previous forecast of $1.16, citing the increasing likelihood of the Fed further easing monetary policy, and (3) comments from former Fed Governor Kohn who said the Fed should take further steps to support the economy such as buying government bonds if the recovery continues to slow, which would undercut the dollar.

•   October crude oil prices this morning are trading down -20 cents a barrel and October gasoline is -1.30 cents per gallon. Oct crude oil prices yesterday retreated for a second session as they closed down -$0.51 a barrel. Oct gasoline closed higher by +1.34 cents per gallon. Bearish factors included (1) the stronger dollar, (2) the unexpected decline In Jul German factory orders, which signals weak fuel consumption in Europe's largest economy, (3) weakness in gasoline on the prospects for weaker demand going forward as the US Labor Day Holiday marks the end of the summer driving season and US gasoline supplies are already 14% above their 5-year average for the period, and (4) the slide in European and US equity markets, which dampens confidence in the economic outlook and energy demand. Bullish factors included (1) strength in gasoline prices after an explosion at Mexico's Cadereyta refinery, which produces 235,000 bpd of gasoline, may lead to increased Mexican demand for US gasoline supplies, and (2) the outlook for US crude supplies to fall in Thursday's weekly DOE inventory report (delayed one day because of the Labor Day holiday).

Today's Market Focus...

•   December 10-year T-notes this morning are trading down -5 ticks. Dec 10-year T-note prices yesterday moved lower into early afternoon and then recovered some of their losses into the close and settled down -13 ticks at 124-140. Bearish factors included (1) reduced safe-haven demand for Treasuries after European and US stock markets rallied when demand rose at a Portuguese bond sale and Poland's auction of 5-year debt attracted the strongest bids since 2008, which eased concern that Europe's debt crisis is worsening, and (2) supply pressures ahead of the Treasury's $13 billion auction of 30-year T-bonds on Thursday. Bullish factors included (1) the Fed's Beige Book which stated the US economy showed "widespread signs of deceleration" and that upward pressure on prices were "quite limited" with home sales "very low" or "declining" in most Fed districts, and (2) strong demand for the Treasury's $21 billion auction of 10-year T- notes that had a bid-to-cover ratio of 3.21, compared with an average of 3.06 for the last 10 sales, and indirect bidders bought 54.7% of the T-notes, the highest percentage in a year.

•   The dollar index this morning is little changed with the dollar/yen -0.22 yen and the euro/dollar +0.03 of a cent. The dollar index yesterday weakened and closed lower. Bearish factors included (1) reduced safe-haven demand for the dollar after European and US equity markets rallied when demand rose at a Portuguese bond sale and Poland's auction of 5-year debt attracted the strongest bids since 2008, which eased concern that Europe's debt crisis is worsening, and (2) strength in the yen which rallied to a 15-year high against the dollar after Japan's July current-account surplus widened +26% y/y to 1.68 trillion yen ($20 billion). Bullish factors included (1) comments from Japanese Finance Minster Noda, who temporarily jawboned the yen lower, when he said he is prepared to take "bold" action on currencies, including intervention in foreign-exchange markets, and (2) the unexpected decline in Jul German exports and the weaker-than-expected Jul German industria l production, which were both euro negative.

•   October crude oil prices this morning are trading up +39 cents a barrel and October gasoline is +0.30 of a cent per gallon. Oct crude oil prices yesterday shook off early weakness and moved higher after mid-morning and closed up +$0.58 a barrel. Oct gasoline closed higher by +0.65 of a cent per gallon. Bullish factors included (1) the weaker dollar, and (2) a rally in US and European stock markets, which fueled optimism that the global economic recovery and energy demand may strengthen. Bearish factors included (1) the action by the US Energy Department to cut its 2010 crude oil price forecast to an average pf $77.37 a barrel, down from last month's forecast of $79.13 a barrel, citing the reduced projections for US economic growth, and (2) the outlook for US crude oil supplies to increase when the DOE reports its weekly inventory figures on Thursday. Expectations for Thursday's weekly DOE inventory report (delayed one day because of the Labor Day holiday) are for cr ude oil supplies to increase +1.0 million bbl, gasoline stockpiles to fall -1.0 million bbl, distillate inventories to climb +700,000 bbl and the refinery capacity rate to fall -0.5 to 86.5%.

Today's Market Focus...

•   December 10-year T-notes this morning are trading up +4.5 ticks. Dec 10-year T-note prices yesterday moved lower the entire day and closed down -26 ticks at a 1-month low of 123-200. Bearish factors included (1) reduced safe-haven demand for Treasuries after European and US stock markets rallied to 1-month highs, (2) the larger-than-expected decline in weekly initial unemployment claims (-27,000 to 451,000 versus expectations of -2.000 to 470,000), and (3) the narrower-than-expected Jul trade deficit (-$42.8 billion versus expectations of -$47.0 billion) which is positive for Q3 GDP. Bullish factors included (1) comments from the OECD who said that the slowdown in the global economic recovery is "more pronounced" than projected and policy makers may need to extend or bolster stimulus programs to support it, (2) increased safe-haven demand for Treasuries after ECB Council member Stark said some German banks are undercapitalized, which deepens concern abou t the financial health of Germany's banks, and (3) decent demand for the Treasury's $13 billion auction of 30-year T-bonds that had a bid-to-cover ratio of 2.73, above the 2.65 average of the past 10 auctions.

•   The dollar index this morning is weaker with the dollar/yen +0.13 yen and the euro/dollar +0.25 cents. The dollar index yesterday closed slightly higher. Bullish factors included (1) euro negative comments from ECB Council member Stark who said that Germany's savings banks, which weren't subject to EU stress tests, and state-owned Landesbanks, may need more capital, (2) the prediction from Barclays Capital that the Japanese government has no choice but to intervene in foreign-exchange markets to prevent the yen's strength from decimating the nation's industries, and (3) the warning from Fitch Ratings that Euro-Zone governments have yet to start implementing budget cutbacks in earnest and only a handful of peripheral nations have taken "substantive" efforts to reduce deficits. Bearish factors included (1) reduced safe-haven demand for the dollar after European and US equity markets rallied to 1-month highs, and (2) comments from ECB Council member Liikanen wh o said a double dip in the global economy is "not likely."

•   October crude oil prices this morning are trading +$1.40 a barrel and October gasoline is +1.75 cents per gallon. Oct crude oil prices yesterday rallied to a 3-week high but erased their gains and moved lower and closed down -$0.42 a barrel. Oct gasoline closed lower by -0.40 of a cent per gallon. Bearish factors included (1) the stronger dollar, (2) the +196,000 bbl increase in US petroleum stockpiles, including oil and fuel supplies, to 1.14 billion bbl, its highest level since 1990, (3) the action by Citigroup to cut its 3-month crude oil price forecast to $74 a barrel from $78 and its 6 to 12-month forecast to $83 from $85 a barrel, citing high inventories and "downside risks" to US economic growth, and (4) the action by OPEC to cut its 2011 global oil demand forecast to 28.8 million barrels a day, 100,000 barrels a day less than last month's forecast. Bullish factors included (1) a rally in US and European stock markets to 1-month highs, which fuels op timism that the global economic recovery and energy demand may strengthen, (2) the unexpected decline in weekly crude oil and distillate inventories (crude oil -1.85 million bbl versus expectations of +1.0 million bbl and distillates -388,000 bbl versus expectations of +700,000 bbl), and (3) the increase in compliance in OPEC production quotas in Aug to 53.5% from 52.6% in July.

Today's Market Focus...

•   December 10-year T-notes this morning are trading down -6 ticks. Dec 10-year T-note prices last Friday slid to a 1-1/4 month low and closed down -7.5 ticks at 123-125. The 10-year T-note yield climbed to a 1-month high of 2.818%. Bearish factors included (1) the bigger-than-expected increase in July wholesale inventories which posted their largest monthly advance in 2 years (+1.3% versus expectations of +0.4%), (2) reduced safe-haven demand for Treasuries after the stock market rallied, and (3) the larger-than-expected +34.4% y/y increase in Aug China exports and the upward revision to Q2 Japan GDP to 1.5% from 0.4% (annualized) which suggests the global economy is still expanding. Bullish factors included (1) increased safe-haven demand for Treasuries after ECB President Trichet said it will "take time" to wean banks off of its emergency lending measures and ECB Council member Ordonez said that another bout of financial instability can't be ruled out, and (2) comments from St. Louis Fed President Bullard who said the Fed "will take more action if things get worse," which signals he would favor additional quantitative easing measures to boost the economy.

•   The dollar index this morning is weaker with the dollar/yen -0.13 yen and the euro/dollar +1.38 cents. The dollar index last Friday rallied to a 1-week high and closed slightly higher. Bullish factors included (1) weakness in the euro which fell to a 1-1/2 week low against the dollar after euro-negative comments from ECB President Trichet who said it will "take time" to wean banks off of its emergency lending measures, along with comments from fellow ECB Council member Ordonez who said that another bout of financial instability can't be ruled out, (2) weakness in the yen after US Treasury yields climbed, which widens the difference between Japanese and US interest rates and boosts demand for the dollar, and (3) the prediction from the Royal Bank of Canada that the euro may weaken to $1.10 by Q2 2011 as austerity measures in the Euro-Zone begin to take hold. Bearish factors included (1) reduced safe-haven demand for the dollar due to a rally in the stock mark et, and (2) strength in the Chinese yuan after the action by the PBOC to raise the yuan's reference rate to 6.7625, the highest since the yuan's dollar peg was scrapped in July 2005.

•   October crude oil prices this morning are trading +68 cents a barrel at a 1-month high and October gasoline is +0.84 of a cent per gallon. Oct crude oil prices last Friday rallied to a 3-1/2 week high and closed up +$2.20 a barrel. Oct gasoline posted a 1-month high and closed higher by +3.77 cents per gallon. Bullish factors included (1) a leak that prompted Enbridge Energy Partners to shut a pipeline from Canada that carries more than one third of oil to refiners the US Midwest, (2) the +10% m/m increase in Aug China crude imports, which signals strong energy demand, and (3) the upward revision in Japan's Q2 GDP which indicates stronger fuel consumption. Bearish factors included (1) the prediction from the IEA that "economic risks that are skewed to the downside could place a ceiling over crude prices in the next 12 to 15 months," and (2) the IEA report that said industry-held stockpiles of crude in the world's developed economies rose to 2.785 billion bb l in July, which represents 61.4 days of demand and is close to a record from Aug 1998.

Today's Market Focus...

•   December 10-year T-notes this morning are trading up +6.5 ticks. Dec 10-year T-note prices yesterday shook off early weakness and moved higher after mid-morning and closed up +16.5 ticks at 123-290. The 10-year T-note yield climbed to a 1-1/4 month high of 2.844% but finished the day lower at 2.740%. Bullish factors included (1) the Fed's action to purchase $3.4 billion in US debt as part of its quantitative easing program to support the US economy, (2) the prediction from Bank of America Merrill Lynch that a struggling US economy will prompt the Fed into additional quantitative easing measures that will send the 10-year T-note yield down to a record low of 1.75% by Q1 2011, and (3) the recommendation from Royal Bank of Scotland Plc that "we're getting back to rate/support levels where investors should be ready to reload on long positions in US Treasuries." Bearish factors included (1) reduced safe-haven demand for Treasuries after global stock markets rallied, and (2) reduced safe-haven demand for Treasuries on increased optimism for global economic growth after China's Aug industrial output rose more than expected and the European Commission raised its economic growth forecast for the Euro-Zone this year to 1.7% instead of a previously projected 0.9%.

•   The dollar index this morning is stronger with the dollar/yen -0.51 yen and the euro/dollar -0.45 cents. The yen rallied to a fresh 15-year high against the dollar in overnight trade after Prime Minister Kan survived a leadership challenge to remain Japan's prime minister. The dollar index yesterday plunged to a 1-month low and settled sharply lower. Bearish factors included (1) strength in the euro after the European Commission raised its economic growth forecast for the Euro-Zone this year to 1.7% instead of a previously projected 0.9%, (2) the action by the Basel Committee on Banking Supervision to give lenders as long as 8 years to comply with the higher capital requirements, (3) stronger-than-expected economic data from China which increases demand for riskier assets on speculation the economic recovery will continue, and (4) reduced safe-haven demand for the dollar after global stock markets rallied. Bearish factors included (1) the euro negative statement from Bundesbank Vice President Zeitler that German banks will need "significantly" more capital as a result of new requirements from the Basel Committee on Banking Supervision, and (2) the statement from IMF Managing Director Strauss-Kahn that the global economy may not generate much employment growth in coming years, with Europe most at risk of a sluggish and jobless recovery.

•   October crude oil prices this morning are trading -49 cents a barrel and October gasoline is -2.06 cents per gallon. Oct crude oil prices yesterday climbed to a 1-month high and closed up +$0.74 a barrel. Oct gasoline also rallied to a 1-month high and closed higher by +0.75 of a cent per gallon. Bullish factors included (1) the slump in the dollar index to a 1-month low, (2) the statement from Enbridge Energy Partners that it has no estimate for when it will restart its damaged pipeline from Canada that carries more than one third of oil to refiners the US Midwest, which may lead to a shrinkage of gasoline supplies as it may force refiners in the Midwest to reduce processing rates, (3) a rally in global equity markets after The Basel Committee on Banking Supervision reached a compromise that gives banks 8 years to reach the news capital requirements, (4) the action by the European Commission to raise its economic growth forecast for the Euro-Zone this year to 1.7% in stead of a previously projected 0.9%, (5) the prediction from Goldman Sachs Group that oil prices will rise to a range of $85 to $95 a barrel for the rest of this year as inventories decline, and (6) the larger-than-expected increase in Aug China industrial production, which increases the prospects for a stronger economic recovery and energy demand.

Today's Market Focus...

•   December 10-year T-notes this morning are trading down -5 ticks. Dec 10-year T-note prices yesterday moved higher for a second day and closed up +17 ticks at 124-140. Bullish factors included (1) carry-over strength froma rally in German bunds after the Sep German ZEW economic sentiment plunged to a 19-month low, (2) speculation that the Fed will announce additional purchases of government debt securities this year and expand its quantitative easing program to keep borrowing costs low and support the economic recovery, and (3) the prediction from Bank of America Merrill Lynch that the Treasury yield curve will flatten further and that investors should favor longer maturities to profit from it. Bearish factors included (1) the stronger-than-expected Aug US retail sales (+0.4% and +0.6% less autos versus expectations of +0.3% and +0.3% less autos), and (2) the stronger-than-expected Jul business inventories which grew at the fastest pace in 2-years (+1.0% versus exp ectations of +0.7%), as strong demand prompted companies to restock goods.

•   The dollar index this morning is higher with the dollar/yen +2.24 yen and the euro/dollar -0.25 cents. The dollar/yen slumped to a 15-year low in overnight trade before BOJ intervention spiked the dollar/yen up to a 2-week high. The dollar index yesterday weakened for a second day and fell to a 1-month low and closed moderately lower. Bearish factors included (1) speculation that the Fed will announce additional purchases of government debt securities this year and expand its quantitative easing program to keep borrowing costs low and support the economic recovery, (2) strength in the yen which rallied to a 15-year high against the dollar after Japanese Prime Minister Kan beat his rival Ozawa in a party vote, which reduces the likelihood the Japanese government will intervene in the foreign-exchange markets to weaken the yen, (3) a rally in the Chinese yuan which strengthened to its strongest level against the dollar since 1993 on speculation the Chinese government wi ll allow faster appreciation of the yuan to head off US trade sanctions, and (4) reduced safe-haven demand for the dollar after US Aug retail sales came in stronger than expected and eased concern of a slowing economic recovery. Bullish factors included (1) the plunge in the Sep German ZEW economic sentiment to a 19-month low, which is euro negative, and (2) the prediction from Morgan Stanley that a stronger yuan may help the yen depreciate to 90 yen per dollar by year-end as "a stronger renminbi makes it easier for Japanese consumer goods to penetrate into the Chinese goods market."

•   October crude oil prices this morning are trading -$1.20 a barrel and October gasoline is -2.09 cents per gallon. Oct crude oil prices yesterday fell back from an early rally and closed down -$0.39 a barrel. Oct gasoline closed lower by -1.16 cents per gallon. Bearish factors included (1) comments from Enbridge Energy Partners who said they are in the process or repairing a section of pipe that caused a shutdown last week that forced the closure of a pipeline that supplies nearly 1/3 of all refineries in the Midwest with crude oil, and (2) the plunge in the Sep German ZEW investor confidence to a 19-month low, which may lead to reduced fuel demand in Germany, Europe's largest economy. Bullish factors included (1) the fall in the dollar index to a 1-month low, which boosts the prices of most commodities priced in dollars, (2) comments from OPEC's Secretary-General Abdalla El-Badri that crude oil prices between $70 to $80 a barrel are "comfortable," and (3) t he outlook for a drop in weekly crude oil supplies for a second week when the DOE releases its inventory report on Wed. . Expectations for Wednesday's weekly inventory report from the DOE are for crude oil supplies to fall -2.5 million bbl, gasoline stockpiles to slip -750,000 bbl, distillate inventories to climb +500,000 bbl and the refinery capacity rate to drop -0.5 to 87.7%.

Today's Market Focus...

•   December 10-year T-notes this morning are trading down -1 tick. Dec 10-year T-note prices yesterday erased an early rally after they turned lower late morning and continued lower into the close and settled down -8 ticks at 124-060. Bearish factors included (1) speculation that Japan will purchase short-term US government debt with the dollars it purchased when it intervened in the foreign-exchange market to weaken the yen, (2) the stronger-than-expected Aug import prices (+0.6% m/m and +4.1% y/y versus expectations of +0.3% m/m and +3.8% y/y), and (3) reduced safe-haven demand for Treasuries after the stock market rallied. Bullish factors included (1) the unexpected decline in the Sep Empire manufacturing index which tumbled to a 14-month low (-3.0 to 4.1 versus expectations of +0.9 to 8.0), and (2) the Fed's action to purchase $3.89 billion of Treasuries as part of its quantitative easing program to boost the economy.

•   The dollar index this morning is lower with the dollar/yen -0.09 yen and the euro/dollar +0.73 cents. The dollar index yesterday closed modestly higher. Bullish factors included (1) weakness in the yen which tumbled to a 2-week low against the dollar after the BOJ intervened in the foreign-exchange market for the first time since 2004 after the yen surged to a 15-year high against the dollar, and (2) the prediction from Citigroup that Japan's intervention to weaken the yen may be "more successful" than markets expect as the falling yen will likely force out most speculators. Bearish factors included (1) the action by the German RWI economic institute to raise its German growth estimates for this year to 3.4% and to 2.2% in 2011, up from earlier forecasts for a 1.9% increase in 2010 and a 1.7% expansion in 2011, which is euro positive, and (2) the prediction from Sumitomo Mitsui Banking that Japan's intervention to weaken the yen won't stop the currency from reaching a record 79.75 against the dollar this year as slowing US growth puts pressure on the Fed to increase monetary easing.

•   October crude oil prices this morning are trading -60 cents a barrel and October gasoline is -1.54 cents per gallon. Oct crude oil prices yesterday closed lower for a second day as they settled down -$0.78 a barrel. Oct gasoline closed lower by -0.65 of a cent per gallon. Bearish factors included (1) the stronger dollar, (2) the comment from the senior engineer of the US Pipeline and Hazardous Materials Safety Administration who said that Enbridge Energy Partners will be allowed to restart a pipeline that was shut down last week which stopped nearly 1/3 of all crude supplies to Midwest refineries, (3) weak demand after the DOE reported that total US fuel demand fell -1.0% to 19.5 million barrels a day in the week ended Sep 10 and that US gasoline consumption tumbled -2.6% to 9.02 million barrels a day to its lowest level in 6 months, and (4) the unexpected decline in the Sep Empire manufacturing index which fell to a 14-month low and signals reduced energy consumption . Bullish factors included (1) the unexpected decline in weekly distillate supplies (-340,000 bbl versus expectations of a +500,000 bbl increase), and (2) comments from Venezuela's oil minister who said that $100 a barrel is a "just price" for crude and is the level needed to sustain investments in the oil industry.

Today's Market Focus...

•   December 10-year T-notes this morning are trading up +0.5 of a tick. Dec 10-year T-note prices yesterday opened higher but shed their gains and settled down -9 ticks at 123-290. Bearish factors included (1) the unexpected decline in weekly US initial unemployment claims, which fell to their lowest level in 2 months (-3,000 to 450,000 versus expectations of +7,000 to 458,000), (2) re0duced safe-haven demand for Treasuries after the stock market shook offf early weakness and closed higher, and (3) the larger-than-expected increase in the Aug PPI, which posted its biggest increase in 5 months (+0.4% m/m versus expectations of +0.3% m/m). Bullish factors included (1) the smaller-than-expected increase in the Sep Philadelphia Fed manufacturing index which contracted for a second month (+7.0 to -0.7 versus expectations of +8.0 to 0.3), and (2) increased demand for US Treasuries by the 2 biggest holders of US debt when China, the largest-holder of US debt, raised its hol dings of US long-term securities by +0.1% to $840,6 billion in July and Japan, the second largest holder of Treasuries, boosted its position by 2.2% to $821 billion, the most US debt that Japan has ever owned.

•   The dollar index this morning is lower and posted a 1-1/4 month low overnight with the dollar/yen +0.01 yen and the euro/dollar +0.22 cents. The dollar index yesterday finished slightly lower. Bearish factors included (1) strength in the euro after Spain completed a successful 4-billion euro bond auction, which eases European sovereign-debt concerns, and the prediction from Citigroup that technical studies show that the euro may strengthen to $1.325 against the dollar after it broke through a reverse head-and-shoulders chart pattern. Bullish factors included (1) the stronger-than-expected Jul net long-term TIC flows, which indicates increased foreign demand for US dollar assets, (2) weakness in the yen which slipped to a 2-1/2 week low against the dollar on speculation that Japan will continue to intervene in the foreign-exchange markets to stunt the yen's strength.

•   October crude oil prices this morning are trading +48 cents a barrel and October gasoline is +2.10 cents per gallon. Oct crude oil prices yesterday moved lower for a third straight day and closed down -$1.45 a barrel. Oct gasoline closed lower by -3.78 cents per gallon. Bearish factors included (1) the comment from Enbridge Energy Partners that it will restart the pipeline on Friday that was shut down last week which stopped nearly 1/3 of all crude supplies to Midwest refineries, (2) the weaker-than-expected Sep Philadelphia Fed manufacturing index which contracted for a second month and signals a slowdown in manufacturing and weaker energy consumption, and (3) weak European economic data which may keep energy demand constrained in Europe after the unexpected decline in Aug UK retail sales and the first decline in 3 months in Jul Euro-Zone exports. Bullish factors included (1) the unexpected decline in weekly US initial unemployment claims which fell to a 2-month low and indicates economic improvement, and (2) the action by Bank of America Merrill Lynch to raise its global crude oil demand growth forecast for this year by 200,000 barrels a day to 1.7 million barrels a day, citing stronger-than-expected consumption in the US and China, the world's two-largest energy consumers.

September 20, 2010
Today's Market Focus...


•   December 10-year T-notes this morning are trading up +0.5 of a tick. Dec 10-year T-note prices last Friday traded sideways in positive territory the entire day and settled up +7.5 ticks at 124-045. Bullish factors included (1) slack inflation pressures with the smaller-than-expected increase in Aug core CPI (unchanged m/m and +0.9% y/y versus expectations of +0.1% m/m and +1.0% y/y), with the +0.9% y/y increase matching the smallest year-over-year gain since 1966, (2) the unexpected decline in Sep US University of Michigan consumer confidence which tumbled to a 13-month low (-2.3 to 66.6 versus expectations of +1.1 to 70.0), (3) the prediction from the chief economist at JPMorgan Chase that he expects the Fed to expand its balance sheet by the end of the year in an attempt to support the economy as it engages in further quantitative easing measures, and (4) increased safe-haven demand for Treasuries after the stock market erased an early rally and turned lower alon g with concern the Irish financial crisis is deepening after the leader of Ireland's Green Party warned that the country's bond spreads would widen if Ireland considers renegotiating with bondholders of nationalized Anglo Irish Bank. Bearish factors included (1) increased speculation that the BOJ will reinvest its dollar proceeds acquired from its yen sales from its currency intervention into short-term Treasuries instead of long-term securities, and (2) reduced safe-haven demand for Treasuries after an early rally in the S&P 500 Index to a 4-month high on positive technology company earnings.

•   The dollar index this morning is weaker with the dollar/yen -0.19 yen and the euro/dollar +0.50 cents. The dollar index last Friday sank early in the session to a 1-1/4 month low but recovered its losses and closed slightly higher. Bullish factors included (1) weakness in the euro on renewed concerns over the European sovereign-debt crisis after credit-default swaps rose to a record on Irish debt after the leader of Ireland's Green Party warned that the country's bond spreads would widen further should Ireland consider renegotiating with bondholders of Anglo Irish Bank, and (2) increased safe-haven demand for the dollar after the stock market slumped when Sep US University of Michigan consumer confidence unexpectedly dropped to a 13-month low. Bearish factors included (1) the recommendation from Deutsche Bank AG for investors to buy the yen against the dollar, with the prediction that government intervention to weaken the yen will fail just as it did in 1995, and (2) the prediction from the chief economist at JPMorgan Chase that he expects the Fed to expand its balance sheet by the end of the year in an attempt to support the economy.

•   October crude oil prices this morning are trading +14 cents a barrel and October gasoline is +1.45 cents per gallon. Oct crude oil prices last Friday erased an early rally and slumped to a 1-week low and settled lower for a fourth straight day when they closed down -$0.91 a barrel. Oct gasoline closed lower by -0.55 of a cent per gallon. Bearish factors included (1) a reversal in the dollar index which slid to a 1-1/4 month low but recovered its losses and closed higher, (2) the approval by the US government for Enbridge Energy to resume sending crude oil from Canada to oil refineries in the Midwest after the main pipeline was shut down for a week due to a leak, and (3) the unexpected decline in the Sep US University of Michigan consumer confidence to a 13-month low, which raises concern about the sustainability of the economic recovery and energy demand. Bullish factors included (1) the prediction from tanker tracker Oil Movements that OPEC will ship 23.2 million ba rrels of crude a day in the four weeks to Oct 2, down -1.2% from 23.47 million barrels a day in the month to Sep 4, and (2) the prediction from Goldman Sachs that the recent closure of the Enbridge pipeline will keep US crude oil imports at reduced levels in coming weeks which will lower inventories and push prices up into a $85-$95 per barrel trading range in the coming months.

September 21, 2010
Today's Market Focus...

•   December 10-year T-notes this morning are trading higher by 7.5 ticks going into today's FOMC meeting. Dec 10-year T-note prices yesterday traded on either side of unchanged into mid-morning when they rallied the remainder of the day and settled up +8.5 ticks at 124-130. Bullish factors included (1) the Sep NAHB housing market index which remained at a 1-1/2 year low (unchanged at 13 versus expectations of +1 to 14), (2) the Fed's purchase of $5.19 billion of Treasuries maturing between Sep 2016 to Aug 2019 as it keeps its balance sheet stable and prevents money from being drained from the financial system in an attempt to keep long-term interest rates low, and (3) the prediction from PIMCO that the Fed at Tuesday's FOMC meeting will "get the markets ready for expanding the balance sheet at a later meeting." Bearish factors included (1) reduced safe-haven demand for Treasuries after an easing of European sovereign-debt concerns helped propel the S&P 500 Index to a 4-month high, and (2) the prediction from CMC Markets that the FOMC in unlikely to announce new bond purchases on Tuesday because the Fed will not "want to trigger a fresh decline in the dollar/yen."

•   The dollar index this morning is down 0.25 cents with the dollar/yen down 0.24 yen and the euro/dollar up 0.71 cents. The euro received a boost today from reduced European debt crisis concerns. The dollar index yesterday closed slightly lower. Bearish factors included (1) speculation the FOMC on Tuesday may announce additional quantitative easing measures to keep borrowing costs low, and (2) strength in the euro after Moody's Investors Service and Fitch Ratings affirmed their top-tier credit ratings on the UK and Germany, respectively, along with reduced European sovereign-debt concerns after Irish Finance Minister Lenihan said that his country won't require a EU bailout and Irish Central Bank Governor Honohan said that costs related to the country's banking system remain "manageable." Bullish factors included (1) the monthly report from the Bundesbank which was euro-negative by saying that growth in Germany, Europe's largest economy, slowed "markedly&q uot; in Q3 as the global recovery weakened, and (2) the recommendation from Citigroup for investors to sell the euro against the dollar on its prediction that technical indicators point for the euro to decline to $1.2588 from $1.3079 today.

•   October crude oil prices this morning are down 61 cents a barrel on some long liquidation pressure after yesterday's rally. October gasoline this morning is up 0.15 cents per gallon. Oct crude oil prices yesterday closed higher for the first time in the last five sessions, up +$1.20 a barrel. Oct gasoline closed higher by +3.04 cents per gallon. Bullish factors included (1) a weaker dollar, and (2) the rally in the S&P 500 Stock Index to a 4-month high, which increases optimism in the economic outlook and energy demand. Bearish factors included (1) the action by Credit Suisse Group AG to cut their 2011 crude oil price forecast to $72.50 per barrel, down from an earlier estimate of $80 a barrel, citing the "high levels of spare capacity and a better performance from non-OPEC supply," (2) the action by Societe Generale SA to cut its 2011 crude oil price forecast to $85 a barrel from $92 as they predict that growth in global crude consumption in 2011 will decrease to 1.4 million barrels a day from 1.8 million a day this year, and (3) the prediction from Bache Commodities Ltd. that crude oil prices may begin to fall now that the 2010 Atlantic hurricane season has passed its peak.

September 22, 2010
Today's Market Focus...

•   December 10-year T-notes this morning are trading up +12.5 ticks. Dec 10-year T-note prices yesterday rallied sharply after the FOMC announcement to a 2-1/2 week high and finished the day up +31 ticks at 125-120. Bullish factors included (1) the post-FOMC statement that said inflation is below the level "consistent" with the Fed's mandate, that the pace of recovery has "slowed in recent months," and that the Fed is "prepared to provide additional accommodation if needed," and (2) increased safe-haven demand for Treasuries on concern a weak labor market may derail the economic recovery after the US Labor Department said payrolls dropped in 36 US states in Aug and that joblessness climbed in 27 states. Bearish factors included (1) the stronger than expected Aug US housing starts (+10.5% to 598,000 versus expectations of +0.7% to 550,000), (2) the stronger than expected Aug US building permits (+1.8% to 569,000 versus expectations of +0. 2% to 560,000), and (3) the Fed's decision following Tuesday's FOMC meeting to not immediately boost its quantitative easing program and increase purchases of US debt.

•   The dollar index this morning is weaker and posted a 6-month low with the dollar/yen -0.49 yen and the euro/dollar +1.14 cents. The dollar index yesterday slumped to a 1-1/4 month low and finished near its low. Bearish factors included (1) the Fed's post-FOMC statement which hinted that it may expand its balance sheet when it said the Fed is "prepared to provide additional accommodation if needed," (2) strength in the euro after successful government bond auctions in Spain and Ireland, which temporarily eased concern about Europe's sovereign debt crisis, and (3) reduced safe-haven demand for the dollar after Aug US housing starts rose more than expected, easing concern that the economic recovery is faltering. Bullish factors included (1) the action by the Fed to refrain from boosting its quantitative easing program following Tuesday's FOMC meeting, and (2) increased safe-haven demand for the dollar on concern that Europe's sovereign-debt crisis may worsen af ter the budget deficit for the first 8 months of this year widened in Portugal to the fourth-largest deficit in the Euro-Zone, and that record high borrowing costs may keep the Portuguese government from narrowing the deficit.

•   November crude oil prices this morning are trading +35 cents a barrel and November gasoline is +0.59 of a cent per gallon. Nov crude oil prices yesterday closed lower for the fifth time in the last six sessions when they settled down -$1.21 a barrel. Nov gasoline closed lower by -2.93 cents per gallon. Bearish factors included (1) the report from the US Labor Department that showed payrolls dropped in 36 states in Aug, a sign that the labor market remains weak which may translate into slack fuel demand, and (2) expectations that crude demand from refiners remains weak and that the refinery capacity rate will slip to a 5-month low of 86.8% when the DOE releases its weekly inventory figures Wednesday. Bullish factors included (1) the weaker dollar, and (2) the outlook for crude oil supplies to fall to a 5-week low when the DOE releases its weekly inventory figures on Wednesday because of last week's closure of an Enbridge Energy Partners pipeline from Canada to the US Midwest. Expectations for Wednesday's weekly DOE inventory report are for crude oil supplies to fall -1.7 million bbl, gasoline stockpile to remain unchanged, distillate inventories to rise +200,000 bbl and the refinery capacity rate to fall -0.8 to 86.8%.

September 23, 2010
Today's Market Focus...

•   December 10-year T-notes this morning are trading up +7 ticks. Dec 10-year T-note prices yesterday rallied to a 3-week high and settled up +6 ticks at 125-180. The 10-year T-note yield fell to a 3-week low of 2.50%. Bullish factors included (1) carry-over support from Tuesday's post-FOMC statement which fueled speculation that the Fed is preparing to increase its purchases of government debt, (2) the larger-than-expected decline in the July FHFA house price index and the downward revision to June (Jul -0.5% m/m versus expectations of -0.2% m/m and Jun revised down to -1.2% m/m from the previously reported -0.3% m/m), and (3) the prediction from Bank of Tokyo-Mitsubishi UFJ Ltd. that the 10-year note yield may fall to a record low 1.75% by year-end should the Fed expand its quantitative easing program. Bearish factors included (1) inflation concerns after gold prices soared to a record high on fears the Fed may debase the dollar by expanding its balance sheet, and (2) reduced safe-haven demand for Treasuries as concern eased that the European sovereign-debt crisis will worsen after Portugal sold 750 million euros ($1 billion) of bonds.

•   The dollar index this morning is stronger with the dollar/yen +0.22 yen and the euro/dollar -0.83 cents. The dollar index yesterday fell to a 6-month low and finished moderately lower. Bearish factors included (1) carry-over weakness from Tuesday's plunge in the dollar on speculation the Fed will debase the dollar by further expanding its balance sheet (i.e., quantitative easing), and (2) strength in the euro which rallied to a 5-month high against the dollar on reduced European sovereign-debt concerns after Portugal sold 750 million euros ($1 billion) of bonds. Bullish factors included (1) increased safe-haven demand for the dollar after the stock market tumbled, and (2) the larger-than-expected decline in July Euro-Zone industrial new orders which fell by the most in 19-months (-2.4% m/m) and is euro negative.

•   November crude oil prices this morning are trading -56 cents a barrel and November gasoline is -1.65 cents per gallon. Nov crude oil prices yesterday erased an early rally and closed lower for the sixth time in the last seven sessions when they settled down -$0.26 a barrel. Nov gasoline dropped to a 2-week low and closed lower by -1.74 cents per gallon. Bearish factors included (1) the unexpected increases in weekly inventories of crude oil and gasoline with gasoline inventories climbing to a 6-month high of 226.2 million bbl and to a level 15% above the 5-year average (crude oil +970,000 bbl versus expectations of a -1.7 million bbl draw and gasoline +1.59 million bbl versus expectations of no change), (2) slack fuel demand after US gasoline demand, as measured by what refiners and blenders supply to wholesalers, slipped -1.9% in the week ended Sep 17 to an average of 8.85 million barrels a day, the lowest in 7 months, (3) the unexpected increase in the refinery capa city rate which suggests further increases in crude products in the weeks ahead (+0.2 to 87.8% versus expectations or a -0.8 decline to 86.8%, and (4) weakness in the stock market which erodes confidence in the economic outlook and energy demand. The main bullish factor was the plunge in the dollar index to a 6-month low, which boosts the prices of most commodities priced in dollars.

September 24, 2010
Today's Market Focus...

•   December 10-year T-notes this morning are trading up +2.5 ticks. Dec 10-year T-note prices yesterday traded in positive territory into early afternoon when they shed nearly all of their gains into the close and settled up +0.5 of a tick at 125-185. Dec T-notes matched their contract high and the 10-year T-note yield fell to a 3-week low of 2.48%. Bullish factors included (1) the unexpected increase in weekly US initial unemployment claims (+12,000 to 465,000 versus expectations of unchanged at 450,000), and (2) speculation the Fed may expand its balance sheet and increase purchases of Treasuries to support the economy. Bearish factors included (1) the larger-than-expected increase in Aug leading indicators (+0.3% versus expectations of +0.1%), and (2) the stronger-than-expected Aug existing home sales (+7.6% to 4.13 million versus expectations of +7.1% to 4.10 million).

•   The dollar index this morning is weaker with the dollar/yen -0.05 yen and the euro/dollar +0.96 cents. The dollar index yesterday closed higher. Bullish factors included (1) weakness in the euro after the Sep Euro-Zone PMI composite fell more than expected to its lowest level in 7 months, along with a widening in the bond spreads of Portugal and Ireland to record levels over comparable German bunds, signaling heightened sovereign-debt concerns, and (2) increased safe-haven demand for the dollar on concerns the economy will continue to struggle after weekly initial US unemployment claims unexpectedly increased. Bearish factors included (1) reduced safe-haven demand for the dollar after Aug US leading indicators and existing home sales were both stronger-than-expected, and (2) the action by Nomura Holdings to cut their year-end forecast for the dollar to $1.35 per euro compared with an earlier forecast of $1.25, citing expected Fed purchases of Treasuries starting in Q4 .

•   November crude oil prices this morning are trading +12 cents a barrel and November gasoline +0.19 of a cent per gallon. Nov crude oil prices yesterday traded on either side of unchanged until late morning when they rallied into the close and settled up +$0.47 a barrel. Nov gasoline fell to a 3-week low but erased its losses and closed higher by +1.16 cents per gallon. Bullish factors included (1) strength in gasoline prices which recovered from early losses and pushed higher after Conoco shut a pipestill at its Linden, New Jersey refinery, which may limit its gasoline production in the eastern US, (2) the stronger-than-expected Aug US existing home sales, which may help sustain the economic recovery, and (3) the larger-than-expected increase in Aug leading indicators. Bearish factors included (1) the rebound in the dollar, (2) the unexpected increase in weekly US initial unemployment claims, which may dampen fuel demand, and (3) the fall in the Sep Euro-Zone PMI comp osite to its lowest level in 7 months, which signals reduced fuel consumption.

September 27, 2010
Today's Market Focus...

•   December 10-year T-notes this morning are tradingup +10 ticks. Dec 10-year T-note prices last Friday traded weaker throughout most of the session and settled down -11.5 ticks at 125-070. Bearish factors included (1) the larger-than-expected increase in Aug durable goods orders ex-transportation (+2.0% versus expectations of +1.0%), (2) comments from Richmond Fed President Lacker that reduced the prospects for additional Fed easing when he said inflation of about 1.5% is consistent with the Fed's mandate for stable prices and that he doesn't see a risk of deflation, (3) reduced safe-haven demand for Treasuries after the stock market rallied sharply, and (4) supply pressures ahead of the Treasury's $36 billion auction of 2-year T-notes on Monday. Bullish factors included (1) the unexpected stagnation in Aug new home sales (unchanged at 288,000 versus expectations of +6.9% to 295,000), and (2) the Fed's purchase of $3.89 billion of Treasuries as part of its program to reinvest principal payments on its mortgage holdings into long-term Treasuries to prevent liquidity from being drained out of the financial system.

•   The dollar index this morning is weaker with the dollar/yen unchanged and the euro/dollar -0.14 cents. The dollar index last Friday plunged to a 7-3/4 month low and finished sharply lower. Bearish factors included (1) strength in the euro which climbed to a 5-month high against the dollar after the Sep German IFO business climate unexpectedly rose to a 3-year high, (2) reduced safe-haven demand for the dollar as the stock market rallied, and as European sovereign-debt concerns eased after Goldman Sachs Group said it is "very unlikely" that Ireland will experience a financial crisis as severe as the one that forced Greece to seek an international bailout, and (3) the prediction from Westpac Banking that the Fed's emphasis on low inflation means the market will continue to speculate on a new round of quantitative easing "that will keep the dollar under pressure." Bearish factors included (1) weakness in the yen after Kyodo News cited an unidentified market source as saying Japan sold the yen early last Friday to protect its exporters, (2) the prediction from Morgan Stanley that Japanese policymakers will outlast speculators and force the yen down to 93 per dollar by year-end, and (3) the prediction from Bank of Tokyo-Mitsubishi UFJ Ltd. that the euro's recent gains against the dollar are "unsustainable" amid concern the nations on the Euro-Zone's periphery will default on their debts.

•   November crude oil prices this morning are trading up +35 cents a barrel and November gasoline is +0.18 of a cent per gallon. Nov crude oil prices last Friday strengthened throughout the day and closed up +$1.31 a barrel. Nov gasoline closed higher by +2.75 cents per gallon. Bullish factors included (1) the slump in the dollar index to a 7-3/4 month low, which boosts demand for most commodities as a hedge against inflation, (2) the rally in the stock market which increases optimism in the economic outlook and energy demand, and (3) the unexpected increase in the Sep German IFO business climate to a 3-year high, which may help sustain the economic recovery and energy demand. Bearish factors included (1) the prediction from Kase and Co. that crude oil is poised for a drop to $61 a barrel after crude prices fell below a "bearish pennant" chart formation, and (2) the weaker than expected Aug US new home sales, which signals fuel demand may wane as the economy c ontinues to struggle.

September 28, 2010
Today's Market Focus...

•   December 10-year T-notes this morning are trading -4.5 ticks lower on overhang ahead of today's 5-year T-note auction. Dec 10-year T-note prices yesterday remained firm throughout the day and finally settled up +23.5 ticks at 125-305. Bullish factors included (1) increased safe-haven demand for Treasuries after the stock market retreated and on increased European sovereign-debt concerns when Moody's cut Anglo Irish Bank's senior debt to the lowest investment grade rating and said that Greek banks' loan losses and deposit outflows are keeping them at risk of credit-rating downgrades, (2) the prediction from JPMorgan Chase that there's a 75% chance the Fed will start another round of asset purchases before the end of the year, (3) the prediction from JPMorgan Chase that the BOJ has "bought a significant amount of dollars during their recent forex intervention and will probably invest those dollar proceeds in Treasuries," and (4) solid demand for the Treasur y's $36 billion 2-year T-note auction that had a bid-to-cover ratio of 3.78, well above the average of 3.14 for the past 10 auctions. Bearish factors included (1) the prediction from Armored Wolf that the Fed won't implement any further quantitative easing measures until after the mid-term elections because any actions it takes before then will be seen as politically motivated, and (2) supply pressures ahead of the Treasury's $35 billion auction of 5-year T-notes on Wed.

•   The dollar index this morning is down 0.08 points with the dollar/yen down -0.19 yen and the euro/dollar up 0.25 cents. The dollar index yesterday slipped to a 7-3/4 month low but recovered most of its losses and finished just slightly lower. Bearish factors included (1) the prediction by BNP Paribas Securities that the Fed will increase its Treasury purchases and the 10-year T-note yield may drop to 2.00% by year-end, which will further weaken the dollar's interest rate differentials, and (2) the prediction from JPMorgan Chase that the Fed may spend "a few hundred billion dollars" on a so-called quantitative easing program and it is likely to keep the Fed funds rate on hold until 2012. Bullish factors included (1) weakness in the yen after BOJ Governor Shirakawa said he's closely watching the effect of the strong yen on the economy and is prepared to take "appropriate action" if needed, which signals possible further currency intervention by the B OJ to stem the yen's advance, (2) increased safe-haven demand for the dollar after Moody's Investor's Service said that Greek banks' loan losses and deposit outflows are keeping them at risk of credit-rating downgrades, and (3) comments from ECB President Trichet who said economic growth and inflation in the Euro-Zone will be moderate, which signals no plans by the ECB to raise interest rates anytime soon.

•   November crude oil prices this morning are down 0.67 cents a barrel and November gasoline is down 0.98 cents per gallon on the market consensus for a rise in gasoline inventories in Wednesday's DOE report to a 6-month high. Nov crude oil prices yesterday rallied to a 1-week high but closed well off of their best levels when they settled up +$0.03 a barrel. Nov gasoline closed lower by -0.13 of a cent per gallon. Bullish factors included (1) the slide in the dollar index to a 7-3/4 month low, and (2) the rebound in stock prices, which erased early losses and turned higher, and improves confidence in the economic outlook and energy demand. Bearish factors included (1) a slump in European stock markets on concern the European sovereign-debt crisis may be worsening, which may cut economic growth and energy demand, and (2) comments from Kuwait's Oil Minister who said that OPEC won't change its production quotas at its meeting next month despite the cartel's recent action to trim its 2011 global oil demand outlook.

September 29, 2010
Today's Market Focus...



.December 10-year T-notes this morning are trading down -4 ticks. Dec 10-year T-note prices yesterday rallied mid-morning and settled up +15.5 ticks at 126-140. Dec T-notes climbed to a 1-month nearest-futures high and the yield on the 10-year T-note slipped to a 1-month low of 2.446%. Bullish factors included (1) increased safe-haven demand for Treasuries after Standard & Poor's said the price of bailing out nationalized lender Anglo Irish Bank could exceed $47 billion and the difference in yields between Portuguese and Irish 10-year bonds against German bunds widened to records, which fueled concern the European sovereign-debt crisis may worsen, (2) the larger-than-expected decline in Sep US consumer confidence to a 7-month low (-3.7 to 48.5 versus expectations of -1.4 to 52.1), (3) the bigger-than-expected drop in the Sep Richmond Fed manufacturing index which fell to its lowest level in 9 months (-13 to -2 versus expectations of -6 to 5), and (4) overall st rong demand for the Treasury's $35 billion 5-year T-note auction that had a bid-to-cover ratio of 2.96, compared with an average of 2.74 at the past 10 auctions. Bearish factors included (1) reduced safe-haven demand for Treasuries after comments from ECB Council member Liikanen who said there will be no double dip in the global economy and the easing of growth will be "temporary," and (2) supply pressures ahead of the Treasury's $29 billion auction of 7-year T-notes on Wed.

.The dollar index this morning is weaker and posted an 8-month low in overnight trade with the dollar/yen -0.25 yen and the euro/dollar +0.18 cents. The dollar index yesterday moved lower the entire day, posted a fresh 7-3/4 month low, and closed with moderate losses. Bearish factors included (1) strength in the euro which rallied to a 5-1/4 month high against the dollar after ECB Executive Board member Stark said that the +1.2% increase in Aug loans to households and companies in the Euro-Zone, the fastest pace in 14 months, was "good news" and suggests a turning point has been reached, (2) the action by UBS to cut its one month dollar forecast against the euro to $1.35 from a previous estimate of $1.28 and the cut in its 3-month forecast for the dollar to $1.25 from an earlier estimate of $1.15 on expectations the Fed will expand its Treasury purchases, and (3) the prediction from Yu Yongding, the former adviser to the PBOC, that any appreciation of the doll ar is "really temporary" and a devaluation of the currency is inevitable as US debt rises. Bullish factors included (1) increased safe-haven demand for the dollar on heightened European sovereign-debt concerns after the difference in yield between Portuguese and Irish 10-year bonds against German bunds widened to records, and (2) the prediction from BNP Paribas SA that any gains in the euro probably won't last as investors surmise that a general improvement in money and credit data masks differences within the Euro-Zone.

.November crude oil prices this morning are trading +11 cents a barrel and November gasoline is -0.18 of a cent per gallon. Nov crude oil prices yesterday traded on both sides of unchanged and finally settled down -$0.34 a barrel. Nov gasoline closed lower by -0.21 of a cent per gallon. Bearish factors included (1) the larger-than-expected slump in the Sep US consumer confidence to its lowest level in 7 months, which questions the sustainability of the economic recovery and energy demand, (2) the fall in the Sep Richmond Fed manufacturing index to its lowest level in 9 months, which indicates slack fuel demand, and (3) the outlook for an increase in weekly US gasoline inventories to their highest level in 6-months when the DOE reports weekly inventory numbers on Wednesday. Bullish factors included (1) the drop in the dollar index to a 7-3/4 month low, (2) the larger-than-expected increase in the Oct German GfK consumer confidence to a 2-1/3 year high, which may boost economic optimism and energy demand in Europe, and (3) the outlook for a decline in crude oil supplies when the DOE reports weekly crude oil inventories on Wednesday. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil stockpiles to fall -700,000 bbl, gasoline supplies to rise +350,000 bbl, distillate inventories to gain +325,000 bbl and the refinery capacity rate to fall -0.6 to 87.2%.

September 30, 2010
Today's Market Focus...



.December 10-year T-notes this morning are trading up +6.5 ticks. Dec 10-year T-note prices yesterday traded sideways in negative territory the entire day and settled down -9 ticks at 126-050. Bearish factors centered on hawkish Fed commentary from several Fed officials, including (1) Minneapolis Fed President Kocherlakota who said that any further use of quantitative easing would have a "muted effect" on narrowing the gap between longer and shorter-term Treasury yields, (2) Philadelphia Fed President Plosser who said he opposes more monetary expansion by the Fed because he sees "little risk" of deflation, and (3) Atlanta Fed President Lockhart who said Fed members haven't agreed on further action and that it's "not a foregone conclusion that more accommodation is required." Bullish factors included (1) dovish comments from Boston Fed President Rosengren that the Fed still has the tools to boost an "anemic" recovery and shoul d consider further action to cut unemployment and raise the inflation rate, and (2) strong demand for the Treasury's $29 billion 7-year T-note auction that had a bid-to-cover ratio of 3.04, the highest since the Treasury resumed the sale of 7-year T-notes in Feb 2009.

.The dollar index this morning is lower and at a fresh 8-month low with the dollar/yen -0.37 yen and the euro/dollar +0.19 cents. The dollar index yesterday slid to an 8-month low and closed lower for the fourth straight session. Bearish factors included (1) strength in the euro which rallied to a 5-1/4 month high against the dollar after Sep Euro-Zone economic confidence unexpectedly increased to a 2-1/2 year high, and (2) dollar-negative comments from Boston Fed President Rosengren who said the Fed still has the tools to boost an "anemic" recovery and should consider further action to cut unemployment and raise the inflation rate. Bullish factors included (1) increased safe-haven demand for the dollar on concern the European sovereign-debt crisis will worsen after the yield spread between Irish 10-year bonds and German bunds widened to a record 454 bp and the spread between Spanish 10-year bonds and bunds widened to a 2-1/2 month high of 198 bp, and (2) com ments from Philadelphia Fed President Plosser who said he opposes more monetary expansion by the Fed because he sees "little risk" of deflation, and (3) comments from from Atlanta Fed President Lockhart who said Fed members haven't agreed on further action and that it's "not a foregone conclusion that more accommodation is required."

.November crude oil prices this morning are trading +54 cents a barrel and November gasoline is +1.87 cents per gallon. Nov crude oil prices yesterday moved higher and closed up +$1.68 a barrel. Nov gasoline closed higher by +4.59 cents per gallon. Both Nov crude and Nov gasoline posted 2-week highs. Bullish factors included (1) the plunge in the dollar index to an 8-month low, (2) the unexpected declines in weekly gasoline and distillate inventories (gasoline -3.47 million bbl versus expectations of a +350,000 bbl build and distillates -1.26 million bbl versus expectations of a +325,000 bbl increase), (3) news that manufacturing in China accelerated for a second straight month in Sep after the Sep China HSBC purchasing managers' index climbed to its highest level in 5 months, signaling strong fuel consumption, (4) comments from China's ambassador to Saudi Arabia who said China's imports of oil from Saudi Arabia will increase to 50 million metric tons (MMT) this year, up +19% from 41.95 MMT last year, and (5) comments from Kuwait's oil minister who said Kuwait is "happy" with the current price of oil and that OPEC is unlikely to change its production levels when it meets next month. Bearish factors included (1) the report from MasterCard that said US gasoline demand fell -2.1% y/y in the week ended Sep 24 to 8.98 million barrels of fuel a day, the third straight weekly y/y decline, and (2) the prediction from WTRG Economics that "demand is relatively weak and inventories are in good shape, so there is no fundamental reason for oil prices to keep rising."

October 1, 2010
Today's Market Focus...



.December 10-year T-notes this morning are trading unchanged. Dec 10-year T-note prices yesterday plunged to their low mid-morning and then recovered most of their losses the rest of the day and settled down -3.5 ticks at 126-015. Bearish factors centered on stronger-than-expected US economic data that reduced speculation the Fed will expand its quantitative easing measures after (1) the larger-than-expected drop in the latest weekly initial unemployment claims (-16,000 to 453,000 versus expectations of -5,000 to 460,000), (2) the unexpected increase in the Sep Chicago purchasing managers index (+3.7 to 60.4 versus expectations of -1.0 to 55.7), and (3) the unexpected upward revision to Q2 GDP to 1.7% annualized from the previously reported 1.6% annualized. Bullish factors included (1) increased safe-haven demand for Treasuries after Moody's Investors Service downgraded Spain's top credit rating one level to Aa1 and the Irish government said it will cost as much as $68 billion to bail out its banking system, raising concern the European sovereign-debt crisis will worsen, and (2) the Fed's action to purchase $2.2 billion of Treasuries as part of a program to reinvest principal payments on its mortgage holdings into long-term government debt to prevent money from being drained out of the financial system.

.The dollar index this morning is weaker and at a new 8-month low with the dollar/yen -0.35 yen and the euro/dollar +1.02 cents. The dollar index yesterday sank to an 8-month low but erased its losses and finished higher. Bullish factors included (1) stronger-than-expected US economic data on Q2 GDP, weekly initial unemployment claims and Sep Chicago purchasing managers, which reduced speculation the Fed will take more steps to lower interest rates, (2) increased safe-haven demand for the dollar on concern the European sovereign-debt crisis will worsen after Moody's Investors Service downgraded Spain's top credit rating one level to Aa1 and the Irish government said it will cost as much as $68 billion to bail out its banking system, and (3) the recommendation from Bank of Tokyo Mitsubishi UFJ for investors to sell the euro against the dollar with a target of $1.2650 because speculation the Fed will increase asset purchases pushed the dollar too low. Bearish factors inc luded (1) the larger-than-expected decrease in Sep German unemployment and the unexpected fall in the Sep German jobless rate to 7.5%, the lowest since April 1992, which is euro positive, and (2) the ECB's action to provide European banks with 104 billion euros ($142 billion) in 3-month loans, less than expected, and a sign that tensions in Euro-Zone financial markets are easing as European banks rely less on funding from the ECB.

.November crude oil prices this morning are trading +99 cents a barrel and November gasoline is +2.56 cents per gallon, both at fresh 1-1/2 month highs. Nov crude oil prices yesterday moved higher for a second day and closed up +$1.68 a barrel. Nov gasoline closed higher by +4.59 cents per gallon. Both Nov crude and Nov gasoline posted 1-1/2 month highs. Bullish factors included (1) stronger-than-expected US economic data on Q2 GDP, weekly initial unemployment claims and Sep Chicago purchasing managers, which boosts confidence that energy demand may improve, and (2) the drop in Sep OPEC oil production to an average 29.055 million barrels a day, the lowest output in 8 months. Bearish factors included (1) the rebound in the dollar index which closed higher after sliding to an 8-month low, and (2) the retreat in the stock market which erased an early rally to a 4-1/2 month high and closed lower, which reduces optimism in the economic outlook and energy demand.

Monday, October 4, 2010
Today's Market Focus...



*December 10-year T-notes this morning are trading up +12 ticks. Dec 10-year T-note prices last Friday rebounded from early losses and closed up +1 tick at 126-025. Bullish factors included (1) the weaker-than-expected Sep ISM manufacturing index which expanded at its slowest pace in 10 months (-1.9 to 54.4 versus expectations of -1.8 to 54.5), (2) increased speculation the Fed may expand its quantitative easing measures after New York Fed President Dudley said the outlook for US job growth and inflation is "unacceptable" and that the Fed has options to add stimulus to the economy, along with comments from Chicago Fed President Evans who said further monetary accommodation may be "desirable" to help boost the flagging US recovery, and (3) the prediction from BT Investment Management Ltd. that the yield on the 10-year T-note will fall to a record low below 2.00% as the Fed expands its program of government bond purchases. Bearish factors included (1) the stronger-than-expected Aug personal income (+0.5% versus expectations of +0.3%) and Aug personal spending (+0.4% versus expectations of +0.3%), (2) the unexpected increase in Aug construction spending (+0.4% versus expectations of -0.4%), and (3) the stronger-than-expected Sep US University of Michigan consumer confidence (+1.6 to 68.2 versus expectations of +0.4 to 67.0).

*The dollar index this morning is stronger with the dollar/yen +0.03 yen and the euro/dollar -0.72 cents. The dollar index last Friday weakened to an 8-month low and closed on its low. Bearish factors included (1) the weaker-than-expected Sep ISM manufacturing index which expanded at its slowest pace in 10 months, (2) increased speculation the Fed may expand its quantitative easing measures after New York Fed President Dudley said the outlook for US job growth and inflation is "unacceptable" and that the Fed has options to add stimulus to the economy, along with comments from Chicago Fed President Evans who said further monetary accommodation may be "desirable" to help boost the flagging US recovery, and (3) the prediction from Faros Trading LLC that he dollar will fall a further 10% against the euro by year-end as Asian and South American banks sell the dollar for the euro. Bullish factors included (1) data from the IMF that showed the dollar's sha re of global foreign-exchange reserves rose in Q2 to 62.1% from 61.7% in Q1, (2) euro-negative comments from ECB Council member Nowotny who said the ECB will continue buying government bonds as long as there are inefficiencies in the markets, and (3) a possible increase in the safe-haven demand for the dollar after a statement from European finance ministers said Europe's recovery is "fragile and uncertain" and the warning that "the risks related to the sovereign-debt market could have a contagious effect on the banking sector."

*November crude oil prices this morning are trading -42 cents a barrel and November gasoline is -0.47 of a cent per gallon. Nov crude oil prices last Friday rallied for a third day and settled up +$1.61 a barrel. Nov gasoline closed higher by +4.40 cents per gallon. Both Nov crude and Nov gasoline posted 1-3/4 month highs. Bullish factors included (1) the slump in the dollar index to an 8-month low, (2) strength in Chinese manufacturing after the Sep China purchasing managers index expanded at its fastest pace in 4 months, which signals increased energy consumption, (3) the stronger-than-expected US Aug personal spending, which bolsters optimism that fuel demand will increase, and (4) Sep South Korean oil imports rising +9.3% y/y, their fifth straight increase and a sign of strong energy demand in Asia's fourth-largest crude buyer. Bearish factors included (1) the weaker-than-expected Sep ISM manufacturing index, which weakened equity prices and dampened optimism for the economic outlook and energy demand, and (2) the unexpected decline in Aug German retail sales which fell for a second month and questions the sustainability of the economic rebound and energy demand.

Tuesday, October 5, 2010
Today's Market Focus...

•   December 10-year T-notes this morning are trading up +4 ticks. Dec 10-year T-note prices yesterday pushed up to a contract high and closed up +12.5 ticks at 126-150. Bullish factors included (1) the larger-than-expected decline in Aug US factory orders (-0.5% versus expectations of -0.4%), (2) comments from Brian Sack, the New York Fed's markets group chief, who said a further expansion of the Fed's balance sheet would help stimulate an economic recovery that is forecast to be "relatively tepid," and (3) increased safe-haven demand for Treasuries after the stock market fell along with concern that European banks may be undercapitalized after a Swiss government-appointed panel said UBS AG and Credit Suisse Group AG, Switzerland's two biggest banks, need to hold almost double the capital required under Basel III rules. Bearish factors included (1) the stronger-than-expected Aug US pending home sales (+4.3% m/m versus expectations of +3.3% m/m), and (2) the prediction from Brown Brothers Harriman & Co. that "the harder the Fed pushes down on the accelerator and battles deflation through monetary tactics, the higher inflation expectations will be in the future."

•   The dollar index this morning is lower and posted an 8-1/4 month low with the dollar/yen -0.02 yen and the euro/dollar +0.83 cents. The dollar index yesterday moved higher and settled just under its high. Bullish factors included (1) weakness in the euro on concern sovereign-debt issues will hamper Europe's economic recovery after the Irish central bank cut its growth estimate for this year to 0.2% from a July forecast of 0.8% and reduced its growth forecast for next year to 2.4% from 2.8%, (2) increased safe-haven demand for the dollar after European and US stock markets weakened and after a Swiss government-appointed panel said UBS AG and Credit Suisse Group AG, Switzerland's two biggest banks, need to hold almost double the capital required under Basel III rules, which heightens concern that Europe's major banks may be undercapitalized, and (3) weakness in the yen on speculation that the BOJ will expand stimulus measures at its 2-day monetary policy meeting that end s on Tue. Bearish factors included (1) the larger-than-expected increase in the Oct Euro-Zone Sentix investor confidence which jumped to a 2-3/4 year high and is euro positive, (2) euro supportive comments from Chinese Premier Wen Jiabao who said China supports a stable euro and won't reduce its holdings of European bonds, (3) the prediction from Toronto-Dominion Bank that the Japanese government's current approach to weaken the yen by intervention will likely fail unless the BOJ backs it up with much more aggressive easing measures, and (4) the prediction from the deputy head of foreign-exchange strategy at Credit Agricole SA who said that the value of the dollar has yet to fully reflect the prospect of more quantitative easing by the Fed.

•   November crude oil prices this morning are trading +65 cents a barrel and November gasoline is +1.17 cents per gallon. Nov crude oil prices yesterday fell back from an early rally and finished lower by -$0.11 a barrel. Nov gasoline closed higher by +0.72 cents per gallon. Both Nov crude and Nov gasoline posted 1-3/4 month highs. Bullish factors included (1) the larger-than-expected increase in Aug US pending home sales, which signals the US economic rebound and energy demand may be expanding, (2) strength in gasoline prices after the US Coast Guard said the Houston Ship Channel, which provides access to nine refineries that account for about 13% of US refinery capacity, will remain closed until Tue evening and possibly disrupt crude shipments to area refiners because of a damaged electrical tower, and (3) the prediction from Barclays Capital that crude oil prices will average $80 a barrel this quarter and $85 a barrel next year as "the health of global oil deman d is extremely robust." Bearish factors included (1) strength in the dollar, (2) weakness in US and European stock markets, which dampens optimism in the economic outlook and energy demand, and (3) the larger-than-expected decline in Aug US factory orders, which may signal a slowdown in the economy and energy demand.

Wednesday, October 6, 2010
Today's Market Focus...



**December 10-year T-notes this morning are trading up +9 ticks. Dec 10-year T-note prices yesterday traded in positive territory the entire day and finished up +5.5 ticks at 126-305. Dec T-notes posted a contract high and the 10-year T-note yield fell to a 1-1/4 month low of 2.43%. Bullish factors included (1) speculation that the Fed will increase its asset purchases and expand its balance sheet after comments made late Monday from Fed Chairman Bernanke who said the Fed's first round of asset purchases improved the economy and that more purchases would "ease financial conditions," (2) the action by the Fed to purchase $5.19 billion of Treasuries as part of its program to reinvest principal payments on its mortgage holdings into long-term government debt to prevent money from being drained out of the financial system, (3) increased safe-haven demand for Treasuries after Moody's Investors Service said that it placed Ireland's AA2 credit rating on review fo r possible downgrade, (4) comments from Chicago Fed President Evans who said the Fed needs to do "much more" to help the economy, including a new round of Treasury security purchases and possibly declaring that inflation should rise beyond an informal 2% target, and (5) the prediction from Goldman Sachs that the Fed will take additional steps to ease monetary policy at their next meeting on Nov 2-3. Bearish factors included (1) the stronger-than-expected Sep ISM non-manufacturing index (+1.7 to 53.2 versus expectations of +0.5 to 52.0), and (2) reduced safe-haven demand for Treasuries after the stock market rallied sharply.

**The dollar index this morning is slightly higher with the dollar/yen -0.13 yen and the euro/dollar -0.31 cents. The dollar index rebounded from an 8-1/2 month low in overnight trade after Fitch Ratings cut Ireland's long-term credit rating. The dollar index yesterday sank to an 8-1/2 month low and finished moderately lower. Bearish factors included (1) reduced safe-haven demand for the dollar after the S&P 500 Index rallied to a 4-3/4 month high, (2) the unexpected upward revision to the Sep Euro-Zone PMI composite index, which is euro positive, and (3) the prediction from Goldman Sachs that the Fed will take additional steps to ease monetary policy at their next meeting on Nov 2-3. Bullish factors included (1) temporary weakness in the yen after the BOJ cut the overnight call rate to a range of 0.0% to 0.1%, its lowest level in 4 years, and expanded its quantitative easing measures by setting up a 5 trillion yen ($60 billion) fund to buy government bonds and oth er assets, (2) the statement from Moody's Investors Service that it placed Ireland's AA2 credit rating on review for possible downgrade, which is euro negative, (3) the quarterly report from the European Commission that warns European companies' reluctance to borrow in the wake of the financial crisis may restrain investment and demand and lead to a "protracted" period of weak economic growth, and (4) a possible increase in the safe haven demand for the dollar after the IMF said banking risks have increased over the past 6 months and governments must be ready to recapitalize or restructure some institutions as "imminent funding pressures" loom with more than $4 trillion of bank debt needing to be rolled over in the next 2 years.

**November crude oil prices this morning are trading -41 cents a barrel and November gasoline is -1.02 cents per gallon. Nov crude oil prices yesterday rallied up to a 1-3/4 month high and closed higher by +$1.35 a barrel. Nov gasoline closed higher by +3.22 cents per gallon. Bullish factors included (1) the plunge in the dollar index to an 8-1/2 month low, which boosts the prices of most commodities priced in dollars, (2) optimism that global central banks will keep stoking economic growth which might benefit fuel demand after the BOJ cut interest rates and expanded its quantitative easing measures, (3) the larger-than-expected increase in the Sep ISM non-manufacturing index, which signals the economic recovery is continuing, (4) the rally in the S&P 500 to a 4-3/4 month high which bolsters confidence in the economic outlook and energy demand, and (5) the Houston Ship Channel remaining closed until at least Wed along with the strike by refinery workers for a ninth day in Marseille, France, the country's biggest oil port, which threatens to tighten global fuel markets. Bearish factors included (1) the unexpected decline in Aug Euro-Zone retail sales, which questions the sustainability of the economic recovery and energy demand, and (2) the outlook for US crude oil supplies to increase when the DOE releases its weekly inventory data on Wed. Expectations for Wednesday's weekly DOE inventory report are for crude oil supplies to rise +400,000 bbl, gasoline stockpiles to remain unchanged, distillate inventories to drop -1.0 million bbl and the refinery capacity rate to drop -0.5 to 83.5%.

Thursday, October 7, 2010...
Today's Market Focus

•   December 10-year T-notes this morning are trading up +0.5 of a tick. Dec 10-year T-note prices yesterday rallied sharply to a contract and 1-3/4 year nearest-futures high and settled up +14.5 ticks at 127-030. The 10-year T-note yield tumbled to a 1-3/4 year low of 2.35%. Bullish factors included (1) the unexpected decline in the Sep ADP employment change (-39,000 versus expectations of +20,000), which fell for the first time in the last 8 months and stokes concern of a weaker-than-expected Sep nonfarm payrolls report on Friday, (2) the prediction from Goldman Sachs that the Fed will probably move to expand its quantitative easing measures as soon as next month's FOMC meeting, and (3) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis is worsening after Fitch Ratings cut Ireland's long-term foreign and local currency issue default ratings to A+ from AA- and kept a negative outlook on Ireland's credit rating. Bearish factors i ncluded (1) reduced safe-haven demand for Treasuries after the OECD raised its estimate for the combined growth rate among its 33 member countries to 0.9% in Q2, up from a 0.7% estimate in Aug, on signs that investment began picking up for the first time since 2008, and (2) concern that if the Fed goes ahead with expanding its quantitative easing measures, that the dollar will plunge and prompt large foreign holders of US debt (i.e. China and Japan) to reduce their purchases of Treasuries.

•   The dollar index this morning is weaker and posted a fresh 8-1/2 month low with the dollar/yen -0.57 yen and the euro/dollar +0.56 cents. The dollar index yesterday slumped to an 8-1/2 month low and closed just above its low. Bearish factors included (1) the surge in the yen to a 15-year high against the dollar after the unexpected decline in the Sep ADP employment change fueled speculation the Fed will expand its balance sheet and increase its quantitative easing measures, (2) strength in the euro which rallied to an 8-month high against the dollar after Goldman Sachs revised its forecast for the first interest-rate increase by the ECB to Q3 of next year from Q2, and (3) the prediction from WestLB AG that the euro may strengthen because the ECB isn't likely to match other nations' "expansive monetary policy measures." Bullish factors included (1) increased safe-haven demand for the dollar after Fitch Ratings cut Ireland's long-term credit rating, and (2) the prediction from BNP Paribas that the euro may fall against the dollar if a deal is reached at the IMF's meeting in Washington this weekend to allow Asian currencies to rise against the dollar.

•   November crude oil prices this morning are trading +55 cents a barrel and November gasoline is +1.21 cents per gallon. Nov crude oil prices yesterday surged to a 5-month high and closed up +$0.41 a barrel. Nov gasoline rallied to a 2-month high and closed higher by +3.04 cents per gallon. Bullish factors included (1) the slump in the dollar index to an 8-1/2 month low, which boosts the prices of most commodities priced in dollars, (2) the unexpected decline in weekly gasoline inventories which fell to a 3-month low (-2.65 million bbl to 219.9 million bbl versus expectations of no change), (3) the larger-than-expected drop in the refinery capacity rate to a 6-month low which may lead to reduced fuel supplies in the weeks ahead (-2.7 to 83.1% versus expectations of -0.5 to 85.4%), and (4) the prediction from Goldman Sachs that crude prices may rise to between $85 and $95 a barrel by the end of this year as US crude inventories decline. Bearish factors included (1) the larger-than-expected increase in weekly crude oil stockpiles (+3.09 million bbl versus expectations of +400,000 bbl), (2) weak gasoline demand after demand as measured by what refiners and blenders supply to wholesalers fell -4.2% in the week ended Oct 1 to 8.99 million barrels a day, (3) the IMF's action to cut its forecast for US growth this year to 2.6%, down from a July estimate of 3.3% and to cut its 2011 US growth forecast to 2.3% from an earlier forecast of 2.9%, which indicates reduced energy demand, and (4) concerns the US economy along with energy demand may weaken after the Sep ADP employment change showed a loss of jobs for the first time in the last 8 months.

Friday, October 8, 2010
Today's Market Focus...

•   December 10-year T-notes this morning are down -2 ticks. Dec 10-year T-note prices yesterday traded with slight gains throughout the day and settled up +1.5 ticks at 127-030. Bullish factors included (1) speculation that the Fed will expand its balance sheet and increase its asset purchases in an attempt to boost economic growth, (2) trepidation ahead of Friday's monthly payroll report which prompted short-covering, and (3) increased safe-haven demand after comments from Paul Volcker, a former Fed Chairman and current adviser to President Obama, who said he doesn't expect consumer spending to spur growth and that the US and other developed nations face the prospect of "prolonged unemployment." Bearish factors included (1) the unexpected decline in weekly initial US unemployment claims which fell to a 2-3/4 month low (-11,000 to 445,000 versus expectations of +2,000 to 455,000), and (2) subdued concern that Europe's sovereign-debt crisis will worsen when Spain's first bond auction since Moody's Investors Service cut its top Aaa credit rating was met with strong demand, which reduced the safe-haven appeal of Treasuries.

•   The dollar index this morning is stronger with the dollar/yen -0.98 yen and the euro/dollar -0.33 cents. The dollar index yesterday fell to an 8-1/2 month low but recovered its losses and closed higher. Bullish factors included (1) increased safe-haven demand for the dollar after the stock market weakened, and (2) short-covering in the dollar ahead of this weekend's G-7 meeting in Washington D.C. Bearish factors included (1) the surge in the yen to a 15-year high against the dollar after comments from Japanese Vice Finance Minister Igarashi who said that "it's not our intention to engage in a currency-devaluation race for the sake of the national interest," which signals that Japan may allow further strength in the yen as long as the gains are not excessive, (2) comments from ECB President Trichet which strengthened the euro when he said the Euro-Zone economy is stronger than expected and that exchange rates should reflect economic fundamentals, and (3) the prediction from Wakabayashi FX Associates that a dollar "panic" may drop the dollar to a record 74 yen in 2011 as concerns about the US budget deficit weaken the currency.

•   November crude oil prices this morning are trading -88 cents a barrel and November gasoline is -1.80 cents per gallon. Nov crude oil prices yesterday rallied to a 5-month high but turned lower after mid-morning and sold-off into the close and finished down -$1.56 a barrel. Nov gasoline also retreated from a 5-month high and closed lower by -3.79 cents per gallon. Bearish factors included (1) the reversal in the dollar index which rebounded from an 8-1/2 month low and closed higher, (2) the weaker stock market which dampens optimism over the economic outlook and energy demand, and (3) concern that energy demand will be insufficient to drawdown high crude inventories as US crude supplies as of Oct 1 are still 13% above their 5-year average. Bullish factors included (1) the unexpected decline in weekly initial unemployment claims to a 2-3/4 month low, which may lead to increased fuel demand as the economy improves, (2) the larger-than-expected increase in Aug German ind ustrial production, which indicates strength in Europe's largest economy that may portend into higher fuel consumption, and (2) the ongoing 11-day strike at the French port of Marseille's oil terminals that has stranded 51 vessels and threatens to shut down refinery operations that may lead to fuel shortages in Europe.

Monday, October 11, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are up +3.5 ticks. Dec 10-year T-note prices last Friday whipsawed lower and higher early before they ground higher the remainder of the day and settled up +5.5 ticks at 127-030. Dec T-notes posted a 1-3/4 year nearest-futures high and the 10-year T-note yield fell to a 1-3/4 year low of 2.33%. Bullish factors included (1) increased speculation the Fed will boost its asset purchases and expand its quantitative easing measures after the larger-than-expected loss of jobs in Sep nonfarm payrolls (-95,000 versus expectations of -2,000), (2) the lower-than-expected increase in Sep private payrolls and the unexpected decline in Sep manufacturing payrolls (Sep private payrolls +64,000 versus expectations of +75,000 and Sep manufacturing payrolls -6,000 versus expectations of +4,000), and (3) the weaker-than-expected Sep hourly earnings which signals slack wage pressures (unchanged m/m and +1.7% y/y versus expectations for +0.2% m/m a nd +1.8% y/y. Bearish factors included (1) the unexpected unchanged Sep unemployment rate (unchanged at 9.6% versus expectations of +0.1 to 9.7%), (2) comments from St. Louis Fed President Bullard who said the chance of a renewed US recession has ebbed and he sees no "obvious" case for more Fed stimulus, and (3) hawkish comments from Dallas Fed President Fisher who said that an expansion in the Fed's balance sheet is not "a done deal," suggesting FOMC members are split on agreeing for the need for additional Fed stimulus.

•   The dollar index this morning is weaker with the dollar/yen +0.04 yen and the euro/dollar +0.06 cents. The dollar index last Friday finished slightly lower. Bearish factors included (1) the Sep US payrolls report that showed employers cut more jobs than forecast, which heightens concern the economy is stalling and increases speculation the Fed may debase the dollar by expanding its quantitative easing measures, (2) the rally in the yen to a 15-year high against the dollar after Japanese Finance Minster Noda said that his country does not intend to return to the long-term, large scale currency interventions of the past, and (3) the increase in the 3-month Euribor rate to a 14-month high of 0.972%. Bullish factors included (1) dollar-positive comments from St. Louis Fed President Bullard who said the chance of a renewed US recession has ebbed and he sees no "obvious" case for more Fed stimulus, and (2) the weaker-than-expected Aug German exports which declined for a second month and is euro negative.

•   November crude oil prices this morning are trading -25 cents a barrel and November gasoline is -0.14 of a cent per gallon. Nov crude oil prices last Friday shook off early weakness and moved higher after mid-morning and closed up +$0.99 a barrel. Nov gasoline closed higher by +3.32 cents per gallon. Bullish factors included (1) the weaker dollar, (2) speculation that the Fed will expand its quantitative easing measures in an attempt to stimulate the economy, which could lead to increased energy demand, and (3) the rally in the stock market which bolsters confidence in the economic outlook and fuel demand. Bearish factors included (1) the larger-than-expected loss of jobs in the Sep US payrolls report which questions the sustainability of the economic recovery and energy demand, and (2) the larger-than-expected decline in Aug German exports which fell for a second month and may lead to a slowdown in growth and energy demand in Germany, Europe's largest economy.

Tuesday, October 12, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are up +5.5 ticks. Dec 10-year T-note prices yesterday traded with slight gains in quiet trade and settled up +4 ticks at 127-140. The cash T-note market was closed yesterday due to the Columbus Day holiday. Bullish factors included (1) carry-over support from last Friday's weak US payrolls report that further increased speculation the Fed will boost its asset purchases and expand its quantitative easing measures, (2) the prediction from Barclays Plc that it expects the Fed to begin an asset buying program in Nov, "with an announcement on the flow of Treasury purchases, such as $100 billion per month, without a fixed endpoint," and (3) the prediction from the chief economist at Goldman Sachs that the Fed at its next policy meeting Nov 2-3 will have "an initial announcement of $500 billion of bond purchases as likely but anticipate that the size of the asset purchase program will ultimately total at least $1 tril lion." Bearish factors included (1) reduced safe-haven demand for Treasuries as the stock market rallied, (2) comments from PBOC Governor Zhou Xiaochuan who said that China is moving to add more emerging-market currencies to its foreign-exchange reserves, which fuels concern that Chinese demand for US Treasuries may weaken as it diversifies its foreign-exchange reserves away from dollar assets, and (3) comments from Kansas City Fed President Hoenig who said he doesn't see the benefits from more quantitative easing, suggesting he would be against any further asset purchases by the Fed to stimulate the economy.

•   The dollar index this morning is higher with the dollar/yen -0.11 yen and the euro/dollar -0.66 cents. The dollar index yesterday closed higher. Bullish factors included (1) increased prospects for a short-covering rally in the dollar after CFTC data showed that hedge funds and other large speculators are more bearish on the dollar than at any time in history, with bets on a decline exceeding those on a rise by 341,683 contracts as of Oct 5, and (2) euro negative comments from ECB Council member Quaden who said the ECB can afford to keep interest rates at a record low because economic growth in the Euro-Zone is set to slow and inflation remains under control. Bearish factors included (1) reduced European sovereign-debt concerns which boosted the euro after credit-default swaps on Greek debt fell to a 4-month low when the IMF said it may be willing to extend bailout loans to Greece because Greek officials are doing "exactly what they need to do" to rein in sp ending and meet the benchmarks set out as a condition of aid, (2) comments from PBOC Governor Zhou Xiaochuan who said that China is moving to add more emerging-market currencies to its foreign-exchange reserves, which signals reduced Chinese demand for US dollar assets, (3) the rise in the 3-month Euribor rate to a 14-month high of 0.977%, and (4) euro supportive comments from ECB Governing Council member Mersch who said that Euro-Zone economic data for Q3 point to "a positive surprise" in growth.

•   November crude oil prices this morning are trading -82 cents a barrel and November gasoline is -3.08 cents per gallon. Nov crude oil prices yesterday fluctuated on either side of unchanged before finally settling down -$0.45 a barrel. Nov gasoline closed higher by +1.43 cents per gallon. Bullish factors included (1) the rally in the S&P 500 to a 5-month high which bolsters confidence in the economic outlook and energy demand, and (2) strong demand from hedge funds for crude oil after the CFTC reported that net-long positions held by hedge funds and commodity pools surged by 51,634 futures and options contracts in the week ended Oct 5 to a combined total of 168,540, a 5-month high, and (3) comments from Qatari Oil Minister Abdullah al-Attiyah who said that "producers and consumers are happy" with current oil prices and that "there will not be any shift" in quotas by OPEC when it meets on Thursday. Bearish factors included (1) strength in the do llar, (2) comments from the Iranian OPEC governor who said that global oil markets are "oversupplied," and (3) comments from the oil minister of the United Arab Emirates that the oil market is "a little oversupplied," and that OPEC will leave oil production unchanged when it meets on Thursday because signs of renewed consumption have yet to emerge among the world's developed countries.

Wednesday, October 13, 2010...

Today's Market Focus


**December 10-year T-notes this morning are down -3 ticks. Dec 10-year T-note prices yesterday fluctuated on both sides of unchanged into early afternoon when they weakened into the close and settled down -11.5 ticks at 127-025. Bearish factors included (1) weak demand for the Treasury's $32 billion auction of 3-year T-notes that had a bid-to-cover ratio of 2.95, compared with 3.21 in the previous auction and an average of 3.12 at the past 10, (2) hawkish comments from Kansas City Fed President Hoenig who said he doubts the effectiveness of additional asset purchases as it "becomes an open-ended commitment that leads to maintaining the funds rate too low and the Fed's balance sheet too large," which suggests he would vote against any further expansion of the Fed's quantitative easing program, and (3) supply pressures ahead of the Treasury's $21 billion auction of 10-year T-notes on Wednesday. Bullish factors included (1) the minutes of the Sep 21 FOMC meet ing that said the Fed was prepared to ease monetary policy "before long," (2) the prediction from Goldman Sachs that last Friday's weak labor report "puts the seal on" the case for the Fed to make bond buys and that the Fed at next month's policy meeting will announce roughly $500 billion of Treasury purchases through about the middle of 2011 and indicate that they are ready to buy more, and (3) the contention from JPMorgan Chase that Japan's total foreign reserves increased in Sep by $39.4 billion, of which "foreign securities" accounted for $37.9 billion and "this means that all the US dollars obtained by intervention on Sep 15 have already been invested in US securities."

**The dollar index this morning is weaker with the dollar/yen +0.11 yen and the euro/dollar +0.45 cents. The dollar index yesterday finished modestly lower. Bearish factors included (1) the minutes of the Sep 21 FOMC meeting that said the Fed was poised to ease monetary policy "before long," which indicates a consensus among policy makers for further quantitative easing measures, (2) the action by UBS AG to cut its 1-month dollar forecasts to $1.40 versus the euro from an earlier estimate of $1.35 and to 80 yen per dollar from an earlier forecast of 85, (3) hawkish comments from ECB Council member Weber which boosted the euro when he said that the ECB should phase out bond purchases "now" and that the central bank could lift rates before all of its emergency funding measures have ended, (4) the rise in the 3-month Euribor rate to a 14-month high of 0.92%, and (5) the prediction from Goldman Sachs Group that the Fed will increase its Treasury purchases at its next policy meeting in Nov and that the Fed may need to hold interest rates at current levels until 2015 or later. Bullish factors included (1) temporary weakness in the yen which was jawboned lower by Japanese Finance Minister Noda when he said that the government is ready to take "bold" action on currencies, including intervention, (2) comments from Kansas City Fed President Hoenig who said he doubts the effectiveness of additional asset purchases as it "becomes an open-ended commitment that leads to maintaining the funds rate too low and the Fed's balance sheet too large," which suggests he would vote against any further expansion of the Fed's quantitative easing program, and (3) euro negative comments from ECB President Trichet who said that Euro-Zone growth will ease in the second half of this year.

**November crude oil prices this morning are trading +97 cents a barrel and November gasoline is +2.24 cents per gallon. Crude oil prices caught a bid in overnight trade after the IEA raised its global oil demand forecasts for this year and next. Nov crude oil prices yesterday traded weaker throughout most of the day and settled down -$0.54 a barrel. Nov gasoline closed lower by -4.16 cents per gallon. Bearish factors included (1) the action by Sanford C. Bernstein & Co. to cut its crude price forecast for 2011 to $90 a barrel from an earlier estimate of $103 a barrel, and (2) the action by the Obama administration to lift its moratorium on deep-water oil and gas drilling in the Gulf of Mexico. Bullish factors included (1) the weaker dollar, (2) the action by OPEC to raise its global oil demand forecast for this year to 85.59 million barrels a day, up +100,000 barrels a day from an earlier forecast, (3) comments from Saudi Arabian Oil Minister Ali al-Naimi who sai d the oil market is "very well-balanced" and that "everyone is happy with the market," which signals OPEC will leave its oil-production levels unchanged when it meets on Thursday, and (4) the report from OPEC that said cartel members' compliance with cuts in output quotas agreed to in 2008 rose to 57% in Sep from 53% in Aug.

Thursday, October 14, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are down -5 ticks. Dec 10-year T-note prices yesterday moved lower into late morning and then rallied into the close and settled up +4.5 ticks at 127-070. Bullish factors included (1) the Fed's announcement that it will purchase about $32 billion in US debt over the next month as it reinvests mortgage-holding proceeds, (2) the weaker-than-expected Sep import prices (-0.3% m/m and +3.5% y/y versus expectations of -0.2% m/m and +3.8% y/y), and (3) the prediction from BNP Paribas that the Fed may resume its quantitative easing program in Nov by targeting half a trillion dollars in asset purchases. Bearish factors included (1) reduced safe-haven demand for Treasuries after global stock markets strengthened, (2) slack demand for the Treasury's $21 billion auction of 10-year T-notes that had a bid-to-cover ratio of 2.99, the weakest since May and below the 3.1 average of the past 10 auctions, (3) the prediction from Prudential Inves tment Management Japan Co. that 10-year T-note yields in the US and Japan are about to bottom out and rise toward year-end as monetary easing in both nations revives inflation concerns, and (4) supply pressures ahead of the Treasury's $13 billion auction of 30-year T-bonds on Thursday.

•   The dollar index this morning is weaker as teh dollar index fell to a 10-month low with the dollar/yen -0.61 yen and the euro/dollar +1.01 cents. The dollar index yesterday closed lower. Bearish factors included (1) reduced safe-haven demand for the dollar after the S&P 500 rallied to a 5-1/4 month high, (2) the Fed's announcement that it will purchase about $32 billion in US debt over the next month as it reinvests mortgage-holding proceeds, (3) strong demand for euros by European banks after the 3-month Euribor rate increased for the 12th straight session to a 14-month high of 0.985%, (4) the stronger-than-expected Aug Euro-Zone industrial production, which is euro positive, and (5) the prediction from BNP Paribas that the Fed may resume its quantitative easing program in Nov by targeting half a trillion dollars in asset purchases. Bullish factors included (1) weakness in the yen after BOJ Governor Shirakawa said that he may examine enhancing a 5 trillion yen ($ 61 billion) fund to buy government debt, and (2) euro negative comments from ECB Council member Nowotny who said he opposes stopping the ECB's bond purchases which should be kept as a "safety belt."

•   November crude oil prices this morning are trading +29 cents a barrel and November gasoline is +0.07 of a cent per gallon. Nov crude oil prices yesterday moved higher and settled up +$1.34 a barrel. Nov gasoline closed higher by +4.22 cents per gallon. Bullish factors included (1) the weaker dollar, (2) the action by the IEA to hike its global oil demand forecast to average 86.9 million barrels a day in 2010 and 88.2 million barrels a day in 2011, up +300,000 barrels a day for both years, (3) the +11% m/m increase in Sep China crude imports to a record 23.29 million metric tons, (4) the action by the US Energy Department to hike its global consumption forecast for this year to 86.06 million bpd, up from last month's forecast of 85.96 million bpd, and (5) the rally in the S&P 500 to a 5-1/4 month high, which improves confidence in the economic outlook and energy demand. Bearish factors included (1) the action by the EPA to allow refiners to add as much as 15% etha nol into gasoline, up from the current 10%, which may lead to less refinement of crude oil, (2) data from the IEA that showed industry-held crude stockpiles in the world's developed economies rose to 2.79 billion bbl in Aug, or 61.1 days of consumption, the second-highest level since data began in 1984, and (3) the outlook for weekly US crude supplies to increase when DOE weekly inventory figures are released Thursday. Expectations for Thursday's weekly DOE inventories (released one day later due to Monday's Columbus Day holiday) are for crude stockpiles to rise +1.45 million bbl, gasoline supplies to slip -1.5 million bbl, distillate inventories to fall 1.18 million bbl and the refinery capacity rate to rose +0.4 to 83.5% of capacity.

Friday, October 15, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are down -1 tick. Dec 10-year T-note prices yesterday slipped to a 1-week low and settled down -17.5 ticks at 126-215. Bearish factors included (1) the larger-than-expected increase in Sep producer prices (PPI +0.4% m/m and +4.0% y/y versus expectations of +0.1% m/m and +3.7% y/y), (2) hawkish comments from Richmond Fed President Lacker who said that a Fed policy devoted primarily to reducing unemployment risks damaging the central bank's credibility in containing inflation, which suggests he will not support any further Fed easing measures, and (3) weak demand for the Treasury's $13 billion auction of 30-year T-bonds that had a bid-to-cover ratio of 2.49, the lowest in 8 months and below the 2.70 average of last 10 auctions. Bullish factors included (1) the unexpected increase in weekly initial US unemployment claims (+13,000 to 462,000 versus expectations of unchanged at 445,000), and (2) the larger-than-expected widening of the Aug US trade balance which is negative for US Q3 GDP (-$46.3 billion versus expectations of -$44.0 billion).

•   The dollar index this morning is weaker with the dollar/yen -0.29 yen and the euro/dollar -0.08 cents. The dollar index yesterday sank to a 10-month low and finished lower. Bearish factors included (1) strength in the euro which climbed to an 8-1/2 month high against the dollar after Germany's leading economic institutes revised up their German growth forecasts for 2010 and 2011, (2) the unexpected increase in weekly initial US unemployment claims, which adds to speculation the Fed will increase its quantitative easing measures, and (3) the larger-than-expected widening of the Aug US trade balance. Bullish factors included (1) comments from Richmond Fed President Lacker who said that a Fed policy devoted primarily to reducing unemployment risks damaging the central bank's credibility in containing inflation, which suggests he will not support any further Fed easing measures, and (2) speculation that Japan is closer to further intervention in the currency market to sto p the rising yen which rallied to a 15-year high against the dollar.

•   November crude oil prices this morning are trading -2 cents a barrel and November gasoline is +0.31 of a cent per gallon. Nov crude oil prices yesterday erased an early rally and closed lower by -$0.32 a barrel. Nov gasoline closed lower by -2.06 cents per gallon. Bearish factors included (1) the unexpected increase in weekly US initial unemployment claims, which suggests that the labor market and fuel demand will struggle to recover, (2) weakness in equities which dampened optimism for the economic outlook and energy demand, and (3) slack demand after the DOE reported that fuel consumption decreased -0.7% to 18.3 million barrels a day in the week ended Oct 8, the lowest level in 10 months. Bullish factors included (1) the slump in the dollar index to a 10-month low, (2) the action by OPEC to leave its production levels unchanged following the conclusion of its meeting, (3) comments from Saudi Oil Minister Ali al-Naimi who said demand for oil is "very healthy,&q uot; and (4) the unexpected decrease in weekly crude oil inventories (-416,000 bbl versus expectations of +1.45 million bbl).

Monday, October 18, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are up +3.5 ticks. Dec 10-year T-note prices last Friday declined to a 2-week low and settled down -14 ticks at 126-215. Bearish factors included (1) the larger-than-expected increase in Sep retail sales and the upward revision to Aug (Sep +0.6% and +0.4% less autos versus expectations of +0.4% and +0.3% less autos and Aug revised up to +0.7% and +1.0% less autos from the previously reported +0.4% and +0.6% less autos), (2) the larger-than- expected increase in the Oct Empire manufacturing index which expanded at its fastest level in 4 months (+11.6 to 15.7 versus expectations of +1.9 to 6.0), and (3) an increase in inflation expectations on speculation that Fed efforts to spur the economy will reignite inflation. Bullish factors included (1) slack inflation pressures with the smaller-than-expected increase in Sep CPI (+0.1% m/m and +1.1% y/y versus expectations of +0.2% m/m and +1.2% y/y), (2) the smaller-than-expected increa se in core inflation (core CPI unchanged m/m and +0.8% y/y versus expectations of +0.1% m/m and +0.9% y/y) with the +0.8% y/y increase in Sep core CPI the smallest y/y gain since 1961, (3) comments from Fed Chairman Bernanke that additional stimulus may be warranted because inflation is too low and unemployment is too high, which signals the Fed will take additional easing measures as soon as the next FOMC meeting in Nov, (4) the unexpected decline in the Oct US University of Michigan consumer confidence (-0.3 to 67.9 versus expectations of +0.8 to 69.0), and (5) comments from Atlanta Fed President Lockhart who said that more quantitative easing "or another round of monetary stimulus at least would provide some certainty that the central bank is on the job and intends to take the necessary action to avoid" possible deflation.

•   The dollar index this morning is stronger with the dollar/yen -0.17 yen and the euro/dollar -0.81 cents. The dollar index last Friday fell to a 10-month low but erased its losses mid-morning and rallied sharply the rest of the day and finished higher. Bullish factors included (1) the stronger-than-expected Sep US retail sales and Oct Empire manufacturing index which signals a reduced need for further Fed easing and prompted short-covering in the dollar, and (2) the prediction from former Japanese vice finance minister Utsumi that the yen's gains against the dollar may be "coming to an end" as the market has already priced in another round of Fed easing. Bearish factors included (1) comments from Fed Chairman Bernanke that added to speculation the Fed will increase its asset purchases and embark on its second round of quantitative easing when he said "there would appear -- all else being equal -- to be a case for further action" because inflation is too low and unemployment is too high, (2) the prediction from Aviva Investors that the euro may rally to $1.45 per dollar by year-end on increased confidence that the ECB has succeeded in stabilizing financial markets from the sovereign-debt crisis.

•   November crude oil prices this morning are trading -14 cents a barrel and November gasoline is +0.81 of a cent per gallon. Nov crude oil prices last Friday fluctuated on either side of unchanged until the dollar rallied mid-morning which prompted a sell-off in crude the rest of the day and it finally settled down -$1.44 a barrel. Nov gasoline closed lower by -3.27 cents per gallon. Bearish factors included (1) a rebound in the dollar after the dollar index recovered from a 10-month low and closed higher, and (2) weakness in the stock market which dampens optimism in the economic outlook and energy demand. Bullish factors included (1) strong US economic data which eases concern that consumer spending will weaken and endanger the economic recovery and energy demand after Sep retail sales rose more-than-expected and the Oct Empire manufacturing index increased more than expected and expanded at its fastest pace in 4 months, (2) the prediction from Goldman Sachs for &quo t;substantially higher prices" for oil in the second half of 2011 and 2012 as the global inventory surplus is exhausted, (3) the prediction from Nomura International that crude oil prices may rise above $100 a barrel within the next year if the Fed enacts a second round of quantitative easing, and (4) data from the API that showed Sep US consumption of refined products rose +1.8% y/y, which signals that demand in recovering as the economy rebounds.

Tuesday, October 19, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are down -2.5 ticks. Dec 10-year T-note prices yesterday moved higher and closed up +21 ticks at 126-285. Bullish factors included (1) the unexpected fall in Sep industrial production which posted its first monthly decline in 15 months (-0.2% versus expectations of +0.2%), (2) dovish comments from Chicago Fed President Evans who said the US is in a "bona fide liquidity trap" and needs "much more" monetary accommodation in the face of high unemployment and inflation that's too low, along with comments from Boston Fed President Rosengren who said "insuring against the risk of deflation may be much cheaper than" trying to eradicate it after it takes hold, which signals both Fed members would support further quantitative easing measures, (3) strong foreign demand for US Treasuries after data from the Treasury Department showed total foreign purchases of US T-notes and bonds were $117 billion in Aug com pared with $30 billion of purchases in July, (4) the Fed's action to buy $6.26 billion of Treasuries as part of its program to reinvest the principal payments on its mortgage holdings into long-term US debt to prevent money from being drained from the financial system, and (5) the prediction from Bank of America Merrill Lynch that 10-year T-note yields may fall as low as 2% after the Nov Congressional elections prompt a Republican takeover of Congress and force gridlock that will restrain government spending. Bearish factors included (1) the larger-than-expected increase in the Oct NAHB housing market index (+3 to 16 versus expectations of +1 to 14), and (2) reduced safe-haven demand for Treasuries after the 3-month Euribor rate increased to a 15-month high of 1.00%, the same level as the ECB's 2-week refinancing rate, which signals greater willingness by financial institutions to lend to each other.

•   The dollar index this morning is higher with the dollar/yen +0.24 yen and the euro/dollar -0.47 cents. The dollar index yesterday rallied off of its low late in the day and closed slightly lower. Bullish factors included (1) comments from Treasury Secretary Geithner who said the US will preserve confidence in a "strong dollar" and "will not engage" in currency devaluation, (2) euro negative comments from ECB President Trichet who said he rejects fellow ECB Member Weber's call to end the central bank's bond purchase program when he said that Weber's opinion "is not the position of the Governing Council with an overwhelming majority," (3) strong foreign demand for US dollar assets after the Aug net long-term TIC flows increased by the most in 5 months, and (4) the recommendation from Royal Bank of Scotland for investors to cover dollar shorts on their prediction that the dollar might rebound because the Fed may add less monetary stimulus tha n the market is expecting. Bearish factors included (1) strength in the euro on comments from ECB Council member Nowotny who said "the ECB has no exchange rate goal, therefore there also isn't any intention to intervene" in the foreign-exchange markets, which signals the ECB will allow further strength in the euro, (2) strength in the yen on speculation Japan will refrain from intervening to weaken its currency ahead of this week's G-20 policy meeting in South Korea, and (3) dollar negative comments from Chicago Fed President Evans who said the US is in a "bona fide liquidity trap" and needs "much more" monetary accommodation in the face of high unemployment and inflation that's too low, along with comments from Boston Fed President Rosengren who said "insuring against the risk of deflation may be much cheaper than" trying to eradicate is after it takes hold, which signals both Fed members would support further expansion of the Fed's balance sheet.

•   November crude oil prices this morning are trading -83 cents a barrel and November gasoline is -2.88 cents per gallon. Nov crude oil prices yesterday fell to a 1-week low but erased their losses mid-morning and rallied the rest of the day and settled up +$1.83 a barrel. Nov gasoline dropped to a 1-1/2 week low but shed its losses and closed higher by +4.77 cents per gallon. Bullish factors included (1) the weake rdollar, (2) the 2-week long strike by refinery workers in France which has led to 15% of France's service stations without fuel, and (3) the prediction from Bank of America Merrill Lynch that quantitative easing by the Fed may weaken the dollar further and push crude oil prices to $100 a barrel in 2011. Bearish factors included (1) the unexpected-decline in Sep US industrial production which indicates weakened fuel consumption, and (3) the prediction from Bache Commodities Ltd. that "energy demand hasn't returned sufficiently to ensure prices stay above $80 a barrel."

Wednesday, October 20, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are down -6 ticks. Dec 10-year T-note prices yesterday traded weaker into early afternoon and then rallied into the close and settled up +4.5 ticks at 127-010. Bullish factors included (1) the unexpected decline in Sep US building permits which tumbled to a 17-month low (-5.6% to 539,000 versus expectations of +0.7% to 575,000), (2) comments from Atlanta Fed President Lockhart who said he is "leaning in favor of support" for further quantitative easing as the economy remains in a "touch-and-go" mode, (3) comments from Dallas Fed President Fisher who said the US economy is operating at close to "stall speed," and (4) increased safe-haven demand for Treasuries after the stock market slumped. Bearish factors included (1) the unexpected increase in Sep US housing starts which rose to their best level in 5 months (+0.3% to 610,000 versus expectations of -3.0% to 580,000), (2) weakness in the long-end o f the curve (i.e., 10-year T-notes and 30-year T-bonds) on concerns that Fed action to stimulate economic growth will increase inflation, and (3) comments from Chicago Fed President Evans who said he is in favor of raising inflation temporarily buy increasing asset purchases.

•   The dollar index this morning is weaker with the dollar/yen -0.29 yen and the euro/dollar +0.97 cents. The dollar index yesterday rallied to a 2-week high and finished sharply higher. Bullish factors included (1) reduced investor demand for riskier assets and increased safe-haven demand for the dollar on concern that China's action to increase interest rates will lead to a slowdown in global economic growth, (2) weakness in the euro which dipped to a 2-week low against the dollar after the Oct German ZEW economic sentiment survey fell more-than-expected to a 21-month low, and (3) the prediction from JPMorgan Asset Management that any further strength in the euro is unlikely because a stronger euro will reopen divisions between Euro-Zone nations and put political pressure on the ECB. Bearish factors included (1) dollar negative comments from EU Economic and Monetary Affairs Commissioner Rehn who said the recovery in the US "appears to be running out of steam," ; (2) comments from Atlanta Fed President Lockhart who said he is "leaning in favor of support" for further quantitative easing as the economy remains in a "touch-and-go" mode, (3) comments from Chicago Fed President Evans who said the Fed would need to buy securities on a large scale several times to carry out his preferred strategy of aiming to raise inflation temporarily, and (4) the prediction from Bank of Tokyo Mitsubishi UFJ that dollar strength will be limited while speculation about a second round of quantitative easing from the Fed persists.

•   November crude oil prices this morning are trading +77 cents a barrel and November gasoline is +1.57 cents per gallon. Nov crude oil prices gave back Monday's gains and then some as they finished sharply lower by -$3.59 a barrel. Nov gasoline closed lower by -10.32 cents per gallon. Both Nov crude oil and Nov gasoline fell to 2-week lows. Bearish factors included (1) the rally in the dollar index to a 2-week high, (2) the action by China to raise its benchmark lending and deposit rates for the first time since 2007, fueling speculation the action will reduce economic growth and energy demand in the world's biggest energy-using country, (3) weakness in global equity markets which dampens optimism in the economic outlook and energy demand, and (4) the outlook for weekly crude stockpiles to climb in Wednesday's weekly DOE inventory report. Bullish factors included (1) the unexpected increase in Sep US housing starts, which may boost the economic outlook and fuel demand , and (2) the prediction from UBS AG that commodities, including crude oil, will rally if the Fed expands its quantitative easing program next month. Expectations for Wednesday's weekly DOE inventory report are for crude oil supplies to increase +1.5 million bbl, gasoline stockpiles to fall -1.5 million bbl, distillate inventories to draw down -1.0 million bbl and the refinery capacity rate to rise +0.3 to 82.2%.

Thursday, October 21, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are down -4 ticks. Dec 10-year T-note prices yesterday traded mixed throughout the day and finally settled up +0.5 of a tick at 127-015. Bullish factors included (1) the Fed's Beige Book that said the economy expanded at a "modest pace" in Sep and early Oct with overall US "hiring remaining limited, with many firms reluctant to add permanent payrolls given economic softness," and that housing markets were "weak," with "sluggish or declining" sales in many regions, (2) the prediction from Mitsubishi UFJ Asset Management that "QE2 is a done deal" and that the yield on the 10-year T-note will fall to a record low 1.75% this year when the Fed signals that it will keep its bond purchases to $100 billion a month or less to prevent inflation from picking up, and (3) speculation that the Treasury will announce on Thursday that it intends to sell $97 billion in 2, 5, and 7-year T-notes n ext week, its smallest monthly offering of the securities since Feb 2009 which reduces supply pressures. Bearish factors included (1) comments from Philadelphia Fed President Plosser who said he sees the inflation rate moving up in 2011 and he doubts the benefits of further easing will outweigh its costs, and (2) reduced safe-haven demand for Treasuries as the stock market strengthened.

•   The dollar index this morning is weaker with the dollar/yen -0.05 yen and the euro/dollar +0.68 cents. The dollar index yesterday sold-off and finished sharply lower. Bearish factors included (1) strength in the euro after ECB Executive Board member Stark was reported in the German newspaper Die Welt as saying the ECB shouldn't buy government bonds in markets that are functioning and that too loose a monetary policy can reduce incentive for governments to implement fiscal consolidation, (2) the prediction from Deutsche Bank AG that the dollar may depreciate to $1.50 per euro in the next 3 to 6 months as the "contrast between the ECB and the Fed keeps pressure on the dollar," (3) a report by Medley Global Advisors, a consulting firm used by hedge funds, that said the Fed will buy back more assets than expected, and (4) the recommendation by Citigroup for investors to go long the euro against the dollar with its prediction that the euro will retest its Nov 2009 high of $1.5145. Bullish factors included (1) comments from the Acting Director of the IMF that the strengthening euro is bringing the currency close to "overvaluation" and may begin to hurt the Euro-Zone economy, and (2) the assumption from Bank of New York Mellon that China's action to hike its lending and deposit rates along with "strong dollar" comments from Treasury Secretary Geithner may indicate the nations have reached a currency accord.

•   December crude oil prices this morning are trading -21 cents a barrel and December gasoline is -0.02 of a cent per gallon. Dec crude oil prices yesterday moved higher and finished up +$2.38 a barrel. Dec gasoline fell to a 3-week low but recovered its losses and closed higher by +4.02 cents per gallon. Bullish factors included (1) the plunge in the dollar, (2) the smaller-than-expected increase in weekly crude inventories (+667,000 bbl versus expectations of +1.5 million bbl), (3) the larger-than-expected decline in weekly distillate inventories (-2.15 million bbl versus expectations of -1.5 million bbl), and (4) the rally in the stock market which boosts confidence in the economic outlook and energy demand. Bearish factors included (1) the unexpected increase in weekly gasoline inventories (+1.15 million bbl versus expectations of a -1.5 million bbl draw), and (2) the prediction from Cameron Hanover Inc. that technical studies point to crude prices extending their r ecent decline below $80 a barrel after prices dropped out of a "consolidation range."

Friday, October 22, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading unchanged. Dec 10-year T-note prices yesterday ratcheted lower throughout the day and settled down -13 ticks at 126-205. Bearish factors included (1) the larger-than-expected drop in weekly initial unemployment claims (-23,000 to 452,000 versus expectations of -7,000 to 455,000), (2) early strength in the stock market after the S&P 500 rallied to a 5-1/2 month high, which reduced the safe-haven demand for Treasuries, and (3) hawkish Fed commentary which reduces the chance of additional quantitative easing after Richmond Fed President Lacker said a new round of quantitative easing "would be a hard case to make," while Philadelphia Fed President Plosser said he's "less concerned about deflation risks" than some policy makers. Bullish factors included (1) the weaker-than-expected Oct Philadelphia Fed manufacturing index (+1.7 to 1.0 versus expectations of +2.7 to 2.0), and (2) reduced supply pr essures after the Treasury cut the sizes of its monthly 2-year, 5-year and 7-year T-note auctions, the sixth straight month the Treasury has reduced the offering size of the 3 maturities.

•   The dollar index this morning is slightly higher by +0.05 points with the dollar/yen down 0.11 yen and the euro/dollar up 0.12 cents. The dollar index yesterday recovered from early losses and finished higher. Bullish factors included (1) short-covering in the dollar ahead of this weekend's G-20 meeting in South Korea, (2) comments from Treasury Secretary Geithner who said the major currencies are "roughly in alignment now," and (3) comments from Richmond Fed President Lacker who said a new round of asset purchases by the Fed "would be a hard case to make" with economic growth in line with his outlook. Bearish factors included (1) strength in the euro after the Oct Euro-Zone manufacturing PMI unexpectedly increased (+0.4 to 54.1 versus expectations of -0.5 to 53.2), along with the action by the German government to raise its GDP projections for Germany this year and next year, and (2) the prediction from Deutsche Bank AG that the 3-6 month outlook for the dollar is "clearly negative" as it raised its year-end estimate for the euro to $1.45 from an earlier estimate of $1.30.

•   December crude oil prices this morning are trading up 53 cents a barrel and December gasoline is up 1.93 cents per gallon on some short-covering after yesterday's steep losses. Dec crude oil prices yesterday weakened throughout the day and settled down -$1.98 a barrel. Dec gasoline closed lower by -4.29 cents per gallon. Bearish factors included (1) strength in the dollar which rebounded from early losses and finished higher, (2) a slowdown in Chinese refinery demand growth after Chinese refiners processed about 8.5 million barrels of crude oil a day in Sep, up +6.6% y/y, but the smallest increase in 1-1/2 years, and (3) the weaker-than-expected Oct Philadelphia Fed index which shows manufacturing activity on the US east coast barely expanding and signals weakened energy consumption. Bullish factors included (1) the early rally in the S&P 500 to a 5-1/2 month high, which boosted confidence in the economic outlook and energy demand, and (2) the action by the Germ an government to raise its economic growth forecast for this year to 3.4% annualized from a previous forecast of 1.4% and to raise its 2011 growth estimate to 1.8% annualized from a prior projection of 1.6%, which signals increased fuel consumption in Europe's largest economy.

Tuesday, 26 Oct 2010...

Today's Market Focus

December 10-year T-notes this morning are trading down -11 ticks. T-note prices yesterday traded higher early but shed their gains throughout the day and setled unchanged: TYZ10 unchanged, FVZ10 -4.7, EDH11 +1.5. Bullish factors included (1) increased speculation the Fed will expand its balance sheet and announce a second round of quantitative easing at next week's FOMC meeting, (2) the prediction from Goldman Sachs that the Fed may purchase $2 trillion of assets in its QE2 program which will start when it announces $500 billion of asset purchases on Nov 3, and (3) strong demand for the Treasury's $10 billion auction of 5-year TIPS that had a bid-to-cover ratio of 2.84, much better than the 2.38 average of the last 10 auctions. Bearish factors included (1) the larger-than-expected Sep existing home sales (+10% to 4.53 million versus expectations of +4.1% to 4.30 million), and (2) reduced safe-haven demand for Treasuries as the stock market rallied.


The dollar index this morning is trading higher with the dollar/yen +0.34 yen and the euro/dollar -0.37 cents. The dollar index yesterday slumped to a 1-week low and settled moderately lower: Dollar Index -0.334, USDJPY -0.542, EURUSD +0.00374. Bearish factors for the dollar included (1) the surge in the yen to a 15-year high against the dollar on skepticism the Group of 20 pledge to refrain from "competitive devaluation" and to let markets set foreign-exchange values will halt the dollar's decline, and (2) the prediction from Goldman Sachs that the Fed may purchase $2 trillion of assets in its QE2 program which will start when it announces $500 billion of asset purchases on Nov 3. Bullish factors included (1) euro negative comments from Bundesbank President and ECB Council member Weber who said "it will take at least until next year, if not 2012, for the German economy to reach pre-crisis levels," and that German GDP growth will be about 0.5% in Q3 and Q4 this year, considerably weaker than the 2.2% rate reached in Q2, and (2) comments from ECB Executive Board member Tumpel-Gugerall who said the ECB's monetary policy is "still appropriate," which suggests she favors no tightening of ECB monetary policy anytime soon.


December crude oil prices this morning are trading -2 cents a barrel and December gasoline is -0.21 of a cent per gallon. Crude oil and gasoline prices yesterday settled higher for a second day: CLZ10 +$0.83, RBZ10 +1.330. Bullish factors included (1) the slump in the dollar index to a 1-week low, (2) the rally in the S&P 500 Stock Index to a 5-3/4 month high, which bolsters confidence in the economic outlook and energy demand, the statement from union officials in France who said that strikes at French refineries will extend at least until Oct 28, which may curtail European fuel exports to the US. Bearish factors included (1) the prediction from tanker-tracker Oil Movements that OPEC will increase crude shipments by +1.2% to 23.33 million barrels a day in the four weeks to Nov 6, and (2) concerns that Chinese energy demand may wane after the statement from China's National Energy Administration that said China's energy demand may slow further as the government takes steps to meet conservation targets and slows power consumption by heavy industries.

Wednesday, October 27, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading -13.5 ticks after a WSJ report fueled speculation the Fed may announce a much smaller-than-expected asset-purchase program next week. T-note prices yesterday slumped to a 3-week low and finished near their lows: TYZ10 -22.5, FVZ10 -11.7, EDH11 -2.0. Bearish factors included (1) the larger-than-expected increase in Oct US consumer confidence (+1.6 to 50.2 versus expectations of +1.4 to 49.9), (2) the unexpected increase in the Aug FHFA house price index which gained for the first time in 3 months (+0.4% m/m versus expectations of -0.2% m/m), (3) hawkish comments from Kansas City Fed President Hoenig who said he opposes the idea of additional quantitative easing by the Fed because it may accelerate inflation and create asset price bubbles, and (4) supply pressures ahead of the Treasury's $35 billion auction of 5-year T-notes on Wed. Bullish factors included (1) the weaker-than-expected Aug S&P/CaseShiller compos ite-20 home price index (-0.3% m/m and +1.7% y/y versus expectations of -0.2% m/m and +2.1% y/y), (2) dovish comments from New York Fed President and Fed Vice Chairman Dudley who said that there is a powerful case for additional "quantitative easing," and (3) decent demand for the Treasury's $35 billion auction of 2-year T-notes that had a bid-to-cover ratio of 3.43, higher than the 3.23 average of the last 12 auctions.

•   The dollar index this morning is trading higher with the dollar/yen +0.15 yen and the euro/dollar -0.60 cents. The dollar index yesterday finished higher: Dollar Index +0.570, USDJPY +0.619, EURUSD -0.0107. Bullish factors for the dollar included (1) weakness in the yen after Japanese Vice Finance Minister Igarashi said currency-market intervention is most effective when it's a "surprise," which suggests that Japan may be prepared to act again to stem the yen's advance, (2) weakness in the euro on renewed sovereign-debt concerns after the CEO of PIMCO said Greece is likely to default over the next 3 years because budget-cutting won't be enough to reduce the nation's debt burden, and (3) comments from Kansas City Fed President Hoenig who said he opposes the idea of additional quantitative easing by the Fed because it may accelerate inflation and create asset price bubbles. Bearish factors included (1) euro supportive comments from ECB Council member Quaden who said a stronger euro is helping to ease inflation risks in the Euro-Zone, (2) comments from the CEO of the European Financial Stability Facility who said "the worst of the crisis in Europe is behind us" and that budget-austerity policies are "in place" across the region, (3) comments from ECB Council member Mersch who said the ECB may revise up its forecasts for economic growth in the Euro-Zone when it issues new projections in Dec, and (4) comments from Fed Vice Chairman Dudley who said there is a powerful case for additional "quantitative easing" as the economy is growing too slow to reduce unemployment significantly and inflation is low and falling.

•   December crude oil prices this morning are trading -77 cents a barrel and December gasoline is -1.47 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged the entire day and finally settled higher for a third day: CLZ10 +$0.03, RBZ10 +0.990. Bullish factors included (1) the better-than-expected Oct US consumer confidence, which may lead to increased fuel demand, and (2) the larger-than-expected expansion of Q3 UK GDP which indicates greater-than-expected energy consumption in Great Britain. Bearish factors included (1) the stronger dollar, (2) the action by the Chinese government to raise retail gasoline and diesel prices by 3%, which may lead to reduced demand and consumption of crude oil and its products, and (3) the outlook for an increase in US crude and gasoline supplies when the DOE reports its weekly inventories Wednesday. Expectations for Wednesday's weekly DOE inventory report are for crude oil supplies to increase +1.0 million bbl, gasoline inventories to climb +500,000 bbl, distillate stockpiles to fall -1.5 million bbl and the refinery capacity rate to increase +0.3 to 82.8%.

Thursday, October 28, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +8.5 ticks. T-note prices yesterday fell to a 1-1/4 month low and finished with moderate losses: TYZ10 -16, FVZ10 -7.5, EDH11 unchanged. Bearish factors included (1) reduced expectations for the amounts of additional Fed quantitative easing after the WSJ reported the Fed next week is likely to offer a program of Treasury purchases worth only a few hundred billion dollars over several months, lower than some market estimates of Fed bond purchases up to $2 trillion, (2) the stronger-than-expected Sep new home sales (+6.6% to 307,000 versus expectations of +4.2% to 300,000), and (3) supply pressures ahead of the Treasury's $29 billion auction of 7-year T-notes on Thursday. Bullish factors included (1) the unexpected decline in Sep durable goods orders ex transportation (-0.8% versus expectations of +0.5%), and (2) decent demand for the Treasury's $35 billion auction of 5-year T-notes that had a bid-to-cover ratio of 2.82, higher than the 2.75 average of the last 12 auctions.

•   The dollar index this morning is trading lower with the dollar/yen -0.45 yen and the euro/dollar +0.79 cents. The dollar index yesterday closed higher for a second day: Dollar Index +0.441, USDJPY +0.321, EURUSD -0.0894. Bullish factors for the dollar included (1) speculation that the Fed may limit its quantitative easing measures after the WSJ reported the Fed next week is likely to offer a program of Treasury purchases worth only a few hundred billion dollars over several months, lower than some market estimates of Fed bond purchases up to $2 trillion, (2) weakness in the euro after the yield on the 10-year Greek bond surged 58 bp to a 3-week high of 10.33% after Greek Finance Minister Papconstantinou said a tax-revenue shortfall is hampering government efforts to reduce Greece's budget deficit, and (3) comments from the head of the Euro-Zone finance ministers, Jean-Claude Juncker, who said the US dollar is "undervalued" against the euro. Bearish factors included (1) euro supportive comments from ECB President Trichet who said banks in the Euro-Zone have asked for less liquidity from the ECB, and (2) the unexpected decline in Sep US durable goods orders ex transportation, which may prompt the Fed into additional easing measures to stimulate the economy.

•   December crude oil prices this morning are trading +16 cents a barrel and December gasoline is +0.48 of a cent per gallon. Crude oil and gasoline prices yesterday weakened and settled lower: CLZ10 -$0.61, RBZ10 -0.180. Bearish factors included (1) the stronger dollar, (2) the larger-than-expected increase in weekly crude oil inventories (+5.01 million bbl versus expectations of +1.0 million bbl), and (3) the unexpected decline in Sep US durable goods ex transportation, which signals that the economy may slow and fuel demand may weaken. Bullish factors included (1) the unexpected decline in weekly gasoline inventories (-4.39 million bbl versus expectations of a +500,000 bbl increase), and (2) increased fuel demand after US gasoline demand increased 5.3% to 9.36 million barrels a day in the week ended Oct 22.

Friday, October 29, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +0.5 of a tick. T-note prices yesterday traded in positive territory throughout the day and finished higher: TYZ10 +20.5, FVZ10 +15, EDH11 +3.0. Bullish factors included (1) a survey released by the New York Fed to bond dealers on how the Fed's asset purchases will influence yields, which suggests the Fed may be more open to a large round of quantitative easing, and (2) strong demand for the Treasury's $29 billion auction of 7-year T-notes that had a bid-to-cover ratio of 3.06 compared with the 2.86 average of the past 12 auctions. Bearish factors included (1) the unexpected decline in weekly initial unemployment claims which tumbled to a 3-1/2 month low (-21,000 to 434,000 versus expectations of +3,000 to 455,000), and (2) reduced safe-haven demand for Treasuries after the ECB's quarterly Bank Lending Survey said net demand for business loans in Europe turned positive in Q3 for the first time in more than 2 ye ars, which signals an improvement in liquidity.

•   The dollar index this morning is trading higher with the dollar/yen -0.25 yen and the euro/dollar -0.76 cents. The dollar index yesterday weakened throughout the day and finished moderately lower: Dollar Index -0.841, USDJPY -0.738, EURUSD +0.0162. Bearish factors for the dollar included (1) speculation that the Fed will expand its balance sheet at next week's FOMC meeting and debase the dollar, (2) the larger-than-expected increase in Oct Euro-Zone economic confidence which climbed to a 2-3/4 year high, and (3) the ECB's quarterly Bank Lending Survey that said net demand for business loans in Europe turned positive in Q3 for the first time in more than 2 years, which is euro positive. Bullish factors included (1) the action by the BOJ to expand its asset purchase program to include corporate debt with lower credit ratings than it previously purchased, including BBB rated corporate bonds and a-2 commercial paper, which is negative for the yen, and (2) comments from E CB Executive Board member Stark that may increase the safe-haven demand for the dollar when he said the financial crisis "is not yet over and will have long-term implications on growth rates and potential" for years to come.

•   December crude oil prices this morning are trading -53 cents a barrel and December gasoline -0.92 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged and finally settled slightly higher: CLZ10 +$0.24, RBZ10 +0.740. Bullish factors included (1) the weaker dollar, and (2) the unexpected decline in weekly initial unemployment claims to a 3-1/2 month low, which may boost confidence in the economy and energy demand. Bearish factors included (1) the report from the National Oceanic and Atmospheric Administration that predicts temperatures may be above-normal in the US Midwest in Dec, Jan and Feb, which may lead to reduced heating fuel demand, and (2) comments from ECB Executive Board member Stark who said the financial crisis "is not yet over and will have long-term implications on growth rates and potential" for years to come.

Monday, 01 November 2010...

Today's Market Focus
•December 10-year T-notes this morning are trading up +4.5 ticks. T-note prices last Friday pushed higher early and continued higher the rest of the day and settled with moderate gains: TYZ10 +13.5, FVZ10 +8.7, EDH11 unchanged. Bullish factors included (1) slack inflation pressures after the Q3 core PCE deflator rose at its slowest pace in 1-3/4 years (+0.8% q/q versus expectations of +1.0% q/q), (2) slack wage pressures after the Q3 employment cost index rose less than expected and matched its smallest increase since data began in 1996 (+0.4% versus expectations of +0.5%), (3) the unexpected decline in the Oct US University of Michigan consumer confidence which fell to an 11-month low (-0.2 to 67.7 versus expectations of +0.1 to 68.0), and (4) reduced supply pressures after the survey from the Securities Industry and Financial Markets Association (SIFMA) showed the Treasury will issue a net $387 billion of securities this quarter, down from net issuance of $395.8 billion in Q3. Bearish factors included (1) the larger-than-expected increase in Q3 US personal consumption, which rose at the fastest pace in 3-3/4 years (+2.6% versus expectations of +2.5%), and (2) the unexpected increase in the Oct Chicago purchasing managers index (+0.2 to 60.6 versus expectations of -2.4 to 58.0).


•The dollar index this morning is trading lower with the dollar/yen unchanged and the euro/dollar +0.03 cents. The dollar index last Friday traded mixed the entire day and settled little changed: Dollar Index -0.042, USDJPY -0.580, EURUSD -0.0050. The Japanese yen rose to a 15-year high against the dollar. Bearish factors for the dollar included (1) the smaller-than-expected +0.8% q/q increase in the Q3 US core PCE deflator, the smallest increase in 1-3/4 years, which fuels speculation the Fed will expand its asset purchases, and (2) the action by Morgan Stanley to cut its year-end dollar forecast against the euro to $1.46 from a previous estimate of $1.36 and cut its year-end yen forecast to 81 from an earlier estimate of 93. Bullish factors included (1) euro negative comments from ECB Executive Board member Tumpel-Gugerell who said "budget problems in individual member states of the Euro-Zone can weaken the euro structurally," (2) the unexpected decline in Sep German retail sales which posted its biggest monthly drop in 2-1/2 years and is euro negative, and (3) a European Union summit in Brussels that discussed a permanent mechanism to deal with nations facing default, which renewed concern that the European sovereign-debt crisis may resurface.


•December crude oil prices this morning are trading +74 cents a barrel and December gasoline is +2.52 cents per gallon. Crude oil and gasoline prices last Friday moved lower and settled with modest losses: CLZ10 -$0.75, RBZ10 -0.940. Bearish factors included (1) data from Bloomberg that shows OPEC crude oil output increased +65,000 barrels to an average 29.01 million barrels a day in October, up +0.2% from 28.945 million barrels day in Sep, (2) the unexpected decline in the Oct US University of Michigan consumer confidence to an 11-month low, which may lead to a slowdown in consumer spending and fuel demand, and (3) the unexpected decline in Sep German retail sales which posted its biggest monthly drop in 2-1/2 years and may lead to reduced energy demand in Europe's largest economy. Bullish factors included (1) the +2.6% increase in Q3 US personal consumption, the biggest increase in 3-3/4 years, which bodes well for energy consumption and demand, and (2) the unexpected increase in the Oct Chicago purchasing managers index, which signals stronger-than-expected fuel consumption.

Tuesday, November 2, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +2 ticks. T-note prices yesterday rallied after the Sep PCE core deflator rose less than expected but then weakened after the Oct ISM manufacturing index unexpectedly accelerated and finally settled little changed: TYZ10 +1, FVZ10 +2.7, EDH11 -1.5. Bullish factors included (1) the smaller-than-expected increase in Sep personal spending (+0.2% versus expectations of +0.4%), (2) the unexpected decline in Sep personal income which posted its first monthly decrease in 14 months (-0.1% versus expectations of +0.3%), and (3) the weaker then expected Sep PCE core deflator (unchanged m/m and +1.2% y/y versus expectations of +0.1% m/m and +1.4% y/y), with the +1.2% y/y increase the smallest year-over-year gain in 9 years and increases the risk of deflation. Bearish factors included (1) the unexpected increase in the Oct ISM manufacturing index, which expanded at its fastest pace in 5 months (+2.5 to 56.9 versus expectat ions of -0.4 to 54.0), and (2) reduced safe-haven demand for Treasuries after the stock market rallied.

•   The dollar index this morning is trading weaker with the dollar/yen +0.28 yen and the euro/dollar +0.68 cents. The dollar index yesterday rebounded from early losses and moved higher following the release of the Oct ISM manufacturing index and closed with slight gains: Dollar Index +0.030, USDJPY +0.065, EURUSD -0.0033. The Japanese yen rose to a 15-year high against the dollar before falling back and closing lower. Bullish factors for the dollar included (1) the unexpected increase in the Oct ISM manufacturing index, which expanded at its best level in 5 months and signals reduced need for further Fed easing, (2) increased safe-haven demand for the dollar after the extra yield investors demand to hold 10-year Irish government bonds instead of benchmark German bunds widened to a record 462 bp, which increases sovereign-debt concerns, and (3) the prediction from Barclays Plc that the money market is pricing in too high a chance the that the ECB will start raising inte rest rates next year, and that the ECB will wait until 2012 to start raising rates, which is euro negative. Bearish factors included (1) the unexpected decrease in Sep US personal income for the first time in the last 14 months, which may lead to further Fed easing, and (2) the prediction from Fukoku Capital Management that the yen will rise to a postwar record of 75 yen per dollar if the Fed goes ahead with additional quantitative easing.

•   December crude oil prices this morning are trading +32 cents a barrel and December gasoline is +1.09 cents per gallon. Crude oil and gasoline prices yesterday pushed up to 1-1/2 week highs on strong global manufacturing data and settled sharply higher: CLZ10 +$1.52, RBZ10 +3.350. Bullish factors included (1) the larger-than-expected increase in the Oct China PMI manufacturing index which expanded at its best level in 6 months, (2) the unexpected increase in the Oct ISM manufacturing index which expanded at its fastest pace in 5 months and signals increased energy consumption, (3) the reiteration by Morgan Stanley that crude oil will end this year at $95 a barrel and its prediction that crude prices will rally to $105 a barrel by 2012 as spare capacity drops to "untenable levels, and (4) expectations that the Fed will implement QE2 this week that may undercut the dollar and prompt increased demand for commodities as an inflation hedge. Bearish factors included (1 ) the unexpected decline in Sep personal income which declined for the first time in the last 14 months and questions the sustainability of the economic recovery and fuel demand, and (2) the recovery in the dollar which rebounded from early losses and finished higher.

Wednesday, November 3, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +6.5 ticks. T-note prices yesterday traded in positive territory the entire day on speculation the Fed will signal an expansion of its quantitative easing program when the FOMC meeting concludes on Wednesday: TYZ10 +7, FVZ10 +2.7, EDH11 +0.0. Bullish factors included (1) speculation the Fed will expand its quantitative easing program and announce plans to purchase at least $500 billion of long-term securities on Wed, and (2) the outlook for Republicans to retake the House of Representatives in the mid-term elections, which reduces the likelihood of additional fiscal spending and government borrowing. Bearish factors included (1) increased supply pressures on speculation the Treasury will announce on Wed it will sell $71 billion of notes and bonds next week in the Nov quarterly refunding, and (2) reduced safe-haven demand for Treasuries as the equity market rallied.

•   The dollar index this morning is trading weaker and posted a fresh 2-1/2 week low with the dollar/yen +0.20 yen and the euro/dollar +0.18 cents. The dollar index yesterday fell to a 2-week low and finished with moderate losses on speculation the Fed will announce more asset purchases on Wednesday: Dollar Index -0.574, USDJPY +0.125, EURUSD +0.0141. Bearish factors for the dollar included (1) speculation the Fed will announce more government-debt purchases in their post-FOMC meeting statement on Wed, (2) strength in the euro after Oct German and Euro-Zone PMI manufacturing indexes were both revised upward, and (3) strength in the Australian dollar which rose to parity with the US dollar for the first time since the Aussie dollar was allowed to float in 1983 after the RBA unexpectedly raised interest rates. Bullish factors included (1) the increase in credit-default swaps on Irish debt to a record 507 bp and on Greek debt to a 5-week high of 839 bp, which signals an i ncrease in European sovereign-debt risk and is negative for the euro, and (2) the prediction from Commerzbank AG that the euro may drop against the dollar after the Fed meeting as investors shift their focus to European countries' budget deficits.

•   December crude oil prices this morning are trading +79 cents a barrel at a 3-week high and December gasoline is +1.54 cents per gallon. Crude oil and gasoline prices yesterday rallied on the back of a weaker dollar and closed higher: CLZ10 +$0.95, RBZ10 +1.650. Dec crude posted a 3-week high. Bullish factors included (1) the slide in the dollar index to a 2-week low, (2) expectations the Fed will increase stimulus measures to stimulate the economy, which may increase fuel demand, and (3) comments from Saudi Arabian Oil Minister Ali al-Naimi that consumers are happy with oil between $70 and $90 a barrel and that the market is "very well supplied," which hints of no OPEC output increases anytime soon. Bearish factors included (1) the increase on Oct crude oil production in Russia, the world's largest oil producer, by +0.7% m/m and +1.9% y/y to 10.26 million barrels a day, a post-Soviet record, and (2) the outlook for an increase in crude inventories when the DOE reports on weekly supplies Wednesday. Expectations for Wednesday's weekly DOE inventory report are for crude oil stockpiles to increase +1.5 million bbl, gasoline supplies to remain unchanged, distillate inventories to fall -1.0 million bbl and the refinery capacity rate to rise +0.3 to 84.0%.

Thursday, November 4, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +21.5 ticks on carryover support from yesterday's announcement from the Fed that it will increase its bond purchases. T-note prices yesterday traded higher into early afternoon and then whipsawed higher and lower into the close and finished little changed: TYZ10 +1.5, FVZ10 +5, EDH11 +1.5. Bullish factors included (1) the mid-term elections in which Republicans took control of the US House and narrowed the Democratic majority in the Senate, which bolstered speculation that a gridlocked Congress will keep government spending in check, and (2) the Fed's action to announce a plan to purchase $600 billion in US debt securities in its "QE2" program, higher than market expectations for a $500 billion asset-purchase program. Bearish factors included (1) the larger-than-expected increase in the Oct ADP employment change which posted its biggest increase in 5 months along with the upward revision to Sep (Oct + 43,000 versus expectations of +20,000 and Sep revised up to -2,000 from the previously reported -39,000), (2) the larger-than-expected increase in the Oct ISM non-manufacturing index (+1.1 to 54.3 versus expectations of +0.3 to 53.5), (3) the large-than-expected increase in Sep factory orders which posted their biggest increase in 8 months along with the upward revision to Aug (Sep +2.1% versus expectations of +1.6% and Aug unchanged versus the previously reported -0.5%), and (4) disappointment that the Fed is concentrating most of its announced $600 billion of debt purchases in the 6-8 year sector, which prompted a sharp steepening of the yield curve.

•   The dollar index this morning is trading lower and posted a 10-3/4 month low in overnight trade with the dollar/yen -0.10 yen and the euro/dollar +0.88 cents. The dollar index recovered from early losses and traded in positive territory until the post-FOMC announcement when it tumbled into the close: Dollar Index -0.241, USDJPY +0.464, EURUSD +0.1058. The dollar index posted a 2-1/2 week low. Bullish factors for the dollar included (1) the mid-term elections in which Republicans took control of the US House and narrowed the Democratic majority in the Senate, which fueled speculation that future legislation will favor economic growth and reduced budget deficits, and (2) increased European sovereign-debt concerns after the cost of insuring Irish sovereign-debt against default surged to a record, with credit-default swaps on Irish debt rising to 545 bp. Bearish factors included (1) the action by the Fed to announce a $600 billion "QE2" asset-purchase program, bigger than market expectations for a $500 billion program, which raises concern the Fed is debasing the dollar, and (2) strength in the British pound which rallied to a 9-month high against the dollar after the Oct UK PMI service index unexpectedly expanded to its best level in 4 months, which may keep the BOE from further easing measures.

•   December crude oil prices this morning are trading +$1.08 a barrel at a 6-month high and December gasoline is +2.35 cents per gallon. Crude oil and gasoline prices yesterday moved higher after the release of the weekly DOE inventory figures and remained firm into the close as the dollar weakened: CLZ10 +$0.79, RBZ10 +2.840. Dec crude rallied to a 6-month high and Dec gasoline climbed to a 2-1/2 week high. Bullish factors included (1) the slump in the dollar index to a 2-1/2 week low, (2) the unexpected plunge in weekly gasoline inventories which fell to their lowest level in 11 months (-2.69 million bbl to 212.3 million bbl versus expectations of no change), (3) the larger-than-expected decline in weekly distillate supplies (-3.57 million bbl versus expectations of -1.0 million bbl), (4) the unexpected decline in the refinery capacity rate which fell to its lowest level in 7 months and may lead to further decreases in fuel supplies in the weeks ahead (-1.9 to 81.8% v ersus expectations of +0.3 to 84.0%), (5) the action by the World Bank to hike its GDP forecasts for China for this year and next, which may lead to stronger fuel demand, and (6) strong US economic data after Sep US factory orders and the Oct ISM non-manufacturing index rose more than expected, which signals a strengthening economy that is conducive to increased energy demand. Bearish factors included (1) the larger-than-expected increase in weekly crude oil inventories (+1.95 million bbl versus expectations of +1.5 million bbl), and (2) the post-FOMC statement that said the pace of recovery in output and employment is slow and that housing starts "continue to be depressed," which may lead to reduced energy demand.

Friday, November 5, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading little changed and up +0.5 of a tick. T-note prices yesterday moved higher throughout the day on bond-friendly economic data along with inflation-soothing comments from Fed Chairman Bernanke and settled sharply higher: TYZ10 +1-5.5/32, FVZ10 +12.2, EDH11 unchanged. Dec T-notes rallied up to a contract and 1-3/4 year nearest-futures high. Bullish factors included (1) carry-over support from Wednesday's Fed announcement that it will purchase an additional $600 billion of government debt in its QE 2 program, (2) a Washington Post opinion piece in which Fed Chairman Bernanke said that concern the Fed's expansion of its balance sheet will cause inflation to surge is "overstated," (3) the larger-than-expected increase in weekly initial unemployment claims (+20,000 to 457,000 versus expectations of +8,000 to 442,000), (4) the larger-than-expected increase in Q3 nonfarm productivity (+1.9% versus expectations of +1.0%), and (5) the unexpected decline in Q3 unit labor costs that have fallen in 4 of the past 5 quarters and signal slack wage pressures (-0.1% versus expectations of +0.7%). Bearish factors included (1) reduced safe-haven demand for Treasuries after global stock markets rallied sharply, and (2) apprehension and position squaring ahead of Friday's all-important monthly employment report.

•   The dollar index this morning is trading higher with the dollar/yen +0.16 yen and the euro/dollar -1.03 cents. The dollar index yesterday sank to a 10-3/4 month low and finished moderately lower on carry-over weakness from Wednesday's announcement by the Fed that it will buy an additional $600 billion of Treasuries: Dollar Index -0.599, USDJPY -0.354, EURUSD +0.00672. Bearish factors for the dollar included (1) concern that the Fed's QE 2 program of an additional $600 billion in asset purchases will debase the dollar, (2) strength in the euro which climbed to a 9-1/4 month high against the dollar after the Oct Euro-Zone PMI composite was revised upward along with hawkish comments from ECB President Trichet who said the ECB "could move rates before withdrawing all stimulus measures," and (3) strength in the British pound which also rallied to a 9-1/4 month high against the dollar when the BOE refrained from following the Fed's action to increase its balance sh eet. Bullish factors for the dollar included (1) an increase in European sovereign-debt risk concerns after credit-default swaps on Irish government debt rose 21 bp to a record 581 bp, and (2) the prediction from BNP Paribas that the euro's gains are likely to stall as investors focus on the region's sovereign-debt crisis.

•   December crude oil prices this morning are trading -23 cents a barrel and December gasoline is -0.87 of a cent per gallon. Crude oil and gasoline prices yesterday moved higher due to dollar weakness and finished with sharp gains: CLZ10 +$1.80, RBZ10 +3.870. Dec crude rallied to a 6-month high and Dec gasoline climbed to a 4-week high. Bullish factors included (1) the slump in the dollar index to a 10-3/4 week low, (2) the rally in global stock markets after the Fed announced additional stimulus measures, which bolsters confidence in the economic outlook and energy demand, and (3) the action by OPEC to raise their global oil consumption estimates to increase 5.1% to 89.9 million barrels a day by 2014 from this year, 800,000 barrels a day more than it predicted last year. Bearish factors included (1) comments from OPEC Secretary-General Abdullah El-Badri who said "OPEC doesn't see oil prices rising to $100 a barrel next year," and (2) the larger-than-expecte d increase in weekly US initial unemployment claims, which suggests that fuel demand may remain constrained as the labor market struggles to recover.

Monday, November 8, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +3 ticks. T-note prices last Friday fell sharply after the release of the stronger-than-expected Oct US nonfarm payrolls and then bounced back into the middle of the day's range and finally settled with modest losses: TYZ10 -10.5, FVZ10 -10, EDH11 -4.5. Bearish factors included (1) the stronger-than-expected Oct nonfarm payrolls (+151,000 versus expectations of +60,000) along with the upward revision to Sep payrolls (-41,000 versus the previously reported -95,000), (2) hawkish comments from Kansas City Fed President Hoenig who said the FOMC "must begin taking steps to normalize" monetary policy, and (3) reduced safe-haven demand for Treasuries after the US stock market rallied to 2+ year highs. Bullish factors included (1) the unexpected decline in Oct manufacturing payrolls (-7,000 versus expectation of a +5,000 increase), (2) the unexpected decline in Sep US pending home sales (-1.8% m/m versus expe ctations of +3.0% m/m), and (3) comments from Fed Chairman Bernanke who said the US economy is "not growing very fast" and that "inflation is likely to stay quite low" into 2011.

•   The dollar index this morning is trading higher with the dollar/yen -0.19 yen and the euro/dollar -1.10 cents. The dollar index last Friday rallied after the release of the stronger-than-expected Oct US nonfarm payrolls and kept most of its advance the rest of the day and settled higher: Dollar Index +0.666, USDJPY +0.520, EURUSD -0.01740. Bullish factors for the dollar included (1) the stronger-than-expected Oct US nonfarm payrolls which may prompt he Fed to pare back their quantitative easing program, (2) weakness in the euro after credit-default swaps on Irish government debt surged 27 bp to a record 606 bp, which increases European sovereign-debt risks, along with the unexpected declines in both Sep German factory orders and Sep Euro-Zone retail sales, which are euro negative. Bearish factors for the dollar included (1) the action by Commerzbank AG to raise its year-end forecast for the euro against the dollar to $1.45 from a previous forecast of $1.35, citing the prospect of more bond-buying by the Fed while the ECB exits its stimulus measures, and (2) comments from ECB Council member Nowotny who said the ECB is pursuing its exit strategy from stimulus measures even as the Fed embarks on a second round of quantitative easing as growth in the Euro-Zone is more solid than in the US.

•   December crude oil prices this morning are trading -73 cents a barrel and December gasoline is -1.91 cents per gallon. Crude oil and gasoline prices last Friday moved higher early after the Oct US payrolls report came in stronger than expected but then retreated the rest of the day after the dollar strengthened and closed only slightly higher: CLZ10 +$0.36, RBZ10 +0.460. Dec crude rallied to a 2-year high and Dec gasoline posted a 1-month high. Bullish factors included (1) the stronger-than-expected Oct US nonfarm payrolls which posted their first increase in jobs since May and may lead to increased fuel demand as the economy strengthens, (2) the rally in the stock market to 2+ year highs which bolsters confidence in the economic outlook and energy demand, and (3) the action by JPMorgan Chase to hike their Q4 crude oil price estimate to $86 a barrel from an earlier estimate of $81 and to raise their 2011 price forecast to $89.75 a barrel from an earlier estimate of $ 82.50. Bearish factors included (1) strength in the dollar, and (2) weak European economic data that may lead to reduced fuel demand as both Sep German factory orders and Sep Euro-Zone retail sales unexpectedly declined.

Tuesday, November 9, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +3 ticks. T-note prices yesterday oscillated between small gains and small losses the entire day and settled slightly lower: TYZ10 -2, FVZ10 -5.2, EDH11 -2.5. Bullish factors included (1) the action by the Fed to purchase $6.26 billion of Treasuries as part of a program to reinvest principal payments on its mortgage holdings into long-term government debt to prevent money from being drained out of the financial system, and (2) strong demand for the Treasury's $32 billion auction of 3-year T-notes that had a bid-to-cover ratio of 3.26, compared with the 3.13 average of the past 12 auctions. Bearish factors included (1) comments from Dallas Fed President Fisher who said the Fed's decision to undertake a second round of large-scale Treasury purchases may be prescribing the "wrong medicine" to the economy's ailments and the it is "risky business for the Fed to monetize the nation's debt for the next 8 months," and (2) supply pressures ahead of Tuesday's $24 billion 10-year T-note auction.

•   The dollar index this morning is trading lower with the dollar/yen -0.54 yen and the euro/dollar +0.36 cents. The dollar index yesterday traded in positive territory the entire day and finished with moderate gains: Dollar Index +0.479, USDJPY -0.067, EURUSD -0.0112. Bullish factors for the dollar included (1) weakness in the euro on increased European sovereign-debt risks after credit-default swaps on Irish government debt surged to a record 606 bp, (2) the unexpected decline in Sep German industrial production, which is euro negative, and (3 the prediction from UBS AG that the euro will fall to $1.25-$1.30 in the next 3 to 6 months on renewed concerns over Europe's debt crisis. Bearish factors for the dollar included (1) the stronger-than-expected Sep German exports, which is euro positive, and (2) the action by JPMorgan Chase to raise their forecasts for the euro against the dollar to $1.40 by year-end from a previous estimate of $1.30 and to $1.45 by Q2 next year f rom an earlier prediction of $1.30, citing the "very low probability" of default by any of the Euro-Zone nations.

•   December crude oil prices this morning are trading +27 cents a barrel and December gasoline is +0.93 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated on both sides of unchanged throughout the day and finally settled mixed: CLZ10 +$0.21, RBZ10 -0.150. Dec crude rallied to a 2-year high and Dec gasoline posted a 1-month high. Bearish factors included (1) the stronger dollar, (2) an increase in long liquidation pressures after the CFTC reported that hedge funds increased their net long positions in crude oil to a 4-year high of 194,128 in the week ended Nov 2, and (3) weakness in the equity market which undercuts optimism in the economic outlook and energy demand. Bullish factors included (1) the larger-than-expected increase in the Nov Euro-Zone Sentix investor confidence to a 29-month high, which may lead to increased fuel demand, and (2) comments from the Nigerian militant group MEND who said that they will attack Nigerian oil installations i n "coming days," which may lead to reduced output in Africa's biggest crude oil producing country.

Wednesday, November 10, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading down -10 ticks. T-note prices yesterday traded higher into mid-morning when they turned lower and weakened further after slack demand for the Treasury's 10-year T-note auction and settled moderately lower: TYZ10 -26.5, FVZ10 -19.7, EDH11 +0.5. Bearish factors included (1) the action by China's Dagong Global Credit Rating Co. to cut its credit rating for the US to A+ from AA because of the Fed's QE2 plan, which may lead to reduced demand for US debt from China. the world's biggest owner of US Treasury debt, (2) slack demand for the Treasury's $24 billion auction of 10-year T-notes that had a bid-to-cover ratio of 2.80, below the 12-auction average of 3.07, and (3) supply pressures ahead of the Treasury's $16 billion auction of 30-year T-bonds on Wed. Bullish factors included (1) data from the US Labor Department that showed US job openings dropped in Sep for a second month, -163,000 to 2.93 million, a sign that the labor market will struggle to recover, and (2) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis is worsening after the yield spread between Irish 10-year bonds and similar-maturity benchmark German bunds widened to a record 554 bp and the yield spread between Portuguese 10-year bonds and bunds widened to a record 452 bp.

•   The dollar index this morning is trading higher with the dollar/yen +0.60 yen and the euro/dollar -0.18 cents. The dollar index yesterday traded weaker early but rebounded mid-morning to a 1-week high and stayed higher the rest of the day and finished with modest gains: Dollar Index +0.416, USDJPY +0.497, EURUSD -0.01478. Bullish factors for the dollar included (1) weakness in the euro which fell to a 1-week low against the dollar on increased European sovereign-debt risks after the yield spread between Irish 10-year bonds and similar-maturity benchmark German bunds widened to a record 554 bp and the yield spread between Portuguese 10-year bonds and bunds widened to a record 452 bp, and (2) the recommendation from Standard Bank Plc for investors to sell the euro against the dollar on expectations the euro will weaken to $1.3450 shortly from $1.3900 today. Bearish factors for the dollar included (1) strength in the yen after China said it will introduce new rules on cu rrency provisioning and tighten management of banks' foreign-debt quotas in order to curb capital flows into its economy, and (2) the unexpected increase in the Oct Bank of France business sentiment which unexpectedly rose +1 to a 2-1/2 year high of 103 and is euro positive.

•   December crude oil prices this morning are trading -27 cents a barrel and December gasoline is -0.15 of a cent per gallon. Crude oil and gasoline prices yesterday erased an early rally after the dollar rebounded and they finished the day mixed: CLZ10 -$0.34, RBZ10 +0.650. Dec crude rallied to a 25-month high and Dec gasoline posted a 1-month high. Bearish factors included (1) the rally in the dollar index to a 1-week high, and (2) the outlook for US crude oil inventories to increase to their highest level in 18 months when the DOE releases its weekly inventory report on Wed. Bullish factors included (1) early weakness in the dollar which boosted investment demand for crude oil and its products, and (2) comments from Qatari Oil Minister Abdullah al-Attiyah who said that the world will "have to live with current oil prices," which suggests the erosion of the dollar may prompt OPEC to seek a higher price range for oil. Expectations for Wednesday's weekly inv entory report from the DOE are for crude oil supplies to increase +1.2 million bbl, gasoline inventories to fall -1.0 million bbl, distillate stockpiles to decline -2.0 million bbl and the refinery capacity rate to increase +0.1 to 81.9%.

Thursday, November 11, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading down -3.5 ticks. T-note prices yesterday traded on either side of unchanged into early afternoon when they whipsawed down to their low after the results of the Treasury's $16 billion T-bond auction were released and then rallied into and settled higher: TYZ10 +14, FVZ10 +9, EDH11 -1.0. The 10-year T-note yield rose to a 1-3/4 month high of 2.769% before falling back.
               Bullish factors included (1) comments from Dallas Fed President Fisher who said "we don't want inflation" and "we want to make sure the dollar has its purchasing power," (2) the smaller-than-expected increase in Oct import prices (+0.9% m/m and +3.6% y/y versus expectations of +1.2% m/m and +3.8% y/y), (3) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis is worsening after the yield spread between Irish 10-year bonds and similar-maturity German bunds widened to a record 622 bp, and (4) the Fe d's announcement that it will have 18 open-market operations to buy $105 billion of debt during the next 30 days as it implements its QE 2 program starting on Friday.
               Bearish factors included (1) the larger-than-expected decline in weekly initial unemployment claims to a 4-month low (-24,000 to 435,000 versus expectations of -7,000 to 450,000), (2) the narrower-than-expected Sep US trade balance (-$44.0 billion versus expectations of -$45.0 billion), which is GDP positive, and (3) slack demand for the Treasury's $16 billion 30-year T-bond auction that had a bid-to-cover ratio of 2.31, weaker than the 12-auction average of 2.64 and the lowest in a year.

•   The dollar index this morning is trading higher with the dollar/yen -0.01 yen and the euro/dollar -0.75 cents. The dollar index yesterday moved up to a 2-week high and finished higher on increased safe-haven demand for the dollar when the euro tumbled on heightened sovereign-debt risk concerns: Dollar Index +0.191, USDJPY +0.580, EURUSD +0.00101. The yen fell to a 1-month low against the dollar.
               Bullish factors for the dollar included (1) the slump in the euro to a 1-month low against the dollar after the yield spread between Irish 10-year bonds and similar-maturity German bunds widened to a record 622 bp along with weak demand for a Portuguese bond auction that had a bid-to-cover ratio of 2.1, down from 4.9 at a sale in Sep, (2) the surge in the yield on the 10-year T-note to a 1-3/4 month high, which makes dollar-denominated assets more attractive to international investors, and (3) the narrower-than-expected Sep US trade balance, which is dollar bullish.
               Bearish factors for the dollar included (1) comments from Brazil's Finance Minister who said the Group of 20 nations may discuss at their meeting later this week reducing the dollar's role as a reserve currency in favor of a basket that could include the real and the yuan, and (2) strength in the Chinese yuan which rose to 6.6395 against the dollar, the strongest level since China unified official and market exchange rates at the end of 1993.

•   December crude oil prices this morning are trading +46 cents a barrel and December gasoline is +0.43 of a cent per gallon. Crude oil surged to a 25-month high in overnight trade after Moody's Investors Service raised China's debt rating, which spurred a rally in most commodities on optimism that demand and the economic recovery will continue. Crude oil and gasoline prices yesterday moved higher after an unexpected drop in crude inventories and then shed some of their advance as the dollar rallied but still finished higher: CLZ10 +$1.09, RBZ10 +5.120. Dec crude rallied to a 25-month high and Dec gasoline posted a 6-month high.
               Bullish factors included (1) the unexpected drop in weekly crude oil inventories (-3.27 million bbl versus expectations of +1.3 million bbl), (2) the larger-than-expected declines in weekly gasoline and distillate inventories (gasoline -1.92 million bbl versus expectations of -1.0 million bbl and distillates -4.97 million bbl versus expectation s of -2.0 million bbl), and (3) the prediction from Goldman Sachs that oil prices will be "substantially" higher by 2012 as the global surplus shrinks and excess production capacity drops.
               Bearish factors included (1) the rally in the dollar index to a 2-week high, (2) reduced demand by China after Oct China crude oil imports fell to 16.1 MMT, or 3.8 million bpd, down -29.6% m/m and -15% y/y to their lowest level in 18 months, and (3) the larger-than-expected increase in the refinery capacity rate, +0.6 to 82.4% versus expectations of +0.1 to 81.9%, which bodes well for further increases in crude products in the weeks ahead.

Friday, November 12, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +5.5 ticks as global equity markets slump. T-note prices yesterday traded weaker throughout the day in subdued action as the cash Treasury market was closed for Veterans Day: TYZ10 -15.5, FVZ10 -13.2, EDH11 -4.5.
                Bearish factors included (1) reduced safe-haven demand for Treasuries after the ECB raised its 2010 and 2011 Euro-Zone GDP forecasts in its monthly report, and (2) the action by Moody's Investors Service to raise China's debt rating, which boosts confidence in the global economic outlook and reduced the safe-haven demand for Treasuries.
                Bullish factors included (1) post-refunding short covering after the Treasury finished its $71 billion Nov quarterly refunding on Wed, and (2) comments from French Finance Minister Lagarde who said "investors must share the cost of sovereign debt restructurings," which raised concern some Euro-Zone nations may need to restructure their debt in order to avoid de faulting.

•   The dollar index this morning is trading higher and at a 5-week high with the dollar/yen -0.36 yen and the euro/dollar +0.46 cents. The dollar index yesterday rallied to a 2-week high and finished near its high on increased safe-haven demand as the euro weakened due to heightened sovereign-debt risk concerns: Dollar Index +0.191, USDJPY +0.580, EURUSD +0.00101.
                Bullish factors for the dollar included (1) the slump in the euro to a 5-week low against the dollar after Ireland's central bank Governor and ECB Council member Honohan said Irish and international banks' loan losses in his country may total at least 85 billion euros ($117 billion), and (2) comments from French Finance Minister Lagarde who said "investors must share the cost of sovereign debt restructurings," which boosted the safe-haven demand for the dollar on concern some Euro-Zone nations may need to restructure their debt in order to avoid defaulting.
                Bearish factors for the dollar included (1) the ECB's monthly report in which the central bank raised its 2010 Euro-Zone GDP forecast to 1.6% from a 1.1% estimate made 3 months ago and raised its 2011 GDP forecast to 1.5% from 1.4%, and (2) comments from ECB Executive Board member Gonzalez-Paramo who said he doesn't rule out higher interest rates in the "medium term" if signs of inflationary pressures appear.

•   December crude oil prices this morning are trading sharply lower by -$1.76 a barrel and December gasoline is -3.12 cents per gallon. Most commodity prices tumbled in overnight trade on concern that further Chinese rate hikes will slow economic growth and demand for commodities. Crude oil and gasoline prices yesterday rallied early but shed their gains after the stock market weakened and the dollar strengthened and they finally finished unchanged to slightly lower: CLZ10 +$0.00, RBZ10 -0.005. Dec crude rallied to a 25-month high and Dec gasoline posted a 6-month high.
                Bullish factors included (1) the action by Moody's Investors Service to raise China's debt rating, which spurred a rally in most commodities on optimism that the global economic recovery and strong energy demand will continue, (2) the action by OPEC to raise its 2011 global oil demand forecast by 1.2 million bpd to 86.95 million bpd, up +120,000 bpd from last month's forecast, and (3) the +12% y/y incre ase in Oct China crude processing as Chinese refiners processed a record 37 million metric tons, or 8.8 million barrels a day of crude in Oct, a sign of strong demand.
                Bearish factors included (1) the rally in the dollar index to a 2-week high, (2) the retreat in stock prices, which dampens confidence in the economic outlook and fuel demand, and (3) the drop in compliance by OPEC members on their production quotas in Oct to 51% from 55% in Sep as rising oil prices prompted cartel members to cheat on their quotas and overproduce.

Monday, 15 November 2010...

Today's Market Focus
•December 10-year T-notes this morning are trading down -21 ticks on hawkish commentary from Richmond Fed President Lacker. T-note prices last Friday traded mixed into mid-morning but then tumbled to a 2-week low after the release of the Nov University of Michigan consumer confidence and then remained weaker the rest of the day and settled moderately lower: TYZ10 -17.5, FVZ10 -8.6, EDH11 +4.0.

                Bearish factors included (1) the larger-than-expected increase in the Nov University of Michigan consumer confidence which climbed to its highest level in 5 months (+1.6 to 69.3 versus expectations of +1.3 to 69.0), and (2) reduced safe-haven demand for Treasuries after Irish and Portuguese bonds rallied sharply on speculation that European leaders will bailout Europe's most indebted nations.
                Bullish factors last Friday included (1) the Fed's action to purchase $7.229 billion of Treasuries as it embarked on its second round of asset purchases or "QE 2," and (2) increased safe-haven demand for Treasuries after global stock markets tumbled on fears that China may soon raise its interest rates which may slow the global economy.


•The dollar index this morning is trading higher and posted a 1-1/4 monthhigh in overnight trade with the dollar/yen +0.45 yen and the euro/dollar -0.55 cents. The dollar index last Friday pushed up to a 5-week high early but erased its gains and finished lower on speculation that European leaders will support Ireland and other indebted Euro-Zone nations: Dollar Index -0.135, USDJPY -0.050, EURUSD +0.00240.
               Bearish factors for the dollar included (1) the statement from European finance ministers that attended the G-20 summit in South Korea who said a crisis-resolution mechanism they are contemplating won't force bondholders of indebted Euro-Zone nations to share bailout costs, which lifted the euro off of a 1-1/4 month low against the dollar, and (2) reduced safe-haven demand for the dollar after Ireland's Finance Ministry said "there are no talks on an application for emergency funding from the European Union."
               Bullish factors for the dollar included (1) the downward revision to the Q3 GDP growth rates of Germany, France, and the Euro-Zone, which is euro negative, and (2) the unexpected drop in Sep Euro-Zone industrial production, which posted its steepest decline in 18 months.


•December crude oil prices this morning are trading +74 cents a barrel and December gasoline is +2.39 cents per gallon. Crude oil and gasoline prices last Friday moved lower and finished with large losses as the dollar strengthened along with speculation that China may raise interest rates which might crimp fuel demand: CLZ10 -$2.93, RBZ10 -2.580. Dec crude slipped to a 1-week low while Dec gasoline posted a 6-month high but erased its gains and closed lower.
               Bearish factors included (1) the early rally in the dollar index to a 5-week high, which curbs investment demand for commodities, (2) the jump in Oct China consumer prices to a 25-month high, which bolstered speculation that Chinese economic growth and demand for commodities may slow if it increases interest rates further to combat inflation, and (3) the prediction from the IEA that oil production outside of OPEC will be 53.4 million barrels a day in 2011, +250,000 barrels a day more than last month's estimate due to increased production in North America and China.
               A bullish factor for energy prices last Friday was the spike in gasoline to a 6-month high after the Nov US University of Michigan consumer confidence rose more than forecast to a 5-month high.

Tuesday, November 16, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading +5.5 ticks. T-note prices yesterday fell to a 1-3/4 month low due to strong Oct retail sales data and hawkish Fed commentary and finished the day sharply lower: TYZ10 -1-5.5, FVZ10 -20.2, EDH11 +3.0. The yield on the 10-year T-note pushed up to a 3-1/4 month high of 2.93%.

                Bearish factors included (1) the larger-than-expected increase in Oct retail sales along with the upward revision to Sep (Oct +1.2% versus expectations of +0.7% and Sep revised up to +0.7% and +0.5% less autos from the previously reported +0.6% and +0.4% less autos), (2) comments from Richmond Fed President Lacker who said the Fed may need to tighten monetary policy, even with an elevated US unemployment rate, to avoid a surge in inflation, and (3) weakness in he long-end of the yield curve on heightened concerns that the Fed's QE 2 program will lead to inflation.
               
                Bullish factors yesterday included (1) the much weaker-than-expected Nov Empire ma nufacturing index, which contracted at its slowest pace in 19 months (-26.8 to -11.1 versus expectations of -1.7 to 14.0), and (2) the Fed's action to purchase $7.923 billion of Treasuries as part of its QE2 asset purchase program.

•   The dollar index this morning is trading higher and at a 1-1/2 month high with the dollar/yen +0.09 yen and the euro/dollar +0.27 cents. The dollar index yesterday strengthened on increased safe-haven demand due to concern some European countries will struggle to repay debt along with a jump in US Treasury yields, which boosted the dollar's interest rate differentials: Dollar Index +0.436, USDJPY +0.034, EURUSD -0.00081. The dollar index climbed to a 1-1/4 month high, the yen fell to a 1-1/4 month low, and the euro dropped to a 1-1/2 month low.
               
                Bullish factors for the dollar included (1) an escalation in European sovereign-debt fears which weakened the euro after Greece's 2009 budget deficit was revised up to 15.4% of GDP from 13.6%, the largest in the Euro-Zone, along with concerns that Ireland may need a bailout, (2) the biggest increase in Oct US retail sales since March, which signals an expanding US economy, and (3) the jump in the yield on the 10-year T-note to a 3-1/4 month high of 2.90%, which improves the dollar's interest rate differentials
               
                Bearish factors for the dollar included (1) the contraction in the Nov Empire manufacturing index to its slowest level in 19 months, which may point to a slowdown in the US economy, and (2) comments from Jean-Claude Juncker, leader of the Euro-Zone finance ministers, who said Ireland is "not near the point" of asking for aid.

•   December crude oil prices this morning are trading -$1.05 a barrel and slipped to a 1-1/2 week low and December gasoline is -1.71 cents per gallon. Crude oil and gasoline prices yesterday moved higher early as an improvement in global economic indicators pointed to higher fuel demand but sustained dollar strength knocked prices back and they settled slightly lower: CLZ10 -$0.02, RBZ10 -2.580.

                Bearish factors included (1) the rally in the dollar index to a 1-1/4 month high, which reduces investment demand in commodities, and (2) the larger-than-expected decline in the Nov Empire manufacturing index, which contracted at its worst level in 19 months and signals weakened energy demand.

                Bullish factors included (1) the larger-than-expected increase in Oct US retail sales, which posted its biggest increase since March and boosted speculation that fuel demand will increase, (2) the larger-than-expected expansion of Q3 Japan GDP, which signals a higher rate of energy consump tion than expected, and (3) the rally in equity prices, which boosts confidence in the economic outlook and energy demand.

Wednesday, November 17, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading down -3.5 ticks. T-note prices yesterday rallied early on Fed speak and weaker-than-expected producer prices and then shed their gains mid-morning and moved lower on hawkish Fed commentary and carry-over weakness from a plunge in German bunds, but they reversed course and rallied into the close and settled higher as the stock market plummeted: TYZ10 +9, FVZ10 +4.5, EDH11 -0.5. Dec T-notes fell to a 1-3/4 month low while the yield on the 10-year T-note pushed up to a 3-1/4 month high of 2.96%.

                Bullish factors yesterday included (1) comments from Fed Vice Chairman Yellen who said the Fed's QE 2 asset purchase program isn't trying to weaken the dollar or push the inflation rate higher than 2.0% and that the program is justified because of low costs in the economy and 9.6% unemployment, (2) comments from New York Fed President Dudley who said that Fed critics "don't understand clearly" that "we can have an enlarged balance sheet and not have a long-term inflation problem," (3) the weaker-than-expected Oct PPI (+0.4% m/m and +4.3% y/y versus expectations of +0.8% m/m and +4.6% y/y), (4) the weaker-than-expected Oct core PPI (-0.6% m/m and +1.5% y/y versus expectations of +0.1% m/m and +2.1% y/y) with the -0.6% m/m fall the biggest decline in 4 years, and (5) the weaker-than-expected Oct industrial production and capacity utilization (industrial production unchanged m/m versus expectations of +0.3% m/m and capacity utilization unchanged at 74.8% versus expectations of +0.2 to 74.9%).

                Bearish factors included (1) carry-over weakness from a plunge in German bunds to a 3-1/4 month low after ECB Council member Stark said the ECB will continue to exit its emergency stimulus measures after year-end, and (2) hawkish comments from St. Louis Fed President Bullard who said the news on the economy has been "somewhat better," and that there's a "possibility" t he Fed won't buy all $600 billion in assets in its second round of quantitative easing.

•   The dollar index this morning is trading higher with the dollar/yen +0.19 yen and the euro/dollar -0.06 cents. The dollar index yesterday moved higher on stronger-than-expected foreign demand for dollar assets along with increased safe-haven demand for dollars due to a weak stock market and European sovereign-debt risks: Dollar Index +0.692, USDJPY +0.218, EURUSD -0.00966. The dollar index rallied up to a 1-1/2 month high, the yen fell to a 1-1/4 month low, and the euro dropped to a 1-1/2 month low.

                Bullish factors for the dollar included (1) the larger-than-expected increase in the Sep net long-term TIC flows, which indicates strong foreign demand for US dollar assets, (2) comments from Moody's Investors Service that the Aaa credit rating of the US won't be under pressure this year or next due to record budget deficits, and (3) increased safe-haven demand for dollars due to the slide in the stock market and the ongoing European sovereign-debt crisis.

                Bearish factors for the dollar included (1) the larger-than-expected increase in the Nov German ZEW economic sentiment survey, which is euro bullish, and (2) the action by the IMF to boost the euro's weighting in its Special Drawing Rights (SDR) valuation basket of currencies to 37.4% from 34% and the reduction in the dollar's weighting in the SDR basket to 41.9% from 44%.


•   December crude oil prices this morning are trading -71 cents a barrel and December gasoline is -1.21 cents per gallon. Crude oil slipped to a fresh 2-week low in overnight trade on concern China's action to curb inflation will reduce its demand for commodities. Crude oil and gasoline prices yesterday moved sharply lower due to strength in the dollar and on speculation the European debt crisis and steps by China to cool inflation will reduce demand for energy: CLZ10 -$2.52, RBZ10 -3.030. Dec crude fell to a 2-week low and Dec gasoline dropped to a 1-1/2 week low.

                Bearish factors included (1) the rally in the dollar index to a 1-1/2 month high, which reduces investment demand in commodities, (2) the action by South Korea to raise interest rates along with speculation that China will hike its interest rates further to cool inflation, and (3) weaker than expected US economic data on producer prices, industrial production and the NAHB housing market index, which signals fuel demand may be constrained as the economy struggles to expand.

                Bullish factors included (1) the prediction from the AAA that US travel during this year's Thanksgiving holiday weekend may increase +11% from last year, which may lead to increased gasoline demand, (2) the action by the Nigerian rebel group MEND to attack an Exxon Mobile oil installation in Nigeria along with its threats for "further attacks across the Niger delta in coming weeks," which may reduce crude production in Nigeria, Africa's biggest producer, and (3) the outlook for a cut in US energy supplies when the DOE reports weekly crude inventories on Wed. Expectations for Wednesday's weekly inventories from the DOE are for crude oil supplies to drop -700,000 bbl, gasoline stockpiles to decline -1.0 million bbl, distillate inventories to fall -2.0 million bbl and the refinery capacity rate to rise +0.5 to 82.9%.

Thursday, November 18, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading down -16.5 ticks on reduced safe-haven demand as global stocks rallied. T-note prices yesterday fluctuated on either side of unchanged as weaker-than-expected economic data supported Treasury prices but gains in the stock market and Congressional criticism of the Fed undercut prices: TYZ10 -5.5, FVZ10 +1.7, EDH11 +3.0.

               Bearish factors included (1) reduced safe-haven demand for Treasuries as the stock market rallied, and (2) Congressional criticism of the Fed's action to implement its QE 2 program, with some members of Congress calling for a removal of the Fed's full employment mandate to focus on stable prices alone, which may limit the Fed's ability to take further measures if the US economy remains weak.

                Bullish factors yesterday included (1) the smaller-than-expected increase in Oct CPI (+0.2% m/m and +1.2% y/y versus expectations of +0.3% m/m and +1.3% y/y), (2) the smaller-than-expected increase in Oct core CPI (unchanged m/m and +0.6% y/y versus expectations of +0.1% m/ and +0.7% y/y), with the +0.6% y/y increase the smallest gain since price records began in 1958, (3) the weaker-than-expected Oct housing starts which fell to their lowest level in 1-1/2 years (-11.7% to 519,000 versus expectations of -2.0% to 598,000), and (4) the Fed's action to purchase $8.2 billion in Treasuries as past of its $600 billion QE 2 program.

•   The dollar index this morning is trading lower with the dollar/yen +0.13 yen and the euro/dollar +1.24 cents. The dollar index yesterday erased an early rally and closed lower after weaker-than-expected US economic data reinforced speculation the Fed will follow through on its $600 billion asset purchase plan and potentially debase the dollar: Dollar Index -0.126, USDJPY -0.060, EURUSD +0.0033.

                Bearish factors for the dollar included (1) the smallest year-over-year increase in Oct core CPI (+0.6% y/y) since records began in 1958, which fueled deflation concerns, and (2) the larger-than-expected fall in Oct US housing starts to a 1-1/2 year low, which signals a weakening economy that will allow the Fed to continue its quantitative easing program.

                Bullish factors for the dollar included (1) concerns that Ireland may yet need a bailout to avoid defaulting on its debt, and (2) comments from Atlanta Fed President Lockhart who said the effect of Fed's program to buy $600 billion in Treasuries will be "measured" and are not intended to weaken the dollar or monetize the debt.


•   December crude oil prices this morning are trading +$1.24 a barrel and December gasoline is +2.96 cents per gallon. Crude oil and gasoline prices yesterday moved lower on speculation that actions by China to slow its economy will reduce oil demand in the world's biggest energy-consuming country although gasoline rallied late to settle little changed: CLZ10 -$1.90, RBZ10 +0.220. Dec crude and Dec gasoline both fell to 2-week lows.

                Bearish factors included (1) concerns that Chinese energy demand will weaken after the statement from China's cabinet that the government may impose price controls on "important daily necessities" and production materials, along with the report from the China Securities Journal that the PBOC may raise interest rates for a second time this year as soon as Nov 19, (2) concerns that US fuel demand will remain constrained after the drop in Oct US housing starts to a 1-1/2 year low signals renewed weakness in the US economy, and (3) the increase in US ethanol production to a record 895,00 barrels a day in the week ended Nov 12, which may curb gasoline demand from refiners.

                Bullish factors included (1) the weaker dollar, (2) the much larger-than-expected declines in weekly crude and gasoline inventories (crude -7.29 million bbl versus expectations of a -700,00 bbl draw and gasoline -2.66 million bbl to a 1-year low of 207.7 million, versus expectations of -1.0 million bbl), and (3) increased energy demand after total US consumption of petroleum products averaged 19.3 million barrels a day in the past 4 weeks, up +3.7% from 18.6 million during the same period a year earlier.

Friday, November 19, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading down -1.5 ticks. T-note prices yesterday slumped to a 1-3/4 month low and settled lower on reduced safe-haven demand along with strong US economic data: TYZ10 -12.5, FVZ10 -3.5, EDH11 +0.5.

                Bearish factors included (1) reduced safe-haven demand for Treasuries as global equity markets rallied on optimism a rescue package will soon be in place for Ireland's banks, (2) the smaller-than-expected increase in weekly initial unemployment claims (+2,00 to 439,000 versus expectations of +6,000 to 441,000), and (3) the larger-than-expected increase in the Nov Philadelphia Fed manufacturing index which matched its best level in 5-1/2 years (+21.5 to 22.5 versus expectations of +4.0 to 5.0).

                Bullish factors yesterday included (1) the Fed's action to purchase $7.2 billion in Treasuries as past of its $600 billion QE 2 program, and (2) the prediction from JPMorgan Chase that the yield on the 10-year T-note may fall to 2.25% over the next year as the Fed keeps interest rates at record lows through 2011.

•   The dollar index this morning is trading lower with the dollar/yen -0.14 yen and the euro/dollar +0.57 cents. The dollar index yesterday weakened on optimism that a bailout for Ireland was near: Dollar Index -0.467, USDJPY +0.276, EURUSD +0.01184.

                Bearish factors for the dollar included (1) a rally in the euro after Irish central bank Governor Honohan said he expects his country to ask for a "substantial" bailout from the EU and the IMF to rescue its debt-laden banks, and (2) the prediction from JPMorgan Chase that the dollar may fall below 74 yen next year as it becomes the world's "weakest currency" due to the Fed's monetary-easing program.

                Bullish factors for the dollar included (1) the rise in Treasury yields which boosts the dollar's interest-rate differentials, and (2) the better-than-expected Nov Philadelphia Fed manufacturing index, which may prompt the Fed not to purchase the full $600 billion allotment of Treasuries in its QE 2 program.

•   December crude oil prices this morning are trading +2 cents a barrel and December gasoline is -0.08 of a cent per gallon. Crude oil and gasoline prices yesterday moved higher on optimism that a resolution to Ireland's debt crisis is near along with stronger-than-expected US economic data: CLZ10 +$1.41, RBZ10 +7.040.

                Bullish factors included (1) the weaker dollar, (2) a rally in global equity markets after Irish central bank Governor Holohan said he expects his country to ask the EU and the IMF for "tens of billion" of euros to rescue its banks, and (3) the stronger-than-expected increase in the Nov Philadelphia Fed manufacturing index which matched its best level in 5-1/2 years.

                Bearish factors was the action by the OECD to lower its growth forecast for the global economy next year to 4.2% from a May forecast of 4.5%, as it predicts a "soft spot" in 2011 as government stimulus is withdrawn and an investment recovery slows.

Monday, November 22, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading unchanged. T-note prices last Friday fluctuated on either side of unchanged most of the day as dovish comments from Fed Chairman Bernanke offset reduced safe-haven demand for Treasuries from the possible resolution to Ireland's debt crisis: TYZ10 +1, FVZ10 -2.7, EDH11 -1.0.

                Bullish factors included (1) comments from Fed Chairman Bernanke who said the US unemployment rate of 9.6% is "high and, given the slow pace of economic growth, likely to remain so for some time," and (2) the Fed's action to purchase $2.2 billion of longer-term debt as part of its QE 2 asset-purchase program.

                Bearish factors last Friday included (1) comments from Philadelphia Fed President Plosser who said it is "premature" to assume the Fed will buy all $600 billion in Treasuries and complete the entire asset-purchase program, and (2) supply pressures ahead of the Treasury's auction of $35 billion in 2-year T-notes on Monday .

•   The dollar index this morning is trading lower with the dollar/yen -0.02 yen and the euro/dollar +0.07 cents. The dollar index last Friday settled slightly lower as the euro gained on speculation Ireland will get a bailout and prevent Europe's debt crisis from worsening: Dollar Index -0.113, USDJPY -0.040, EURUSD +0.00436.

                Bearish factors for the dollar included (1) strength in the euro on optimism that a bailout of Ireland's banks will prevent the European sovereign-debt crisis from worsening, and (2) comments from Bundesbank President and ECB Council member Weber who said the ECB's bond purchases should be stopped "sooner rather than later."
               
                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar on the weak stock market along with concern that the action by China to raise its banks' reserve ratio requirements will slow the Chinese economy and the global economy as well, and (2) comments from IMF Managing Director Dominique S trauss-Kahn which boosted the safe-haven demand for the dollar when he said "the European sovereign-debt crisis is not over."

•   January crude oil prices this morning are trading +33 cents barrel and January gasoline is +0.93 of a cent per gallon. Crude oil and gasoline prices last Friday settled lower on concern the action by China to curb bank lending will lead to slower economic growth and reduced demand for energy: CLF11 -$0.44, RBF11 -3.140.
               
                Bearish factors included (1) the action by China to raise its banks' reserve ratio requirements, which may slow its economy and fuel demand, and (2) the drop in global equity markets, which reduces optimism in the economic outlook and energy demand.
               
                Bullish factors include (1) optimism that a bailout of Ireland's banks will prevent the European sovereign-debt crisis from getting worse, which would slow economic growth and fuel demand, and (2) data from the API that said Oct US diesel consumption rose +8.4% y/y to 3.19 million barrels a day and that total diesel consumption during the first 10 months of this year is up +2.9% to 2.97 million barrels a da y, a sign that the US economy is rebounding.

Tuesday, 23 November 2010...

Today's Market Focus
•December 10-year T-notes this morning are trading up +11.5 ticks on increased safe-haven demand after North and South Korea exchanged artillery fire. T-note prices yesterday shook off overnight losses and closed higher on increased safe-haven demand after the stock market fell and Moody's said it may downgrade Ireland's debt more than anticipated: TYZ10 +18.5, FVZ10 +12.7, EDH11 -1.0.

                Bullish factors included (1) comments from Moody's Investors Service that fueled increased safe-haven demand for Treasuries when they said a "multi-notch" downgrade of Ireland's credit rating was most likely as an increase in the debt burden poses a "credit negative" for the country, (2) strong demand for the Treasury's $35 billion 2-year T-note auction that had a bid-to-cover ratio of 3.70, higher than the 12-auction average of 3.22, (3) comments from Minneapolis Fed President Kocherlakota who said inflation is low and US economic growth is "alarmingly" slow, and (4) the action by the Fed to buy $8.257 billion of Treasuries as part of its QE 2 asset purchase program.

                Bearish factors yesterday included (1) comments from PBOC adviser Li Daokui who said that China can consider selling some of its supply of US Treasuries as compensation for losses incurred because of the Fed's decision to enact its $600 billion asset purchase program, and (2) supply pressures ahead of the Treasury's auction of $35 billion in 5-year T-notes on Tuesday.


•The dollar index this morning is trading higher with the dollar/yen +0.09 yen and the euro/dollar -0.83 cents. The dollar index yesterday erased overnight losses and finished higher on concern the European sovereign-debt crisis may worsen: Dollar Index +0.125, USDJPY -0.149, EURUSD +0.0057.

                Bullish factors for the dollar included (1) weakness in the euro which fell from a 1-week high against the dollar and settled lower after Moody's Investors Service said that loans to Ireland from the EU and the IMF may increase the country's debt burden and pose a "credit negative" for Ireland, (2) increased safe-haven demand for the dollar as European and US stock markets slumped on concern that the European sovereign-debt crisis may be spreading after credit-default swaps on Portuguese government debt jumped 29.5 bp to a 1-week high of 447 bp, and (3) the prediction from High Frequency Economics Ltd. that parts of Greece's government may be forced to "shut down" as early as next week if the country isn't able to recover a revenue shortfall caused after some EU members delayed their next payments of aid money.

                Bearish factors for the dollar included (1) an early rally in the euro to a 1-week high against the dollar on optimism that a bailout of Ireland would stop the spread of the European sovereign-debt crisis, and (2) comments from European Economic and Monetary Commissioner Rehn who said the euro is close to its "fundamental value."


•January crude oil prices this morning are trading -76 cents a barrel and January gasoline is -2.02 cents per gallon. Crude oil and gasoline prices yesterday erased an early rally and moved lower on concern the European sovereign-debt crisis may spread and limit economic growth and energy demand: CLF11 -$0.24, RBF11 -2.94. Jan gasoline slipped to a 3-week low.

                Bearish factors included (1) concerns the European sovereign-debt crisis may worsen and limit economic growth and energy demand after Moody's Investors Service said that loans to Ireland from the EU and the IMF may increase the country's debt burden and pose a "credit negative" for Ireland, and (2) the rebound in the dollar which erased early losses and finished higher.

                Bullish factors include (1) early optimism that a bailout of Ireland's banks will prevent the European sovereign-debt crisis from spreading, and (2) the prediction from Goldman Sachs that recent actions by Chinese policy makers to contain inflation will have a "limited" impact on oil-demand growth and that exceptional strength in Chinese diesel demand could push China's oil demand to new highs in November and December this year.

Wednesday, November 24, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading down -12 ticks. T-note prices yesterday rallied to a 1-week high and traded in positive territory the entire day on increased safe-haven demand over the possible spread of the European sovereign-debt crisis along with rising geo-political tensions in Korea: TYZ10 +10, FVZ10 +7.5, EDH11 -2.0.

                Bullish factors included (1) increased safe-haven demand for Treasuries after the stock market plunged when North and South Korea exchanged artillery fire along with concerns that the European sovereign-debt crisis is spreading after the Markit iTraxx SovX Western Europe Index of credit-default swaps linked to the debt of 15 European governments rose 3 bp to a record 180 bp, and (2) the weaker-than-expected Oct existing home sales (-2.2% to 4.43 million versus expectations of -1.1% to 4.48 million).

                Bearish factors yesterday included (1) the larger-than-expected upward revision to Q3 US GDP (+2.5% annualized versus expectations of +2.4% annualized, (2) slack demand for the Treasury's $35 billion 5-year T-note auction that had a bid-to-cover ratio of 2.65, below the 12-auction average of 2.75, (3) supply pressures ahead of the Treasury's $29 billion auction of 7-year T-notes on Wed, and (4) the Nov 2-3 FOMC meeting minutes in which Fed members expressed internal disagreement over the decision to implement the QE 2 asset-purchase program, which may hamper the Fed's resolve to complete the entire $600 billion of Treasury purchases by June.

•   The dollar index this morning is trading at a 2-month high with the dollar/yen +0.18 yen and the euro/dollar -0.12 cents. The action by Standard & Poor's to cut Ireland's debt rating along with fears of contagion in the European debt crisis has boosted the dollar overnight and sent the euro tumbling to a 2-month low. The dollar index yesterday rallied sharply on increased safe-haven demand after North and South Korea exchanged artillery fire and after the euro sank on concerns the European sovereign-debt crisis may spread: Dollar Index +0.999, USDJPY -0.171, EURUSD -0.02597. The dollar index climbed to a 1-3/4 month high and the euro dropped to a 2-month low against the dollar.

                Bullish factors for the dollar included (1) the slump in the euro to a 2-month low on concern the European debt crisis may spread to Portugal and Spain and after German Chancellor Merkel said the euro is in an "exceptionally serious" situation, (2) increased safe-haven demand for the dollar after North and South Korea exchanged artillery fire, and (3) the action by Irish Prime Minister Cowen to say he will call for national elections early next year, which fuels concern that any agreement on a bailout may not be upheld by a new Irish government.

                Bearish factors for the dollar included (1) the unexpected increase in the Nov Euro-Zone PMI composite index, which is euro positive, and (2) comments from ECB Executive Board member Tumpel-Gugerell who said that ECB lending to European banks has declined, which will allow it to exit some of its emergency funding measures.


•   January crude oil prices this morning are trading +24 cents a barrel and January gasoline is +1.30 cents per gallon. Crude oil and gasoline prices yesterday traded mostly lower as dollar strength offset the positive impact of the upwardly revised Q3 US GDP: CLF11 -$0.49, RBF11 -1.09. Jan gasoline slipped to a 3-week low.

                Bearish factors included (1) concern that the European sovereign-debt crisis may spread beyond Greece and Ireland to Portugal and Spain and constrict European economic growth and energy demand, (2) reduced investment demand for crude after the dollar index surged to a 1-3/4 month high after North and South Korea exchanged artillery fire, and (3) the updated 6-10 day weather forecast from the National Weather Service that calls for above-normal temperatures in the Northeast, which may curb demand for heating fuels.

                Bullish factors include (1) the larger-than-expected upward revision to Q3 US GDP, (2) attacks on Nigerian oil installations by Nigeria's main rebel group that have caused Nigeria's four state-run refineries to produce at only 30% of capacity, according to the Nigerian Department of Petroleum Resources, and (3) the outlook for US crude supplies to decline for a third week when the DOE on Wednesday reports weekly crude inventories. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil supplies to fall -2.0 million bbl, gasoline stockpiles to drop -1.25 million bbl, distillate inventories to slip -1.0 million bbl and the refinery capacity rate to increase +0.4 to 84.4%.

Friday, November 26, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +12.5 ticks on increases safe-haven demand as global stock markets fell. T-note prices Wednesday fell sharply throughout the day on reduced safe-haven demand as the stock market rallied and on stronger-than-expected US economic data: TYZ10 -1-4/32, FVZ10 -20, EDH11 -8.0.

                Bearish factors included (1) the larger-than-expected decline in weekly initial unemployment claims which tumbled to a 2-1/4 year low (-34,000 to 407,000 versus expectations of -4,000 to 435,000), (2) the larger-than-expected increase in Nov US University of Michigan consumer confidence which climbed to a 5-month high (+2.3 to 71.6 versus expectations of +0.2 to 69.5), (3) slack demand for the Treasury's $29 billion 7-year T-note auction that had a bid-to-cover ratio of 2.63, below the 12-auction average of 2.87, and (4) reduced safe-haven demand for Treasuries after the stock market rallied sharply.

                Bullish factors yesterday included (1) the un expected decline in Oct durable goods orders which posted its biggest drop in 1-3/4 years (-3.3% and -3.7% ex transportation versus expectations of +0.1% and +0.6% ex transportation), (2) the smaller-than-expected increase in the Oct PCE core deflator (unchanged m/m and +0.9% y/y versus expectations of +0.1% m/ and +1.0% y/y), with the +0.9% y/y increase the smallest gain since price records began in 1960, and (3) the unexpected decline in Oct new home sales (-8.1% to 283,000 versus expectations of +1.6% to 312,000).

•   The dollar index this morning is trading at a 2-month high with the dollar/yen +0.28 yen and the euro/dollar -1.26 cents. The euro slumped to a 2-month low in overnight trade as European sovereign-debt risks mount. The dollar index Wednesday rallied up to a 2-month high early in the session sharply on the action by Standard & Poor's to cut Ireland's debt rating along with fears of contagion in the European debt crisis but erased most its gains and closed slightly higher on reduced safe-haven demand after the stock market rallied sharply on improved US economic data: Dollar Index +0.186, USDJPY +0.380, EURUSD -0.00323.

                Bullish factors for the dollar included (1) the action by Standard & Poor's to cut Ireland's long-term sovereign debt rating to A from AA- and its short-term rating to A-1 from A-1+ with a negative outlook as it cited concern about additional borrowing by the government, and (2) weakness in the euro which slumped to a 2-month low against the doll ar on concern that contagion of the European sovereign-debt crisis has begun after credit-default swaps that insure Portugal's and Spain's government debt both surged to record highs.

                Bearish factors for the dollar included (1) the improvement in the Nov US University of Michigan confidence to a 5-month high and the drop in weekly jobless claims to their lowest level in 2-1/4 years, which fueled a stock market rally that reduced the safe-haven demand for the dollar, (2) the unexpected increase in the Nov German IFO business climate to its highest level since data began in 1991 (+1.6 to 109.3), and (3) the temporary rebound in the euro from a 2-month low after Ireland's government said it will cut spending by 20% and raise taxes over the next 4 years to curb its budget deficit.

•   January crude oil prices this morning are trading down -65 cents a barrel and January gasoline is -0.74 of a cent per gallon. Crude oil and gasoline prices Wednesday moved higher throughout the day as an improvement in jobless claims and consumer confidence pumped up the stock market and fueled expectations for increased energy demand: CLF11 +$2.61, RBF11 +7.50.

                Bullish factors included (1) the weaker dollar, (2) the drop in weekly US initial unemployment claims to a 2-1/4 year low and the increase in the Nov University of Michigan consumer confidence to a 5-month high, which bolsters optimism the economic rebound will accelerate, and (3) comments from OPEC's Secretary-General who said oil prices above $100 a barrel would not necessarily derail the global recovery and that OPEC would only boost supplies if there was a physical shortage.

                Bearish factors include (1) the unexpected increases in weekly crude oil and gasoline inventories (crude +1.03 million bbl versus e xpectations of -2.0 million bbl and gasoline +1.91 million bbl versus expectations of -1.25 million bbl), and (2) the unexpected declines in Oct durable goods orders and Oct new home sales, which signals an uneven recovery that may limit energy demand.

Monday, November 29, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading down 1.5 ticks on the slightly higher trade in Dec S&Ps. T-note prices last Friday traded with moderate gains throughout the day and finished higher on increased safe-haven demand due to the escalating Korean conflict and concern the European debt crisis is worsening: TYZ10 +10, FVZ10 +5.5, EDH11 -4.0.

               Bullish factors included (1) increased tension on the Korean peninsula after North Korea said that joint military exercises between South Korea and the US will bring the region to the "brink of war," (2) concern the European sovereign-debt crisis is worsening after credit-default swaps on the government debts of Ireland, Portugal and Spain all surged to record highs, and (3) the action by Standard & Poor's Ratings Service to cut Anglo Irish Bank's credit rating to below investment grade, which reinforces concern about financial stress within the Euro-Zone.


•   The dollar index this morning is mildly higher by +0.26 points with the dollar/yen up 0.09 yen and the euro/dollar down 0.91 cents. The dollar continues to see support from technical buying and optimism about the improvement in US economic data. The dollar index last Friday rallied to a 2-month high on tensions over South Korea and the European debt crisis: Dollar Index +0.490, USDJPY +0.580, EURUSD -0.0094.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar after North Korea's state-run news agency said planned naval exercises by South Korea and the US moved the Korean peninsula "closer to the brink of war," (2) the slump in the euro to a 2-month low against the dollar on concern the European debt crisis is worsening after credit-default swaps to insure Spain's, Portugal's and Ireland's government debt rose to record highs, (3) euro negative comments from ECB Council member Liikanen who said that the ECB might keep emerg ency liquidity measures in place for longer "if required," and (4) the weaker-than-expected Oct French consumer spending.


•   January crude oil prices this morning are up 77 cents a barrel and January gasoline is up 1.96 cents per gallon on cold weather in Europe, today's 3-year high in Eurozone economic confidence, and continued optimism about stronger economic data in the US. Crude oil and gasoline prices last Friday moved lower in quiet trade due to a stronger dollar and concern that global economic growth will slow as the European credit crisis spreads: CLF11 -$0.10, RBF11 -0.34. Jan crude posted a 1-1/2 week high in overnight trade but erased its gains and finished lower.

                Bearish factors included (1) the rally in the dollar index to a 2-month high, which reduces the investment demand for commodities, (2) concern the European sovereign-debt crisis will spread and slow global economic growth and energy demand, and (3) concerns that China will continue to limit loan growth which may slow its economy and energy demand after the Shanghai Securities News reported that the Chinese government m ay cut the target for new lending next year.

Tuesday, November 30, 2010...

Today's Market Focus

•   December 10-year T-notes this morning are trading up +10.5 ticks. T-note prices yesterday traded sideways to higher the entire day on increased safe-haven demand due to fears of contagion from the European debt crisis: TYZ10 +8.5, FVZ10 +3.7, EDH11 +0.5.

               Bullish factors included (1) concern that the approved 85 billion euro ($113 billion) aid package for Ireland will fail to stem the contagion of the European debt crisis after credit-default swaps to insure Spain's and Portugal's government debt rose to record highs, (2) the action by the Fed to buy $7.226 billion of Treasuries as part of its quantitative easing program, and (3) the prediction from RBC that the action by European finance ministers to give Greece an extra 4-1/2 years to repay its bailout package shows the scale of Europe's debt crisis is greater than government initially acknowledged. A bearish factor yesterday was an initial reduction in safe-haven demand for Treasuries after European governments agreed on an 85 billion euro bailout for Ireland.


•   The dollar index this morning is trading highr and at a 2-1/4 month high with the dollar/yen -0.43 yen and the euro/dollar -1.09 cents as concerns over the widening of the European debt crisis boosts the safe-haven demand for the dollar. The dollar index yesterday strengthened throughout the day on increased safe-haven demand due to concern that the European sovereign-debt crisis will broaden: Dollar Index +0.478, USDJPY +0.153, EURUSD -0.0121. The euro fell to a 2-1/4 month low against the dollar and the yen slumped to a 2-month low.

                Bullish factors for the dollar included (1) the slump in the euro to a 2-1/4 month low against the dollar on concern the European debt crisis will spread to Spain and Portugal after credit-default swaps to insure Spain's and Portugal's government debt rose to record highs, and (2) a report from the European Commission that predicts GDP growth in the Euro-Zone next year will fall to 1.5% from 1.7% this year as budget cuts to stem the debt crisis hurt consumer demand.

                Bearish factors for the dollar include the larger than expected increase in the Nov Euro-Zone economic confidence which rose to a 3-year high and is euro positive, and (2) comments from EU Economic and Monetary Affairs Commissioner Rehn who said the Euro-Zone economy faces an "upside risk" from the strength in the recovery in Germany.


•   January crude oil prices this morning are trading -29 cents a barrel and January gasoline is -1.24 cents per gallon. Crude oil and gasoline prices yesterday moved higher on optimism that an increase in holiday sales signals the economy and energy demand may strengthen: CLF11 +$1.97, RBF11 +6.34. Jan crude and Jan gasoline climbed to 2-week highs.

                Bullish factors included (1) data from the National Retail Federation that showed US shoppers over the Thanksgiving weekend increased purchases by +6.4% over the 2009 period, a sign of a stronger economy, and (2) the prediction from the US Climate Prediction Center that temperatures in the eastern half of the US will be below normal from Dec 6 to Dec 12, which may prompt stronger demand for heating fuels.

                Bearish factors included (1) the rally in the dollar index to a 2-1/4 month high, which reduces the investment demand for commodities, and (2) weakness in f=global equity markets which reduces confidence in the global econo mic outlook.

Wednesday, December 1, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -18.5 ticks as a rally in global equities reduces the safe-haven demand for Treasuries. T-note prices yesterday traded higher throughout the day on increased safe-haven demand due to fears of contagion from the European debt crisis: TYH11 +6, FVH11 +5.7, EDM11 -2.0.

                Bullish factors included (1) concern over contagion in the European debt crisis after credit-default swaps to insure Italian, Spanish and Portuguese government bonds all rose to record highs, (2) the Fed's action to purchase $6.81 billion of Treasuries as part of its QE2 asset purchase program, and (3) the weaker-than-expected Sep S&P/CaseShiller composite-20 home price index (-0.8% m/m and +0.6% y/y versus expectations of -0.4% m/m and +1.0% y/y).

                Bearish factors included (1) the unexpected increase in the Nov Chicago purchasing mangers index which expanded at its fastest pace in 7 months (+1.9 to 62.5 versus expectations of -0.7 to 59.9), (2) th e larger-than-expected increase in the Nov US consumer confidence which climbed to a 5-month high (+4.2 to 54.1 versus expectations of +2.8 to 53.0), and (3) a slight decrease in the safe-haven demand for Treasuries after the stock market came off of its lows in the afternoon.


•   The dollar index this morning is trading weaker with the dollar/yen +0.12 yen and the euro/dollar +1.25 cents. The dollar index yesterday rallied for a third day on concern that the European sovereign-debt crisis may widen: Dollar Index +0.360, USDJPY -0.576, EURUSD -0.01461. The dollar index climbed to a 2-1/4 month high and the euro slid to a 2-1/2 month low against the dollar.

                Bullish factors for the dollar included (1) the slump in the euro to a 2-1/2 month low against the dollar on concern over contagion of the European sovereign-debt crisis after credit-default swaps insuring Italian, Spanish and Portuguese government bonds all rose to record highs, (2) the +0.1 point increase in the Oct Euro-Zone unemployment rate to a 12-year high of 10.1%, which is euro negative, and (3) the larger-than-expected increase in Nov US consumer confidence to a 5-month high along with the unexpected increase in the Nov Chicago purchasing managers index to a 7-month high, which sugg ests strength in the US economy.

                Bearish factors for the dollar include (1) comments from ECB President Trichet who said the Euro-Zone economy is growing "better than forecast" and that the EU's resolve on the euro "shouldn't be underestimated," and (2) comments from IMF First Deputy Managing Director Lipsky who said the euro has a "solid" value and any notion that the currency was under threat was "wildly exaggerated."


•   January crude oil prices this morning are trading +$1.30 a barrel and January gasoline is +5.22 cents per gallon. Crude oil and gasoline prices yesterday fell as the dollar gained on concern the European sovereign-debt crisis is spreading: CLF11 -$1.62, RBF11 -3.76. Jan gasoline rose to a 2-week high but erased its gains and finished lower.

                Bearish factors included (1) the rally in the dollar index to a 2-1/4 month high, which reduces the investment demand for commodities, (2) concern that the European debt crisis will spread and undercut the global economy and energy demand, and (3) concern that the US housing crisis may linger and limit fuel demand after the Sep S&P/CaseShiller composite-20 home price index fell for a third month.

                Bullish factors included (1) the larger-than-expected increase in Nov US consumer confidence to a 5-month high along with the unexpected increase in the Nov Chicago purchasing managers index to a 7-month high, which indicates the econ omy may strengthen and improve fuel demand, and (2) the outlook for a fall in weekly crude supplies when the DOE releases weekly crude oil inventory figures on Wed. Expectations for Wednesday's weekly crude inventories from the DOE are for crude oil supplies to fall -1.1 million bbl, gasoline stockpiles to gain +625,000 bbl, distillate inventories to drop -1.1 million bbl and the refinery capacity rate to rise +0.4 to 85.9%.

Thursday, December 2, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -5.5 ticks. T-note prices yesterday plummeted to a 2-1/2 month low on reduced safe-haven demand as the stock market rallied sharply after European debt concerns eased and US economic data was stronger than expected: TYH11 -1-9/32, FVH11 -25.5, EDM11 +2.5. The yield on the 10-year T-note rose to a 4-month high of 2.979%.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after global stock markets rallied sharply as European debt concerns eased and after Nov Chinese manufacturing activity expanded at its fastest pace in 7 months, (2) the biggest monthly increase in Nov ADP employment in 3 years along with the upward revision to Oct (Nov +93,000 versus expectations of +70,000 and Oct revised up to +82,000 from the earlier reported +43,000), (3) the smaller-than-expected decline in the Nov ISM manufacturing index (-0.3 to 56.6 versus expectations of -0.4 to 56.5), and (4) the Fed's Beige Book whic h said the US economy gained strength in 10 of 12 regions as manufacturing "continued to expand in most districts" and hiring and retail spending "showed improvement" in most districts..

                Bullish factors included (1) comments from Richmond Fed President Lacker who said he's "not sure" if monetary tightening is around the corner and he doesn't see "high odds" of tightening next year, and (2) the action by the Fed to purchase $8.174 billion of Treasuries as part of its QE 2 asset-purchase program to stimulate the economy.



•   The dollar index this morning is trading lower with the dollar/yen +0.01 yen and the euro/dollar +0.25 cents. The dollar index yesterday weakened on speculation the US would support more IMF aid for the European sovereign-debt crisis and on reduced safe-haven demand after global stock markets rallied sharply: Dollar Index -0.482, USDJPY +0.500, EURUSD +0.01558.

                Bearish factors for the dollar included (1) strength in the euro on speculation the ECB at its monthly meeting Thursday may indicate further measures to curb the spread of the debt crisis, (2) a report from Reuters that cited an unidentified US official who said the US would support increasing the size of the EU's rescue fund through the commitment of more money from the IMF, and (3) comments from Richmond Fed President Lacker who said he's "not sure" if monetary tightening is around the corner and he doesn't see "high odds" of tightening next year.

                The main bullish factor for the dollar yes terday was stronger-than-expected US economic data on Nov ISM manufacturing and Nov ADP employment, which signals strength in the US economy.



•   January crude oil prices this morning are trading down -11 cents a barrel and January gasoline is up +1.08 cents per gallon. Crude oil and gasoline prices yesterday rallied sharply on a weaker dollar, strong Chinese manufacturing activity and reduced European debt concerns: CLF11 +$2.64, RBF11 +9.71. Jan crude climbed to a 2-week high and Jan gasoline surged to a 6-3/4 month high.

                Bullish factors included (1) a weaker dollar, (2) speculation the ECB will act to prevent further contagion of the European sovereign-debt crisis when it meets Thursday, (3) the Nov China PMI manufacturing index which rose more than expected to its fastest pace in 7 months, and (4) the Nov ADP employment change which showed the biggest monthly increase in jobs in 3 years and boosts confidence in the economy and energy demand.

                Bearish factors included (1) the unexpected increase in weekly crude oil inventories (+1.07 million bbl versus expectations of -1.1 million bbl), and (2) snowstorms an d adverse weather throughout Europe that has disrupted air travel and limited auto travel, which may reduce fuel demand, and (3) the official end of the third-most active Atlantic hurricane season in history, according to the National Hurricane Center, which left the US unscathed and failed to disrupt crude or refinery production in the US Gulf coast.

Friday, December 3, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -1.5 ticks. T-note prices yesterday sank to a 4-month low after Oct pending home sales increased at a record pace and the stock market rallied to 3-week highs: TYH11 -12.5, FVH11 -7.2, EDM11 +2.5. The yield on the 10-year T-note rose to a 4-month high of 3.024%.

                Bearish factors included (1) the unexpected increase in Oct pending home sales which had their biggest gain since data began in 2001 (+10.4% versus expectations of -0.9%), and (2) reduced safe-haven demand for Treasuries after the stock market rallied to 3-week highs.

                Bullish factors included (1) the larger-than-expected increase in weekly initial unemployment claims (+26,000 to 436,000 versus expectations of +17,000 to 424,000), (2) increased safe-haven demand for Treasuries after the ECB refrained from announcing additional measures to combat the European sovereign-debt crisis, and (3) the action by the Fed to purchase $8.309 billion of Treasuries as p art of its QE 2 asset-purchase program.



•   The dollar index this morning is trading lower with the dollar/yen -0.20 yen and the euro/dollar +0.55 cents. The dollar index yesterday moved lower for a second day on reduced safe-haven demand after Oct US pending home sales unexpectedly rose and the stock market rallied: Dollar Index -0.410, USDJPY -0.387, EURUSD +0.00686.

                Bearish factors for the dollar included (1) the unexpected surge in Oct US pending home sales which rose to a record, and (2) the rally in the S&P 500 to a 3-week high, which reduced the safe-haven demand for the dollar.

                Bullish factors included (1) early weakness in the euro after ECB President Trichet said the ECB will delay its withdrawal of emergency liquidity measures to combat "acute" market tensions and disappointment that the ECB signaled no further new measures to stem the debt crisis, and (2) the surge in Treasury yields to a 4-month high, which improves the dollar's interest rate differentials.



•   January crude oil prices this morning are trading up +9 cents a barrel and January gasoline is -0.49 of a cent per gallon. Crude oil and gasoline prices fluctuated on either side of unchanged yesterday until the dollar sold-off after mid-morning which prompted a rally in energy prices into the close: CLF11 +$1.25, RBF11 +4.89. Jan crude posted a 2-1/2 week high and Jan gasoline climbed to a 6-3/4 month high.

                Bullish factors included (1) a weaker dollar, (2) the action by the ECB to delay the withdrawal of its stimulus measures, and (3) strength in US retail sales after Retail Metrics reported that Nov US comparable store sales rose more than expected, which indicates strength in the economy that may lead to increased fuel demand.

                Bearish factors included (1) the prediction from tanker-tracker Oil Movements that OPEC will increase crude shipments by +0.4% to 23.56 million barrels a day in the four weeks to Dec 18, and (2) the larger-than-expected increase in weekly US initial unemployment claims, which questions the sustainability of the economic recovery and energy demand.

Monday, December 6, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +15.5 ticks after Fed Chairman Bernanke suggested the possibility of addtional Fed easing. T-note prices last Friday rallied sharply from a 4-month low on weaker-than-expected Nov nonfarm payrolls and then spent the rest of the day oscillating in positive territory: TYH11 +6, FVH11 +11, EDM11 +7.0.

                Bullish factors included (1) the smaller-than-expected increase in Nov nonfarm payrolls (+39,000 versus expectations of +145,000), (2) the unexpected increase in the Nov unemployment rate which rose to its highest level in 7 months (+0.2 to 9.8% versus expectations of unchanged at 9.6%), (3) the unexpected decline in Nov manufacturing payrolls which have now fallen for 4 consecutive months (-13,000 versus expectations of +5,000), and (4) a lack of wage pressures after Nov avg hourly earnings rose less than expected (unchanged m/m and +1.6% y/y versus expectations of +0.2% m/m and +1.7% y/y. Limiting gains in Treasury pri ces was the larger-than-expected increase in the Nov ISM non-manufacturing index, which expanded at its fastest pace in 6 months (+0.7 to 55.0 versus expectations of +0.5 to 54.8).



•   The dollar index this morning is trading higher with the dollar/yen +0.29 yen and the euro/dollar -1.13 cents. The dollar index last Friday plummeted to a 1-1/2 week low following the weak Nov US payrolls report and finished the day sharply lower: Dollar Index -0.926, USDJPY -1.097, EURUSD +0.0204.

                Bearish factors for the dollar included (1) the smaller-than-expected increase in Nov nonfarm payrolls along with the unexpected increase in the US unemployment rate to a 7-month high of 9.8%, which fuels speculation that the economic recovery is faltering, and (2) strength in the euro after Oct Euro-Zone retail sales came in stronger than expected along with the action by the Bundesbank to hike its GDP forecasts for Germany for this year and next.

                Bullish factors included (1) the stronger-than-expected Nov ISM non-manufacturing index which expanded at its fastest pace in 6 months, and (2) the action by Goldman Sachs to push back its forecast for the ECB's first interest ra te increase to Q4 of next year from an earlier estimate of Q3 along with its prediction that the ECB may increase its purchases of government bonds to ensure that the European sovereign-debt crisis abates.



•   January crude oil prices this morning are trading -18 cents a barrel and January gasoline is +0.14 of a cent per gallon. Crude oil posted a 26-month high in overnight trade before falling back. Crude oil and gasoline prices last Friday gyrated on both sides of unchanged early but a weaker dollar trumped a weak payrolls report and prices finished mixed: CLF11 +$1.19, RBF11 -0.32. Jan crude climbed to a 25-month high.

                Bullish factors included (1) the slide in the dollar index to a 1-1/2 week low, which boost investment demand for commodities, (2) the stronger-than-expected Nov ISM non-manufacturing index which expanded at its fastest pace in 6 months and indicates increased energy consumption, and (3) the prediction from JPMorgan Chase that OPEC is unlikely to increase crude oil production next year unless prices surge through $100 a barrel and that crude prices will advance to $120 a barrel by 2012 as consumption grows in emerging economies.

                The main bearish factor last Friday was the smaller-than-expected increase in Nov nonfarm payrolls along with the unexpected increase in the US Nov unemployment rate to a 7-month high of 9.8%, which questions the sustainability of the economic recovery and energy demand.

Tuesday, December 7, 2010...


Today's Market Focus


.   March 10-year T-notes this morning are trading down -15.5 ticks on reduced safe-haven demand as stock prices rally. T-note prices yesterday moved higher the entire day after Fed Chairman Bernanke suggested the Fed may increase its debt purchases: TYH11 +22.5, FVH11 +16.5, EDM11 +2.0.

                Bullish factors included (1) comments from Fed Chairman Bernanke who said that Fed asset purchases beyond the $600 billion already announced are "possible" given that US unemployment may take 5 years to fall to a "normal" level of 5 to 6%, and (2) increased safe-haven demand for Treasuries on concern over contagion in the European sovereign-debt crisis after Moody's Investors Service cut Hungary's sovereign credit rating two levels to Baa3 with a negative outlook.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after Fed Chairman Bernanke said a return to recession "doesn't seem likely," and (2) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tuesday.
The dollar index this morning is trading lower with the dollar/yen -0.07 yen and the euro/dollar +0.58 cents.



.  The dollar index yesterday closed higher as the euro weakened after European governments showed division about how to contain the debt crisis: Dollar Index +0.194, USDJPY -0.058, EURUSD -0.01051.

                Bullish factors for the dollar included (1) comments from Fed Chairman Bernanke who said a return to recession "doesn't seem likely," (2) the euro negative action by Moody's Investors Service to cut Hungary's sovereign credit rating two levels to Baa3, its lowest investment grade with a negative outlook on concern the government's policy of plugging holes with "temporary measures" won't be sustainable, and (3) possible divisions among European leaders on how to contain the debt crisis after the Belgian finance minister said the 750 billion-euro ($1 trillion) EU bailout fund might be expanded, while Germany said it opposes any increase.

                Bearish factors included (1) the suggestion from Fed Chairman Bernanke that Fed asset purchases beyond the $600 billion already announced are "certainly possible" because of the stubbornly high US unemployment rate, and (2) jawboning from Bank of France Governor and ECB Council member Noyer who said the euro is a little bit overvalued against the dollar.
January crude oil prices this morning are trading +$1.02 a barrel and January gasoline is +1.98 cents per gallon. Jan crude posted a 26-month high and Jan gasoline climbed to a fresh 7-month high in overnight trade as most commodity prices soared after President Obama agreed to extend tax cuts.


.  Crude oil and gasoline prices yesterday erased an early rally and settled mixed as the dollar strengthened: CLF11 +$0.19, RBF11 -1.04. Jan crude rallied to a 26-month high and Jan gasoline posted a 7-month high but shed its gains and settled lower.

                Bullish factors included (1) comments from Fed Chairman Bernanke who said a return to recession "doesn't seem likely" because sectors of the economy such as housing can't become more depressed, (2) a possible increase in heating fuel demand after the National Weather Service Climate Prediction Center said temperatures in the US Midwest and Northeast will be lower than normal from Dec 8-16, and (3) the action by Nigerian rebel forces to damage a crude pipeline in Nigeria which may reduce crude oil output from Africa's biggest producer.

                Bearish factors included (1) strength in the dollar which curtails investment demand for commodities, and (2) the action by Moody's Investors Service to cut Hungary's debt to the lowest investment grade and indicate it may cut the rating to junk, which indicates a possible worsening of the European debt crisis that may limit economic growth and energy demand.

Wednesday, December 8, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -15.5 ticks and slid to a fresh 4-1/4 month low in overnight trade. T-note prices yesterday slumped and settled sharply lower after President Obama agreed to a 2-year extension of the Bush-era tax cuts: TYH11 -1-30, FVH11 -1-2.7, EDM11 -5.0. The yield on the 10-year T-note surged to a 5-1/4 month high of 3.17%.

                Bearish factors included (1) the action by President Obama to agree to a 2-year extension of tax cuts, which reduced the safe-haven demand for Treasuries as the stock market rallied and may potentially boost economic growth and widen the budget deficit, (2) carry-over weakness from a surge in the yield on the 10-year German bund to a 6-1/2 month high, (3) data from the US Labor Department that showed job openings in the US rose by 351,000 in Oct to a 2-year high of 3.36 million, (4) weak demand for the Treasury's $32 billion 3-year T-note auction that had a bid-to-cover ratio of 2.91, below the 12-auction average of 3.12, and (5) supply pressures ahead of the Treasury's auction of $21 billion in 10-year T-notes on Wed.



•   The dollar index this morning is trading higher with the dollar/yen +0.46 yen and the euro/dollar -0.23 cents. The dollar index yesterday traded lower early after President Obama said he would agree to extend tax cuts, but erased its losses and finished higher as the euro weakened: Dollar Index +0.286, USDJPY +0.833, EURUSD -0.00459. The yen rallied to a 3-week high against the dollar but erased its gains and settled lower.

                Bullish factors included (1) comments from Japanese finance minister Noda who said the yen's movements have become one-sided and he will "keep a close eye" on the market, which may signal possible intervention in the currency market by Japan if recent yen strength continues, and (2) a possible increase in the safe-haven demand for the dollar after the IMF warned that the European economic recovery could "easily be derailed" by the debt crisis and that European finance ministers should increase the size of its 750 billion euro ba ilout fund.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after global stock markets rallied when President Obama agreed to extend he Bush-era tax cuts for 2 years, and (2) the action by European finance ministers to rule out immediate aid for Portugal and Spain or to increase the 750 billion-euro bailout fund.



•   January crude oil prices this morning are trading down -75 cents a barrel and January gasoline is -2.34 cents per gallon. Crude oil and gasoline prices yesterday rallied early after President Obama agreed to extend tax cuts but gave up their gains and closed lower as the dollar strengthened: CLF11 -$0.69, RBF11 -1.87. Jan crude rallied to a 26-month high but erased its gains and closed lower and Jan gasoline climbed to a 7-month high but shed its gains and finished lower.

                Bearish factors included (1) the rebound in the dollar which shook off early weakness and finished higher, (2) weakness in gasoline after Irving Oil and Valero Energy returned refinery units to service after scheduled maintenance, which will increase gasoline output, and (3) long liquidation in crude oil after prices jumped over $10 a barrel in the past 2-weeks (+13%) to a 26-month high.

                Bullish factors included (1) the action by President Obama to agree to extend the Bush-era tax cuts for 2 years, which may lift the economy and energy demand, (2) the prediction from the National Weather Service's Climate Prediction Center that temperatures from the US Midwest to the Northeast will be lower than normal from Dec 12 through Dec 20, and (3) the outlook for a decrease in US crude supplies when the DOE releases its weekly crude inventory data Wednesday. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil supplies to fall -1.5 million bbl, gasoline stockpiles to increase +750,000 bbl, distillate inventories to drop -900,000 bbl and the refinery capacity rate to rise +1.0 to 83.6%.

Thursday, December 9, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading unchanged. T-note prices yesterday extended Tuesday's sharp slide and fell to a 4-3/4 month low on speculation that the extension of the Bush-era tax cuts will bolster the economy: TYH11 -19, FVH11 -17, EDM11 -4.0. The yield on the 10-year T-note surged to a 6-month high of 3.32%.

                Bearish factors included (1) carry-over weakness from Tuesday's slump on speculation the extension of the Bush-era tax cuts will bolster economic growth and widen the budget deficit, (2) slack demand for the Treasury's $21 billion auction of 10-year T-notes that had a bid-to-cover ratio of 2.92, below the 12-auction average of 3.07, and (3) supply pressures ahead of the Treasury's auction of $13 billion in 30-year T-bonds on Thu.

                Bullish factors include (1) a possible increase in the safe-haven demand for Treasuries after the head of the IMF said the effects of the global financial turmoil "are far from over" and that Europe remai ns in a "troubling" situation, and (2) concern that the 57 bp spike in the 10-year T-note yield over the past week will further hamper any recovery in the beleaguered US housing market.



•   The dollar index this morning is trading higher with the dollar/yen -0.01 yen and the euro/dollar -0.44 cents. The dollar index yesterday moved higher on speculation the extension of US tax cuts will sustain the economic recovery: Dollar Index +0.140, USDJPY +0.541, EURUSD +0.00007.

                Bullish factors included (1) carry-over support from Tuesday's news of the extension of the Bush-era tax cuts, which may boost US economic growth, (2) the jump in the 10-year T-note yield to a 6-month high, which improves the dollar's interest rate differentials and may boost foreign demand for dollar-denominated assets, and (3) the unexpected decline in Oct German exports, which may signal a slowdown in the European economy and is euro negative.

                Bearish factors for the dollar included (1) the passing of an initial series of votes by Irish lawmakers for budget cuts in Ireland's 2011 budget, which is euro positive as it signals the possible passage of an austerity plan by Ireland to secure bailout funds, and (2) the unexpected increase in the Nov Bank of France business sentiment to a 2-3/4 year high.



•   January crude oil prices this morning are trading up +18 cents a barrel and January gasoline is +0.87 of a cent per gallon. Crude oil and gasoline prices yesterday fell after the dollar strengthened and gasoline supplies unexpectedly increased: CLF11 -$0.41, RBF11 -1.84.

                Bearish factors included (1) strength in the dollar, (2) the unexpected increase in weekly gasoline and distillate supplies (gasoline +3.81 million bbl versus expectations of a -300,000 bbl draw and distillates +2.15 million bbl versus expectations of -900,000 bbl), (3) the +6.1% increase in US ethanol production to a record 939,000 barrels a day in the week ended Dec 3, which may cut refinery demand for gasoline, and (4) a possible interest rate hike by China which could slow its energy demand after it said it will release its inflation data 2 days earlier than planned, which fuels speculation of an imminent interest rate hike.

                Bullish factors included (1) the larger-than-expected draw down of weekl y crude inventories (-3.82 million bbl versus expectations of -1.5 million bbl), (2) the action by the US Energy Department to bolster its crude oil price estimate for this year to $78.98 from a Nov estimate of $78.80 and to raise its 2011 crude price estimate to $86.08 a barrel from last month's forecast of $85.17 as it hiked its US oil consumption forecast for 2011 to 19.24 million bpd, up +80,000 bpd from last month's forecast, and (3) the prediction from Colorado State University of an above-average hurricane season for the Atlantic in 2011 with 17 named storms, above the average of 11 named storms which increase the chances of service disruptions and damage to Gulf Coast oil installations and refiners.

Friday, December 10, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +5 ticks. T-note prices yesterday traded mixed the entire day as Fed purchases of Treasuries offset a larger than expected decline in weekly unemployment claims: TYH11 -1, FVH11 -8.5, EDM11 +3.5.

                Bullish factors included (1) the Fed's purchase of $8.309 billion in Treasuries as part of its QE 2 program, (2) increased safe-haven demand for Treasuries after Fitch Ratings cut Ireland's credit rating, and (3) strong demand for the Treasury's $13 billion auction of 30-year T-bonds that had a bid-to-cover ratio of 2.74, higher than the 12-auction average of 2.64.

                Bearish factors include (1) the larger-than-expected decrease in weekly initial unemployment claims (-17,000 to 421,000 versus expectations of -11,000 to 425,000), and (2) Fed data that said US household wealth rose by $1.2 trillion in Q3 and that US household debt in Q3 fell -1.7%, its 10th consecutive quarterly decline, which may lead to an increase in consume r confidence that helps boost personal spending.



•   The dollar index this morning is trading lower with the dollar/yen -0.25 yen and the euro/dollar +0.17 cents. The dollar index yesterday closed higher for the fourth consecutive session on increased safe-haven demand after Ireland's credit rating was downgraded: Dollar Index +0.072, USDJPY -0.290, EURUSD -0.00237.

                Bullish factors included (1) weakness in the euro after Fitch Ratings cut Ireland's credit rating 3 levels to BBB+ from A+, citing "the additional fiscal costs of restructuring and supporting the banking system," and (2) the ECB's monthly bulletin which said the central bank will keep its emergency liquidity measures "as long as necessary, and at least" until mid-April.

                Bearish factors for the dollar included (1) strength in the yen after Q3 Japan GDP was revised higher, and (2) the euro positive statement from Fitch Ratings that said the Euro-Zone's "underlying credit fundamentals" are stronger than markets show and that the ri sk of a break-up of the Euro-Zone "is not sufficiently great to be factored into its sovereign debt ratings."



•   January crude oil prices this morning are trading +55 cents a barrel and January gasoline is +0.47 of a cent per gallon. Crude oil and gasoline prices fluctuated on either side of unchanged and settled slightly higher as optimism the economy was improving offset the negative effects of a stronger dollar: CLF11 +$0.09, RBF11 +3.58.

                Bullish factors included (1) the larger-than-expected decline in weekly initial unemployment claims, which indicates improvement in the labor market, (2) the upward revision to Q3 Japan GDP along with the biggest increase in Australian payrolls in 10 months, which signals strength in the global economy that may boost energy demand, and (3) strength in gasoline after Hovensa LLC shut its 150,000 barrel-a-day fluid catalytic cracker at its St. Croix refinery for repairs, which may reduce gasoline supplies available to the US East Coast.

                Bearish factors included (1) a stronger dollar, and (2) concern that the European credit crisis may worsen after Fitch Ratings cut Ireland's credit rating 3 levels, citing "the recent intensification of the financial crisis."

Monday, December 13, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -18 ticks and slid to a fresh 5-1/2 month low in overnight trade. T-note prices last Friday traded lower the entire day on strong economic data and a surging stock market: TYH11 -17.5, FVH11 -7.5, EDM11 -2.5.

                Bearish factors include (1) the narrower-than-expected Oct US trade balance (-$38.7 billion versus expectations of -$43.9 billion) which shrank to a 9-month low as exports jumped +3.2% to a 2-year high and is positive for Q4 GDP growth, (2) the larger-than-expected increase in Nov import prices which posted their biggest monthly gain in a year (+1.3% m/m and +3.7% y/y versus expectations of +0.8% m/m and +2.8% y/y), and (3) the larger-than-expected increase in the Dec US University of Michigan consumer confidence which rose to a 6-month high (+2.6 to 74.2 versus expectations of +0.8 to 72.5).

                Bullish factors included (1) increased safe-haven demand for Treasuries after the PBOC raised banks' reserve requirem ents for the third time in the last five weeks, which may slow Chinese growth and lead to global economic weakness, and (2) speculation that the FOMC on Tuesday will discuss a plan to extend its quantitative easing program.



•   The dollar index this morning is trading weaker with the dollar/yen +0.05 yen and the euro/dollar +0.56 cents. The dollar index last Friday finished slightly higher as the Oct US trade balance shrank more than expected and European leaders disagreed on how to stem the sovereign-debt crisis: Dollar Index +0.001, USDJPY +0.205, EURUSD -0.00106.

                Bullish factors included (1) weakness in the euro after France backed Germany in refusing to add to the European Union's 440 billion ($581 billion) rescue fund and rejected the idea of issuing joint euro-bonds, which shows division among European leaders on how to quell the European debt crisis, (2) the narrower than expected Oct US trade deficit which shrank to its lowest level in 9 months, and (3) the unexpected declines in Oct French industrial and manufacturing production, which is euro bearish.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after the stock market rallied when the Dec US University of Michigan consumer confidence rose more than expected to a 6-month high, and (2) euro supportive comments from ECB President Trichet who said the economic recovery in the Euro-Zone is "on track" and that "every quarter we have revised upward the projections for growth this year in 2010."



•   January crude oil prices this morning are trading up +$1.26 a barrel and January gasoline is +3.82 cents per gallon. Crude oil and gasoline prices slipped last Friday as the dollar strengthened: CLF11 -$0.58, RBF11 -3.12.

                Bearish factors included (1) a rally in the dollar, which reduces investment demand in commodities, (2) the action by the PBOC to raise banks' reserve requirements for the third time in the last five weeks, which may slow China's economy and energy demand, and (3) the prediction from tanker-tracker Oil Movements that OPEC will boost its crude shipments by 2.6% to 23.76 million barrels a day in the four weeks to Dec 25.

                Bullish factors included (1) the +26% m/m increase in Nov China crude imports to 20.3 MMT as refiners ramped up crude processing rates to ease a diesel shortage, and (2) the action by the IEA to raise its 2011 global crude oil demand forecast for the third straight month to 88.8 million barrels a day, up +260,000 barrels from their pre vious forecast and that global oil demand in Q3 of this year grew 3.3 million barrels a day y/y.

Tuesday, December 14, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -3 ticks. T-note prices yesterday slumped to a 5-month low early but then rallied after mid-morning after a federal judge ruled against the US health-care overhaul: TYH11 +14, FVH11 +10, EDM11 +3.5. The 10-year T-note yield rose to a 6-1/4 month high of 3.39% but fell back and closed at 3.28%.

                Bullish factors include (1) the action by a US federal judge to rule that the US health-care overhaul in unconstitutional, which eases concern that the government will struggle to contain record deficits, and (2) the action by the Fed to buy $7.79 billion of Treasuries as part of its QE 2 program.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after global stock markets rallied when China refrained from raising interest rates, and (2) speculation that Congress will support economic growth by passing President Obama's agreement to extend tax cuts.



•   The dollar index this morning is trading weaker and posted a 3-week low in overnight trade with the dollar/yen -0.36 yen and the euro/dollar +0.78 cents. The dollar index yesterday fell to a 1-week low on reduced safe-haven demand after global stock markets rallied: Dollar Index -0.786, USDJPY -0.559, EURUSD +0.01631.

                Bearish factors included (1) the action by China to refrain from raising interest rates, which lifted global equity markets on increased demand for riskier assets, and (2) the statement from Moody's Investors Service that said the US tax-cut package up for a procedural vote in the Senate boosts the chances for a negative outlook on the US credit rating.

                Bullish factors for the dollar included (1) the early jump in Treasury yields which improved the dollar's interest rate differentials and may improve foreign demand for dollar assets, and (2) the quarterly report from Germany's Bundesbank that said 2011 German GDP growth may weaken to 2.0% from 3.6% this year as the German economy shows a "considerable slowdown" in Q1 of 2011, which is euro negative.



•   January crude oil prices this morning are trading +4 cents a barrel and January gasoline is -0.67 of a cent per gallon. Crude oil and gasoline prices moved higher yesterday as the dollar weakened and after China's refiners boosted crude processing to a record in November: CLF11 +$0.82, RBF11 +0.91.

                Bullish factors included (1) the weaker dollar, which boosts investment demand in commodities, (2) the action by China's refineries to process a record 36.65 MMT of crude oil in Nov, or 8.96 million barrels a day, a sign of strong demand, and (3) the statement from Goldman Sachs that global oil demand has exceeded supply by more than 900,000 barrels a day on a seasonally adjusted basis since May, along with their prediction that the world oil market will remain in deficit in the first half of next year with prices averaging $100 a barrel in 2011 an $110 a barrel in 2012.

                Bearish factors included (1) the prediction from Merrill Lynch that Saudi Arabia will lead OPEC to incre ase crude production "early next year" to avoid a surge in prices that could put the global economic recovery at risk, and (2) the quarterly report from Germany's Bundesbank that said 2011 German GDP growth may weaken to 2.0% from 3.6% this year as the German economy shows a "considerable slowdown" in Q1 of 2011, which may lead to reduced energy demand.

Wednesday, December 15, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +8 ticks on increased safe-haven demand after Moody's Investors Service put Spain's credit rating on review for possible downgrade. T-note prices yesterday moved sharply lower on strong economic data after US retail sales and wholesale inflation increased more than expected: TYH11 -1-12/32, FVH11 -22.7, EDM11 -1.0. The 10-year T-note yield jumped to a 6-3/4 month high of 3.488%.

                Bearish factors include (1) the larger-than-expected increase in Nov retail sales and the upward revision to Oct (Nov +0.8% and +1.2% less autos versus expectations of +0.6% and +0.6% less autos and Oct retail sales revised up to +1.7% and +0.8% less autos from the previously reported +1.2% and +0.4% less autos), (2) the larger-than-expected increase in Nov PPI (+0.8% m/m and +3.5% y/y versus expectations of +0.6% m/m and +3.3% y/y), and (3) speculation that President Obama's agreement to extend tax cuts will win passage in Congress, which may support economic growth and widen the budget deficit.

                Bullish factors centered on the post-FOMC meeting statement that said (1) the Fed plans to keep interest rates low for an "extended period" and will maintain its plan to purchase $600 billion of Treasuries through June to "promote a stronger pace of economic recovery that is continuing at a rate that has been insufficient to bring down unemployment," and (2) deflation concerns after the Fed said the "measures of underlying inflation have continued to trend downward."



•   The dollar index this morning is trading higher with the dollar/yen +0.18 yen and the euro/dollar -0.20 cents. The dollar index yesterday rebounded from a 3-week low and closed little changed on speculation that a strengthening US economy will prompt the Fed not to increase its asset purchases: Dollar Index +0.083, USDJPY +0.268, EURUSD -0.00129.

                Bullish factors included (1) the rise in Treasury yields after Nov US retail sales increased more than forecast, which may prompt the Fed to reduce its purchases of Treasury debt, and (2) the prediction from Bank of Tokyo-Mitsubishi that the dollar will strengthen to $1.27 per euro in Q1 of 2011 as the ongoing European sovereign-debt crisis will fuel an increase in the safe-haven demand for the dollar because "the dollar is the only viable liquid reserve-currency alternative to the euro."

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar as the stock market rallied, (2) the stronge r than expected Dec German ZEW economic sentiment which is euro positive, and (3) the Fed's pledge to keep interest rates low for an "extended period" along with keeping their plan to purchase $600 billion of Treasuries through June to "promote a stronger pace of economic recovery."



•   January crude oil prices this morning are trading down -76 cents a barrel and January gasoline is -1.14 cents per gallon. Crude oil and gasoline prices yesterday settled lower as the dollar rebounded from a 3-week low and on expectations for an increase in weekly gasoline inventories: CLF11 -$0.33, RBF11 -2.20.

                Bearish factors included (1) the rebound in the dollar index which recovered from a 3-week low to settle little changed, which reduces investment demand in commodities, and (2) weakness in gasoline prices on the outlook for an increase in weekly gasoline supplies when the DOE reports weekly gasoline inventories on Wed.

                Bullish factors included (1) a possible increase in heating fuel demand after the National Weather Service's Climate Prediction Center predicted that temperatures in the eastern half of the US will be below normal from Dec 19 to Dec 27, (2) the prediction from Goldman Sachs that a drop in OPEC spare production capacity will signal a "second stage" in the oil market's recovery that will lift crude prices above $100 a barrel by the second half of 2011, and (3) the prediction from Banque Saudi Fransi that "in order for Saudi Arabia to push other OPEC members to increase oil production, prices have to remain at or above $100 a barrel for a long period and not only for some weeks or a month." Expectations for Wednesday's DOE weekly inventory report are for crude oil stockpiles to drop -2.5 million bbl, gasoline inventories to increase +2.0 million bbl, distillate supplies to remain unchanged, and the refinery capacity rate to remain unchanged at 87.5%.

Thursday, December 16, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +10.5 ticks. T-note prices yesterday erased an early rally after mid-morning and settled lower after strong US economic data offset increased flight-to-safety demand from the ongoing European debt crisis: TYH11 -12, FVH11 -7.5, EDM11 -6.0. The 10-year T-note yield climbed to a 7-month high of 3.556%.

                Bearish factors include (1) the larger-than-expected increase in the Dec Empire manufacturing index (+21.7 to 10.6 versus expectations of +16.1 to 5.0), (2) stronger-than-expected Nov industrial production (+0.4% versus expectations of +0.3%), and (3) the larger-than-expected increase in Nov capacity utilization, which climbed to its highest level in 25 months (+0.3 to 75.2 versus expectations of +0.2 to 75.0%).

                Bullish factors included (1) increased safe-haven demand for Treasuries after Moody's Investors Service put Spain's credit rating on review for possible downgrade, and (2) increased foreign demand for Treasuri es after China, the biggest holder of US Treasuries, increased its holdings of US debt in Oct by $23.3 billion to $906.8 billion and Japan, the second-biggest holder of US government debt, increased its holdings in Oct by $12.8 billion to $877.4 billion.



•   The dollar index this morning is trading lower with the dollar/yen -0.19 yen and the euro/dollar +0.41 cents. The dollar index yesterday closed higher on increased safe-haven demand from the European debt crisis along with stronger-than-expected US economic data: Dollar Index +0.894, USDJPY +0.580, EURUSD -0.01641.

                Bullish factors included (1) increased safe-haven demand for the dollar after Moody's Investors Service put Spain's credit rating on review for possible downgrade, (2) stronger-than-expected US economic data after the Dec Empire manufacturing index expanded more than expected while Nov industrial production rose more than forecast and Nov capacity utilization climbed to a 25-month high, and (3) the jump in the yield on the 10-year T-note to a 7-month high of 3.556%, which improves the dollar's interest rate differentials and may boost foreign demand for dollar assets.

                Bearish factors for the dollar included (1) a decrease in foreign demand for US dollar ass ets after the Oct TIC flows slowed from a month earlier, and (2) the prediction from Citigroup that the dollar may drop 11% against the euro next year as investors shun US assets and drive Treasury prices lower.



•   January crude oil prices this morning are trading down -41 cents a barrel and January gasoline is -0.23 of a cent per gallon. Crude oil and gasoline prices yesterday recovered from early weakness and settled higher after weekly crude inventories dropped by the most in 8 years: CLF11 +$0.34, RBF11 +1.28. Jan crude closed higher after posting a 1-week low and Jan gasoline finished higher after rebounding from a 2-week low.

               Bullish factors included (1) stronger-than-expected US economic data after the Dec Empire manufacturing index expanded more than expected while Nov industrial production rose more than forecast and Nov capacity utilization climbed to a 25-month high, (2) the plunge in weekly crude oil inventories by the most in 8 years (-9.85 million bbl versus expectations of -2.5 million bbl), (3) the smaller-than-expected increase in weekly gasoline inventories (+809,000 bbl versus expectations of +2.0 million bbl), and (4) an increase in US gasoline demand after t he Energy Department reported that US gasoline demand as measured by what refiners and blenders provide to wholesalers in the week ended Dec 10 rose 1.9% to a 7-week high of 9.35 million barrels a day.

                Bearish factors included (1) the stronger dollar, and (2) the unexpected increase in weekly distillate inventories, which are now +16% above their 5-year average for the period (+1.09 million bbl versus expectations of no change).

Friday, December 17, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +15 ticks. T-note prices yesterday closed higher as increased safe-haven demand for Treasuries from the ongoing European sovereign-debt crisis overshadowed stronger-than-expected US economic data: TYH11 +10, FVH11 +4.5, EDM11 +5.0. The 10-year T-note yield climbed to a 7-month high of 3.560% before turning lower.

                Bullish factors included (1) increased safe-haven demand for Treasuries after Moody's Investors Service placed Greece's credit ratings on review for possible downgrade due to concerns about Greece's ability to cut debt to "sustainable levels" and a revenue shortfall this year, and (2) the unexpected decline in Nov US building permits to a 19-month low (-4.0% to 530,000 versus expectations of +1.5% to 560,000).

                Bearish factors include (1) the unexpected decline in weekly initial US unemployment claims (-3,000 to 420,000 versus expectations of +4,000 to 425,000), (2) the larger-than-expected incre ase in Nov US housing starts (+3.9% to 555,000 versus expectations of +6.0% to 550,000), and (3) the unexpected increase in the Dec Philadelphia Fed manufacturing index which expanded at its fastest pace in 5-1/2 years (+1.8 to 24.3 versus expectations of -7.5 to 15.0).



•   The dollar index this morning is trading little changed with the dollar/yen +0.13 yen and the euro/dollar +0.09 cents. The dollar index yesterday finished slightly lower as short-covering in the euro ahead of the 2-day meeting of EU leaders offset stronger-than-expected US economic data that boosted Treasury yields: Dollar Index -0.080, USDJPY -0.326, EURUSD +0.00299.

                Bearish factors for the dollar included (1) concern that the US housing crisis may derail the economic recovery after Nov US building permits unexpectedly declined to 19-month low, (2) euro short-covering ahead of the 2-day summit in Brussels by EU leaders to discuss the debt crisis, and (3) the larger-than-expected increase in the Dec German PMI manufacturing index to a 5-month high, which is euro positive.

                Bullish factors included (1) stronger-than-expected US economic data on weekly initial unemployment claims and Dec Philadelphia Fed manufacturing, which sent the yield on the 10-year T-note to a 7-mo nth high of 3.56% and improves the dollar's interest rate differentials and may increase demand for dollar assets, (2) the action from Moody's Investor's Service to place Greece's Ba1 local and foreign currency government bond ratings on review for possible downgrade, which is euro negative and may increase the safe-haven demand for the dollar.



•   January crude oil prices this morning are trading -18 cents a barrel and January gasoline is +0.37 of a cent per gallon. Crude oil and gasoline prices yesterday traded on the defensive most of the day due to strength in the dollar: CLF11 -$0.92, RBF11 -0.49.

                Bearish factors included (1) stronger-than-expected US economic data that boosted the dollar, and (2) the weaker than expected Dec Euro-Zone PMI composite which signals a decrease in energy consumption.

                Bullish factors included (1) the unexpected decline in US weekly unemployment claims along with the unexpected increase in the Dec Philadelphia Fed manufacturing index to its best level in 5-1/2 years, which signals an economic recovery that has legs and may boost fuel demand, and (2) the action by Barclays Plc to hike its crude oil forecast for next year to $91 a barrel from $85, saying that OPEC won't consider increasing oil production until crude prices reach $100 a barrel, rather than raising crude output befor e prices rise that far.

Monday, December 20, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +2 ticks. T-note prices last Friday traded higher throughout the day and finished sharply higher on increased safe-haven demand after Moody's cut Ireland's credit rating: TYH11 +1-1/32, FVH11 +16.5, EDM11 +4.0.


                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis may worsen after Moody's Investors Service downgraded Ireland's credit rating five notches to Baa1 from Aa2, with a "negative" outlook, and (2) the action by the Fed to purchase $2.03 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors include (1) reduced safe-haven demand for Treasuries after Nov US leading indicators rose +1.1% m/m, the biggest increase in 8 months and a sign that the economic recovery will continue into next year, and (2) the action by Congress to pass the $858 billion bill that extends tax cuts enacted during the Bush administration for another 2 years, which may fuel further growth in the US economy and widen the budget deficit.



•   The dollar index this morning is trading higher with the dollar/yen -0.20 yen and the euro/dollar -0.21 cents. The dollar index last Friday rallied to a 2-week high and closed higher on increased safe-haven demand on concern the European sovereign-debt crisis will worsen: Dollar Index +0.192, USDJPY -0.035, EURUSD -0.00584.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar after Moody's Investors Service downgraded Ireland's credit rating five notches to Baa1 from Aa2 with a negative outlook, (2) weakness in the British pound which plunged to a 3-month low against the dollar after Nov UK nationwide consumer confidence unexpectedly fell to a 20-month low, and (3) disappointment that the 2-day EU summit on the debt crisis failed to yield any immediate concrete steps to stem the crisis, which undercut confidence in the euro and fueled its decline to a 2-week low against the dollar.

                Bearish factors included (1) the unexpected increase in the Dec German IFO business climate which rose to its highest level since records for a reunified Germany began in 1991 and is euro bullish, and (2) the agreement by European Union leaders to amend the bloc's treaties to create a permanent debt-crisis mechanism in 2013, which temporarily boosted the euro.



•   January crude oil prices this morning are trading up +67 cents a barrel and January gasoline is +2.50 cents per gallon. Crude oil and gasoline prices last Friday closed slightly higher as an increase in US leading economic indicators offset a rally in the dollar: CLF11 +$0.32, RBF11 +1.35.

                Bullish factors included (1) the +1.1% m/m increase in Nov US leading indicators, the biggest increase in 8 months and a sign that fuel demand may improve as the economic recovery continues into next year, (2) the unexpected increase in the Dec German IFO business confidence to a record high, which improves the outlook for the European economy and energy demand, and (3) the report from the API that said Nov US fuel consumption jumped +6.5% y/y to 20 million barrels a day and that total US fuel consumption from Jan-Nov is up +2.4% y/y to 19.2 million barrels a day.

                Bearish factors included (1) the surge in the dollar index to a 2-week high, which reduces investment demand for commodi ties, and (2) the prediction from tanker-tracker Oil Movements that OPEC crude oil shipments will increase +0.3% to 23.46 million barrels a day in the four weeks to Jan 1.

Tuesday, December 21, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +9 ticks on Moody's threat to downgrade Portugal's bond rating. T-note prices yesterday traded higher early on increased safe-haven demand due to heightened tensions on the Korean peninsula but then retreated into the close as the stock market strengthened: TYH11 -5.5, FVH11 +0.5, EDM11 unchanged.

                Bearish factors include (1) reduced safe-haven demand for Treasuries after the S&P 500 Index rallied to a 27-month high, and (2) comments from St. Louis Fed President Bullard who said that US GDP "will be stronger in 2011 than people thought."

                Bullish factors included (1) increased safe-haven demand for Treasuries on geo-political concerns after North Korea threatened retaliation for military exercises by South Korea, and (2) the action by the Fed to purchase $7.79 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading lower with the dollar/yen -0.12 yen and the euro/dollar +0.24 cents. The dollar index yesterday climbed to a 2-week high and finished higher due to increased safe-haven demand on concern Europe's debt crisis may worsen: Dollar Index +0.255, USDJPY -0.107, EURUSD -0.00542.

                Bullish factors for the dollar included (1) the slide in the euro to a 2-week low against the dollar after the ECB said it has "serious concerns" that Ireland's new banking legislation might threaten the central bank's ability to run liquidity operations, (2) increased safe-haven demand for the dollar after the costs to insure French government debt rose to a record, which indicates France may be at risk of losing its top credit rating, (3) the unexpected drop in Dec Euro-Zone consumer confidence which weakened for the first time in the last 6 months, and (4) comments from St. Louis Fed President Bullard who said the European fiscal crisis is "ve ry serious" and that he thinks it will continue for "quite a while."

                Bearish factors included (1) comments from Spanish Finance Minister that Salgado who said that Spain will meet its overall deficit goal of 9.3% of GDP this year, which is euro positive, and (2) euro bullish comments from ECB President Trichet who attempted to jawbone the euro higher when he said the euro remains a credible currency and the idea that some states might withdraw from it is "absurd."



•   February crude oil prices this morning are trading up +3 cents a barrel and February gasoline is +0.54 of a cent per gallon. Crude oil and gasoline prices yesterday finished stronger as optimism over US growth prospects offset a stronger dollar: CLG11 +$0.77, RBG11 +4.95.

                Bullish factors included (1) speculation that fuel demand will improve heading into the Christmas holidays, (2) data from the US Department of Transportation that showed US drivers increased their mileage driven by +0.6% in the first 10 months of this year compared with last year, which signals increased gasoline demand, (3) speculation that the abnormally cold weather in Europe and the US will increase demand for heating fuels, and (4) comments from St. Louis Fed President Bullard who said that recent US economic data "bodes well" for 2011, which could also improve US energy demand.

                Bearish factors included (1) the rally in the dollar index to a 2-week high, which reduces investment demand for commodities, and (2) speculation that the ongoing European debt crisis will reduce economic growth and energy demand.

Wednesday, December 22, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading unchanged. T-note prices yesterday finished higher as safe-haven demand increased on concern the European sovereign-debt crisis may worsen: TYH11 +5, FVH11 -0.5, EDM11 +1.5.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concerns the European debt crisis may worsen after Moody's Investors Service said it may cut Portugal's bond rating "by a notch or two" because of concerns over "sluggish" economic growth and Fitch Ratings put Greece's debt ratings on rating watch negative, and (2) the action by the Fed to purchase $7.79 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors include (1) reduced safe-haven demand for Treasuries as tensions eased on the Korean Peninsula along with the surge in the S&P 500 Index to a 2-1/4 year high, and (2) rising inflation concerns after St. Louis Fed President Bullard said he's "very concerned about fee dbacks to commodity prices" from the Fed's second round of quantitative easing.



•   The dollar index this morning is trading lower with the dollar/yen -0.23 yen and the euro/dollar +0.56 cents. The dollar index yesterday traded mixed most of the day but then rallied to a 2-week high late in the session and closed higher on increased European debt concerns: Dollar Index +0.255, USDJPY -0.107, EURUSD -0.00542.

                Bullish factors included (1) increased safe-haven demand for the dollar as the euro slipped to a 2-week low against the dollar on concern the European sovereign-debt crisis may worsen after the cost to insure Portuguese government debt rose to a 3-week high when Moody's Investors Service said it may cut Portugal's bond rating "by a notch or two" because of concerns over "sluggish" economic growth, along with the action by Fitch Ratings to put Greece's debt ratings on rating watch negative as it reviews the nation's "fiscal sustainability," and (2) a possible increase in international demand for dollars after the Fed e xtended its dollar swap arrangement with the ECB, the BOJ, the BOE, the BOC and the SNB through Aug 1 of 2011.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after global stock markets rallied and as tensions eased on the Korean Peninsula, and (2) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who attempted to jawbone the euro higher when he said the "euro is not in crisis" and that any such speculation is "unfounded chatter."



•   February crude oil prices this morning are trading up +36 cents a barrel and February gasoline is +1.59 cents per gallon. Crude oil and gasoline prices yesterday moved higher on optimism that the global economic recovery can be sustained: CLG11 +$0.45, RBG11 +1.96. Feb crude posted a 1-week high and nearest-futures (Jan) gasoline jumped to a 7-1/2 month high.

                Bullish factors included (1) the weaker dollar, which encourages demand for commodities, (2) the +15% y/y increase in Nov China oil-product consumption with an overall +11% increase in overall Chinese oil product demand in the first 11 months of this year, and (3) the outlook for weekly US crude inventories to decline for a third week when the DOE releases its inventory figures on Wed.

                Bearish factors included (1) adverse weather in Europe which has forced airport closures and flight cancellations for a fourth day, which signals reduced fuel demand, and (2) the statement from Moody's Investors Service that it ma y cut Portugal's bond rating "by a notch or two" because of concerns over "sluggish" economic growth, which signals the European debt crisis may worsen and reduce economic growth and energy demand. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil supplies to fall -3.5 million bbl, gasoline inventories to increase +1.5 million bbl, distillate stockpiles to decline -500,000 bbl and the refinery capacity rate to remain unchanged at 88.0%.

Thursday, December 23, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -3.5 ticks. T-note prices yesterday finished lower as a rally in stocks reduced the safe-haven demand for Treasuries: TYH11 -7.5, FVH11 -5.2, EDM11 unchanged.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after the S&P 500 climbed to a 2-1/4 year high, and (2) the unexpected increase in the Oct FHFA house price index (+0.7% m/m versus expectations of -0.2% m/m).

                Bullish factors include (1) the unexpected downward revision to the Q3 core PCE deflator to its slowest pace of increase since data began in 1959 (+0.5% q/q versus the previously reported +0.8% q/q), (2) the smaller-than-expected increase in Nov US existing home sales (+5.6% to 4.68 million versus expectations of +7.0% to 4.74 million), and (3) the action by the Fed to purchase $2.07 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading little changed with the dollar/yen -0.53 yen and the euro/dollar -0.10 cents. The dollar index yesterday gyrated on either side of unchanged as weaker-than-expected US economic data offset European debt crisis concerns: Dollar Index +0.009, USDJPY -0.172, EURUSD -0.00015.

                Bearish factors included (1) the weaker than expected upward revision to US Q3 GDP along with the smaller-than-expected increase in Nov US existing home sales, and (2) strength in the euro after Nov German import prices rose a more-than-expected +10.0% y/y, a 10-year high.

                Bullish factors for the dollar included (1) the slump in the British pound to a 3-1/2 month low against the dollar after Q3 UK GDP was unexpectedly revised lower, and (2) increased safe-haven demand for the dollar on concern the European sovereign-debt crisis will worsen after credit-default swaps insuring Greek government debt rose 13 bp to a 1-month high of 983 bp.



•   February crude oil prices this morning are trading up +2 cents a barrel and February gasoline is -0.33 of a cent per gallon. Crude oil and gasoline prices yesterday moved higher after weekly US crude inventories slipped to a 10-month low: CLG11 +$0.66, RBG11 +2.53. Feb crude soared to a 2-year high and nearest-futures (Jan) gasoline climbed to a 7-1/2 month high.

                Bullish factors included (1) the larger-than-expected drawdown of weekly crude inventories to their lowest level since Feb (-5.33 million bbl to 340.7 million bbl versus expectations of -3.5 million bbl), and (2) the upward revision to Q3 US GDP, which indicates stronger fuel consumption.

                Bearish factors included (1) the larger-than-expected increase in weekly gasoline inventories (+2.40 million bbl versus expectations of +1.5 million bbl), (2) reduced demand after US gasoline demand fell -1.5% w/w to 9.21 million bpd, and (3) the action by China to increase its domestic gasoline and diesel prices for the th ird time this year, which may reduce its fuel demand.

Stocks Set for Best December Performance in a Decade
Published: Friday, 24 Dec 2010 | 7:19 AM ET

World stocks clung near two-year peaks while oil rose towards the $92 per barrel mark on Friday after yet another burst of strong economic figures from the United States encouraged some year-end buying.

The latest rally in major European and U.S. stock indices has given investors the biggest December gains in more than a decade.

Expectations of strong U.S. fourth quarter performance was further cemented by latest data which showed demand for  durable goods rising and consumer spending picking up.     

A slew of strong numbers coming out of the world's biggest economy in recent weeks has given global growth bulls another reason to cheer and boosted commodities and stocks.

Reflecting that growing optimism, the Asia Pacific-ex Japan shares for energy shares advanced  slightly while other indexes were broadly flat to slightly lower. 

Trading was thin and prices confined in narrow ranges in Asia, with many centers on holiday in thin year-end markets. U.S markets are also shut along with many European centers.

World stocks as measured by the MSCI extended gains by nearly 6.5 percent so far this month while  the Asia-Pacific version was largely  unchanged.

"In the U.S., fears of a double dip recession have receded considerably with the extension of tax relief agreed in  December and a second round of quantitative easing in  November," Fitch Ratings said. 

"High frequency activity has also turned more positive, reflecting strength in private consumption and corporate profitability."

That has made investors more sanguine towards developed markets.

Latest EPFR data showed developed markets equity funds  posted their longest fund inflow streak since the fourth  quarter of 2009 at the expense of emerging markets equity funds. 

Heady Brew
     
Copper prices too stuck near record peaks while  the S&P/Goldman commodities index was set for its best monthly performance since May 2009.

Oil maintained its upward trajectory, having gained nearly 9 percent so far this month raising concerns that more sharp gains could be negative for Asian economies as it would feed  into inflationary expectations. The region is a net importer of oil.

Easy money from the Federal Reserve, a strong global economic recovery, and Chinese policymakers that still seem a little too reluctant to sacrifice growth for necessary reforms  has proved to be a heady brew for raw materials with major commodity indices up by 10 percent since mid-November, Gavekal strategists said. 

The euro held its ground versus majors with the prospect of a significant short squeeze rising as the downside  momentum was fading. A breach of $1.32 could trigger a move  back towards the Dec. 17 high around $1.3360.

"The euro is still a sell-on-rally trade. Anything above $1.32 is worthwhile selling in my view and probably there won't be any buyers until the low $1.30s, where we could see  some Asian central bank interest," a trader at a U.S.  investment bank said.

Concerns on the eurozone's debt crisis kept simmering after Fitch cut Portugal's ratings by a notch to A-minus, pressuring peripheral European countries CDS higher.

Benchmark 10-year U.S. Treasury yields were  steady after rising slightly overnight to 3.40 percent. They are up by nearly 100 bps since the Fed's announcement of its  much awaited second round of quantitative easing last month. 

Monday, December 27, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -13 ticks. T-note prices last Thursday settled lower after US consumer confidence increased and US consumer spending advanced for a fifth month: TYH11 -13, FVH11 -7.7, EDM11 -2.0.

                Bearish factors included (1) the +0.4% m/m increase in Nov personal spending along with the upward revision to Oct (+0.7% from the previously reported +0.4%), a sign that the US economic recovery will continue, and (2) the as-expected increase in the Dec US University of Michigan consumer confidence to a 6-month high (+0.3 to 74.5).

                Bullish factors include (1) the smaller-than-expected increase in the Nov PCE core deflator (+0.8% y/y versus expectations of +0.9% y/y), which matched its smallest gain since records started in 1960, and (2) the weaker-than-expected Nov US new home sales (+5.5% to 290,000 versus expectations of +6.0% to 300,000).



•   The dollar index this morning is trading weaker and at a 1-week low with the dollar/yen -0.09 yen and the euro/dollar +0.39 cents. The dollar index last Thursday finished weaker as reports showed strength in the US economy, which reduced demand for the dollar in favor of riskier higher-yielding assets: Dollar Index -0.231, USDJPY -0.654, EURUSD +0.00145.

                Bearish factors included (1) the increase in Nov US personal spending for a fifth month, which indicates the economic recovery is continuing, and (2) the stronger-than-expected Nov French consumer spending, which is euro positive.

                Bullish factors for the dollar centered on increased safe-haven demand on concern the European sovereign-debt crisis is worsening after (1) Fitch Ratings cut Hungary's long-term credit rating with a negative outlook and also downgraded Portugal's long-term foreign and local currency issuer default ratings with negative outlooks, and (2) credit-default swaps to insure Greek government debt ro se +38 bp to a 1-month high of 1,019 bp.



•   February crude oil prices this morning are trading down -40 cents a barrel and February gasoline is -1.14 cents per gallon. Crude oil and gasoline prices last Thursday moved higher for the fourth consecutive session on a weaker dollar and an increase in US consumer confidence: CLG11 +$1.03, RBG11 +1.93. Feb crude posted a 26-month high and nearest-futures (Jan) gasoline climbed to a 7-1/2 month high.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, and (2) strong US economic data that showed Nov US consumer spending climbing for the fifth straight month and Dec US University of Michigan consumer confidence rising to a 6-month high.

                Bearish factors included (1) concern the ongoing European sovereign-debt crisis will worsen and limit economic growth and energy demand after Fitch Ratings cut Hungary's long-term credit rating, and (2) the weaker than expected Nov US new home sales, which signals the US housing crisis may lin ger and curb economic growth and fuel demand.

Tuesday, December 28, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +6 ticks. T-note prices yesterday slipped to a 1-week low early in the session but recovered their losses mid-afternoon and closed higher after the Treasury's 2-year T-note auction was met with strong demand: TYH11 +11, FVH11 +2.7, EDM11 +2.0.

                Bullish factors included (1) strong demand for the Treasury's $35 billion 2-year T-note auction that had a bid-to-cover ratio of 3.71 compared with the 12-auction average of 3.26, and (2) increased safe-haven demand for Treasuries after the stock market traded weaker much of the day.

                Bearish factors included (1) carry-over weakness from a decline in global bond markets after China raised interest rates for the second time in 2 months, and (2) supply pressures ahead of the Treasury's $35 billion auction of 5-year T-notes on Tue.



•   The dollar index this morning is trading lower and at a 1-week low with the dollar/yen -0.94 yen and the euro/dollar +0.100 cents. The dollar index yesterday fell to a 1-week low and closed lower after China raised interest rates: Dollar Index -0.108, USDJPY -0.112, EURUSD +0.00511. The Japanese yen climbed to a 2-1/2 week high against the dollar.

                Bearish factors included (1) the action by China to hike interest rates for the second time in 2 months, which boosted the yen to a 2-1/2 week high against the dollar on increased safe-haven demand, and (2) strength in the euro after the ECB said it boosted its purchases of Euro-Zone government bonds the past week to 1.12 billion euros ($1.45 billion), nearly double the previous week, which may stop or slow the European debt crisis and reduce the safe-haven demand for the dollar.

                Bullish factors for the dollar included (1) comments from ECB Executive Board member Stark who said that while some European economies have shown surprisingly strong recoveries, high debt levels don't only affect individual nations and "we are still in an open crisis," and (2) weakness in the commodity currencies of Australia and Canada on speculation that Chinese commodity demand will weaken after it raised interest rates.



•   February crude oil prices this morning are trading up +34 cents a barrel and February gasoline is +0.22 of a cent per gallon. Crude oil and gasoline prices yesterday finished lower on speculation the action by China to raise interest rates for the second time in 2 months will slow its economic growth and energy demand: CLG11 -$0.51, RBG11 -1.94. Feb crude posted a 26-month high but shed its gains and finished lower.

                Bearish factors included (1) the action by China to raise interest rates, which may slow its economy and fuel consumption, and (2) the statement from Iraq's Oil Minister who said that Iraqi oil production will exceed 2.6 million bpd for the first time in 20 years, which should boost global oil supplies.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, and (2) cold weather and snowstorms along the east coast of the US, which should increase demand for heating fuels.

Wednesday, December 29, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +5.5 ticks. T-note prices yesterday ratcheted lower the entire day on supply pressures and strong US holiday sales: TYH11 -29, FVH11 -14.2, EDM11 -1.0.

                Bearish factors included (1) the report from MasterCard Advisors' SpendingPulse, which measures retail sales by all payment forms, that showed US retailers' 2010 holiday sales jumped 5.5% y/y, the strongest pace of sales in 5 years, (2) the larger-than-expected increase in the Dec Richmond Fed manufacturing index to its best level in 7 months (+16 to 25 versus expectations of +2 to 11), (3) weak demand for the Treasury's $35 billion auction of 5-year T-notes that had a bid-to-cover ratio of 2.61, below the 12-auction average of 2.75 and the lowest demand in 6 months, and (4) supply pressures ahead of the Treasury's $29 billion auction of 7-year T-notes on Wed.

                Bullish factors included (1) the larger-than-expected drop in home prices in the Oct S&P/CaseShiller co mposite-20 home price index (-1.0% m/m and -0.8% y/y versus expectations of -0.6% m/m and -0.2% y/y), (2) the unexpected decline in Dec US consumer confidence (-1.8 to 52.5 versus expectations of +2.3 to 56.4), and (3) the action by the Fed to purchase $6.78 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading weaker with the dollar/yen -0.25 yen and the euro/dollar +0.09 cents. The dollar index yesterday fell to a 1-week low but recovered its losses and finished little changed after the ECB failed to neutralize the extra liquidity created by its bond purchases: Dollar Index -0.001, USDJPY -0.419, EURUSD -0.00499. The Japanese yen rallied to a 1-1/2 month high against the dollar.

                Bullish factors for the dollar included (1) the unexpected downward revision to Q3 French GDP, which is euro negative, (2) the action by the ECB to drain only 61.78 billion euros of excess liquidity caused by its recent bond purchases, nearly 13 billion euros less than the 73.5 billion euros it intended to absorb, which is actual quantitative easing and is bearish for the euro, and (3) comments from Japanese Finance Minister Noda who attempted to jawbone the yen lower with hints of currency intervention when he said the yen's recent appreciation has been &qu ot;one-sided" and he warned of "bold" action against the yen's advance if needed.

                Bearish factors included (1) the unexpected decline in Dec US consumer confidence which is dollar negative, and (2) the larger-than-expected decline in the Oct S&P/CaseShiller home price index, which may prompt the Fed into additional easing measures due to the weak housing market.



•   February crude oil prices this morning are trading down -68 cents a barrel and February gasoline is -1.01 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged and finally settled mixed as strength in retail sales offset a drop in consumer confidence: CLG11 +$0.49, RBG11 -0.90.

                Bullish factors included (1) the report from MasterCard Advisors' SpendingPulse, which measures retail sales by all payment forms, that showed US retailers' 2010 holiday sales jumped 5.5% y/y, the strongest pace of sales in 5 years and is bullish for US fuel demand, and (2) the larger-than-expected increase in the Dec Richmond Fed manufacturing index to its best level in 7 months, which signals strength in the US economy that may lead to increased energy demand.

                Bearish factors included (1) the rebound in the dollar which fell to a 1-week low but recovered to close higher, and (2) the unexpected decline in Dec US consumer confidence, which questions th e sustainability of the economic recovery and energy demand. Expectations for Thursday's weekly DOE inventory report (delayed 1 day because of the Christmas holiday) are for crude oil supplies to fall -3.0 million bbl, gasoline stockpiles to increase +1.83 million bbl, distillate inventories to fall -875,000 bbl and the refinery capacity rate to remain unchanged at 87.7%.

Thursday, December 30, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -5.5 ticks. T-note prices yesterday settled sharply higher after a successful conclusion to this week's Treasury auctions of $99 billion in T-notes: TYH11 +1-7/32, FVH11 +25.2, EDM11 +5.5.

                Bullish factors included (1) the action by the Fed to buy $5.387 billion of Treasuries as part of its QE2 asset-purchase program, (2) strong foreign demand for the Treasury's $29 billion auction of 7-year T-notes in which indirect bidders purchased 64.1% of the notes, compared with the 12-auction average of 48.4%, and (3) a post-auction relief rally as the Treasury concluded with this week's auctions of $99 billion in T-notes.

                Bearish factors was reduced safe-haven demand for Treasuries after the S&P 500 Index and the Dow climbed to 2-1/4 year highs.



•   The dollar index this morning is trading lower and at a 1-1/2 week low with the dollar/yen -0.06 yen and the euro/dollar +0.26 cents. The dollar index yesterday settled lower as the euro strengthened on rising consumer prices in Germany and an increase in private sector lending in the Euro-Zone: Dollar Index -0.569, USDJPY -0.774, EURUSD +0.01103. The yen strengthened to a 1-1/2 month high against the dollar.

                Bearish factors for the dollar included (1) the report from the ECB that Nov European loan growth to the private sector rose +2.0% y/y, the fastest pace of growth since Apr 2009, (2) the +1.9% y/y increase in Dec German CPI (EU harmonized), its largest y/y gain in 2 years, and (3) reduced safe-haven demand for the dollar after the Dow and S&P 500 rallied to 2-1/4 year highs.



•   February crude oil prices this morning are trading down -40 cents a barrel and February gasoline is +0.85 of a cent per gallon. Crude oil and gasoline prices yesterday moved lower on speculation the US economic recovery isn't fast enough to increase energy demand: CLG11 -$0.37, RBG11 -0.93.

                Bearish factors included (1) concern that weakened US consumer confidence and still high unemployment will prevent energy demand from increasing, and (2) speculation that US crude supplies will increase once the new year begins next week as refiners delay crude deliveries until 2011 in order to reduce tax bills.

                Bullish factors included (1) the weaker dollar which encourages investment demand in commodities, and (2) the report from MasterCard that said US gasoline demand rose +4.6% last week to 9.613 million barrels a day from 9.19 million barrels a day the prior week. Expectations for Thursday's weekly DOE inventory report (delayed 1 day because of the Christmas holiday) are for crude oil supplies to fall -2.85 million bbl, gasoline stockpiles to increase +1.5 million bbl, distillate inventories to fall -625,000 bbl and the refinery capacity rate to rise +0.1 to 87.8%.

Friday, December 31, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +9.5 ticks. T-note prices yesterday weakened on stronger-than-expected US economic data: TYH11 -8.5, FVH11 -6.7, EDM11 +0.5.

                Bearish factors included (1) the larger-than-expected decline in weekly initial US unemployment claims which fell to their lowest level in 2-1/3 years (-34,000 to 388,000 versus expectations of -5,000 to 415,000), (2) the unexpected increase in the Dec Chicago purchasing managers index which expanded at its fastest pace in 22 years (+6.1 to 68.6 versus expectations of -1.5 to 61.0), and (3) the stronger-than-expected increase in Nov pending home sales (+3.5% m/m versus expectations of +0.8% m/m).

                Bullish factors included (1) increased safe-haven demand for Treasuries as stock prices slid, and (2) year-end rebalancing of portfolios by bond-fund managers, which may increase demand for longer-term Treasuries as bond managers seek to extend duration.



•   The dollar index this morning is trading lower and at a 2-1/2 week low with the dollar/yen -0.22 yen and the euro/dollar +0.97 cents. The dollar index yesterday fell to a 2-week low and closed lower after stronger-than-expected US economic data prompted a decline in dollar demand in favor of riskier assets: Dollar Index -0.275, USDJPY -0.089, EURUSD +0.00633. The yen strengthened to a 1-1/2 month high and the euro rose to a 1-1/2 week high against the dollar.

                Bearish factors for the dollar included (1) strength in commodity currencies such as the Australian dollar which rose to its highest level against the dollar since it became free-floating in 1983, and (2) the rally in the yen to a 1-1/2 month high against the dollar as stronger-than-expected US economic data prompted reduced demand for dollars in favor of higher-yielding riskier assets.

                 Bullish factors included (1) comments from ECB Council member Nowotny who said it can't be ruled out "that there will be f urther challenges for some Euro-Zone countries in 2011," and (2) and an increase in Treasury yields which benefits the dollar's interest rate differentials and may help boost foreign demand for dollar assets.



•   February crude oil prices this morning are trading down -28 cents a barrel and February gasoline is -0.08 of a cent per gallon. Crude oil and gasoline prices yesterday fell to 1-week lows after DOE weekly crude supplies fell less than expected: CLG11 -$1.28, RBG11 -0.37.

                Bearish factors included (1) the smaller-than-expected decline in weekly crude oil inventories (-1.26 million bbl versus expectations of -2.85 million bbl), and (2) the unexpected increase in weekly distillate inventories (+243,000 bbl versus expectations of -625,000 bbl).

                Bullish factors included (1) the slump in the dollar index to a 2-week low which boosts investment demand in commodities, (2) the unexpected decline in weekly gasoline inventories (-2.32 million bbl versus expectations of +1.5 million bbl, and (3) strong US economic data after weekly initial unemployment claims fell to 2-1/3 year low and the Dec Chicago purchasing managers index expanded at its fastest level in 22 years, which signa ls strength in the economy and energy consumption.

Monday, January 3, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading 16 ticks lower on reduced safe-haven demand with this morning's rally in stocks and with continued optimism about global economic growth. T-note prices last Friday rallied to a 2-week high and settled higher on month-end and year-end position squaring of bond portfolios: TYH11 +14.5, FVH11 +10, EDM11 +2.5.

                Bullish factors included (1) year-end and quarter-end rebalancing of bond-fund portfolios by money managers, which may increase demand for longer-term Treasuries as bond managers seek to extend duration, and (2) speculation that recent snowstorms and cold weather that shut down much of the Northeast US over the past week will slow economic growth.

                Bearish factors is reduced safe-haven demand for Treasuries on speculation that Fed asset purchases and the extension of tax cuts will succeed in reviving the US economy.



•   The dollar index this morning is trading 0.37 points higher with the dollar/yen up 0.31 yen and the euro/dollar down 0.74 cents. The dollar index is higher this morning on some short-covering after last Friday's sharp sell-off. The dollar index last Friday sank to a 5-week low and closed lower for the seventh consecutive session as Euro-Zone officials jawboned the euro higher: Dollar Index -0.493, USDJPY -0.393, EURUSD +0.00963. The yen rallied to a 1-1/2 month high and the euro rose to a 2-1/2 week high against the dollar.

                Bearish factors for the dollar included (1) strength in the British pound after Dec UK nationwide house prices unexpectedly rose for the first time in 7 months, (2) comments from German Chancellor Merkel who vowed to defend the euro as the "foundation" of her nation's economy, and (3) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the euro is the world's "most solid" currency and that " the euro's existence and its essence are not at risk."

                Bullish factors was the prediction from the Chief Executive of the CEBR that the Euro-Zone will have another debt crisis this spring when Italy and Spain have to refinance more than 400 billion euros ($532 billion) of bonds.



•   February crude oil prices this morning are trading +45 cents a barrel and February gasoline is 1.77 cents per gallon on this morning's overseas stock rallies and on expectations for strong US economic data this week. Crude oil and gasoline prices last Friday rebounded from early losses and closed higher as the dollar slumped: CLG11 +$1.54, RBG11 +4.55. Both Feb crude and Feb gasoline posted 26-month highs.

                Bullish factors included (1) the slump in the dollar index to a 5-week low which boosts investment demand in commodities, and (2) a halt to oil tanker travel in the Houston ship channel for a second day due to fog, which may cause supply disruptions to Gulf refiners and lead to gasoline shortages.

                Bearish factors included (1) year-end liquidation by commodity funds, and (2) increased supplies with OPEC crude production climbing +150,000 barrels in Dec to 29.185 million barrels a day, a 4-month high and about 2 million barrels above OPEC quotas.

Tuesday, January 4, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down 2 ticks due to strength in global stocks and reduced safe-haven demand. Interest rate futures prices on Monday closed mostly lower: TYH11 -8.5, FVH11 -2.0, EDM11 unch.

                Bearish factors included (1) additional strong economic data as seen in Monday's US ISM manufacturing index and construction spending reports, (2) anticipation for improved labor market data in Friday's Dec unemployment report, and (3) reduced safe-haven demand with the rally in US and global stocks on Monday.

                Bullish factors yesterday was the Fed's purchase of $7.8 billion of T-notes as part of its ongoing Treasury purchase program.



•   The dollar index this morning is trading slightly lower by 0.17 points, with the dollar/yen up 0.44 yen and the euro/dollar up 0.44 cents. The euro is higher on strong European stocks and an improved view of the European economy. The dollar index on Monday consolidated above last Friday's 6-week low and closed slightly higher: Dollar Index +0.193, USDJPY +0.62, EURUSD -0.0023.

                Bullish factors for the dollar included the strong US economic data and some technical short-covering after last Friday's 6-week low.



•   February crude oil prices this morning are trading +29 cents a barrel and February gasoline is up 1.34 cents per gallon on support from the slightly lower dollar and on general economic optimism. Crude oil and gasoline on Monday closed mixed: CLG11 +$0.17, RBG11 -.030. Both Feb crude and Feb gasoline posted 26-month highs.

                Bullish factors centered on (1) continued strong US and global economic data, (2) bad weather in the Gulf of Mexico that caused Pemex to close its export terminals in the Gulf, and (3) the forecasts for cold weather in the U.S. for the next two weeks, which is bullish for heating oil.

                Bearish factor for oil prices was the mild rally in the dollar index.

Wednesday, January 5, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are up +9 ticks at a fresh 2-week high on increased safe-haven demand as global stocks slide. T-note prices on Tuesday closed slightly higher: TYH11 +4.5, FVH11 +1, EDM11 -2.

                Bullish factors included (1) the FOMC minutes indicating that FOMC members believe the economic outlook has not improved by enough to warrant any roll-back of the QE2 program, (2) heavy long liquidation pressure in the commodity markets and the mixed close in stocks, which caused a little safe-haven demand, and (3) some short-covering with the new 2-week high in 10-year T-note prices. The main bearish factor was the stronger-than-expected US factory orders and vehicle sales reports.



•   The dollar index this morning is trading stronger, with the dollar/yen +0.14 yen and the euro/dollar -0.75 cents. The dollar on Tuesday closed mildly higher: Dollar Index +0.292, USDJPY +0.30, EURUSD -0.0053.

                Bullish factors included the stronger-than-expected US economic data and some short-covering after last week's sell-off.

                Bearish factors included the pound-positive news of the 16-year high in the UK PMI index to 58.3 and the euro-positive news of a rise in the Eurozone CPI to 2.2% y/y from +1.9% in November, which was above the ECB's inflation ceiling.



•   February crude oil prices this morning are trading down -86 cents a barrel and February gasoline is -3.30 cents per gallon. Crude oil and gasoline prices on Tuesday sold off sharply: CLG11 -2.17, RBG11 -1.33.

               Bearish factors included the mild rally in the dollar and heavy long liquidation pressure after the sharp rally seen in December. The market is also expecting a rise in petroleum inventories in January after the drawdown seen in December in an effort to minimize taxes. The market consensus for today's weekly DOE report is for a 2 million decline in crude oil inventories, a 500,00 bbl rise in gasoline inventories, a 750,000 rise in distillate inventories, and an unchanged refinery operating rate of 87.8% of capacity.

Friday, January 7, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down -4.5 ticks. T-note prices on Thursday moved higher and finished with moderate gains: TYH11 +18.5, FVH11 +10.2, EDM11 -1.5.

                Bullish factors included (1) the Fed's action to purchase $6.78 billion of Treasuries as part of its QE2 asset-purchase program, and (2) short-covering and position squaring ahead of Friday's all-important Dec payrolls report.

                Bearish factors included (1) a sign that the US labor market is improving after the US Labor Department reported that the 4-week average of applications for US jobless benefits slipped to 410,750, a nearly 2-1/2 year low, and (2) supply pressures as dealers set up for $66 billion of T-note auctions next week.



•   The dollar index this morning is higher and at a 1-month high with the dollar/yen +0.24 yen and the euro/dollar -0.25 cents. The dollar on Thursday strengthened throughout the day and settled higher: Dollar Index +0.533, USDJPY +0.088, EURUSD -0.01464. The dollar index climbed to a 1-month high and the euro tumbled to a 1-month low against the dollar.

                Bullish factors included (1) euro weakness after Nov Euro-Zone retail sales unexpectedly declined along with concern that the European debt crisis is worsening after KBC Groep NV, Belgium's largest bank, said it will take additional provisions of as much as 330 million euros ($434 million), partly related to its Irish loan book, and (2) increased demand for dollars on speculation that Friday's Dec payrolls report will show strength in the economy with employers adding jobs for a third month.

                Bearish factors included (1) the biggest monthly increase in Nov German factory orders in the last 10 months, and (2) the larger- than-expected increase in the Dec Euro-Zone business climate indicator to its best level in 3-1/2 years, which is euro positive.



•   February crude oil prices this morning are trading up +65 cents a barrel and February gasoline is +0.33 of a cent per gallon. Crude oil and gasoline prices on Thursday sold off sharply and finished with large losses: CLG11 -1.92, RBG11 -0.21. Feb crude slid to a 2-week low and Feb gasoline rallied to a 27-month high but relinquished its gains and settled lower.

                Bearish factors included (1) the rally in the dollar index to a 1-month high, which reduces investment demand in commodities, and (2) concern that a slower recovery in some European nations will prolong the region's debt crisis and reduce its energy demand.

                Bullish factors included (2) early strength in gasoline which climbed to a 27-month high on optimism about the economic recovery and the potential for increased fuel demand, and (2) comments from the Kuwaiti Oil Minister who said a price of $75 a barrel for crude oil "is over now" and a higher price range of $80 to $100 a barrel is acceptable.

Monday, January 10, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are up +1 tick. T-note prices last Friday shot higher after the release of the Dec payrolls report and then continued even higher the rest of the day: TYH11 +27.5, FVH11 +21, EDM11 +2.0.

                Bullish factors included (1) the smaller-than-expected increase in Dec nonfarm payrolls (+103,000 versus expectations of +150,000), (2) comments from Fed Chairman Bernanke who said the US job market may take 5 years to "normalize," (3) the Fed's action to purchase $7.199 billion of Treasuries as part of its QE2 asset-purchase program, (4) increased safe-haven demand for Treasuries as the stock market fell, and (5) comments from former Fed Governor Kroszner who said "we're not getting consistent job growth" and that "it's going to be a long march to get to back to low unemployment levels seen 4 to 5 years ago."

                Bearish factors included (1) the larger-than-expected decline in the Dec unemployment rate (-0.4 to a 19-mo nth low of 9.4% versus expectations of -0.1 to 9.7%), and (2) the upward revision to Nov nonfarm payrolls (+71,000 versus the originally reported +39,000).



•   The dollar index this morning is stronger and trading at a 1-1/4 month high with the dollar/yen +0.06 yen and the euro/dollar -0.04 cents. The dollar last Friday gyrated between gains and losses and finally finished slightly higher: Dollar Index +0.148, USDJPY -0.291, EURUSD -0.00935. The dollar index climbed to a 1-1/4 month high and the euro slumped to a 3-1/2 month low against the dollar.

                Bullish factors included (1) euro weakness on increased sovereign-debt risks after the Markit iTraxx SovX Western Europe Index of credit-default swaps on the debts of 15 European governments rose to a record high 214, (2) the unexpected decline in Nov German retail sales by -2.4% m/m, its biggest fall in 2-1/2 years, and (3) comments from ECB President Trichet who said governments shouldn't rely on the ECB to get Europe out of its debt crisis as he urged for more fiscal tightening, which may slow the Euro-Zone economy and weaken the euro.

                Bearish factors included (1) the smaller -than-expected increase in Dec US nonfarm payrolls, which may prompt the Fed to further increase its quantitative easing measures, and (2) comments from Fed Chairman Bernanke who said the US economy is in a "weak" and "fragile" condition and that "it could take 4 to 5 more years for the job market to normalize fully."



•   February crude oil prices this morning are trading up +69 cents a barrel and February gasoline is +0.96 of a cent per gallon. Crude prices rallied in overnight trading after an Alaskan pipeline carrying about 15% of US crude output was shut on Saturday following a leak. Crude oil and gasoline prices last Friday erased early rallies and finished lower: CLG11 -0.35, RBG11 -2.99. Feb crude fell to a 3-week low.

                Bearish factors included (1) the rally in the dollar index to a 1-1/4 month high, which discourages investment demand in commodities, (2) the smaller-than-expected increase in Dec US nonfarm payrolls, which signals a struggling labor market that may crimp fuel demand, and (3) the slide in stock prices which decreases confidence in the economic outlook and energy demand.

               Bullish factors included (1) the larger-than-expected drop in the Dec US unemployment rate to a 19-month low of 9.4%, and (2) the action by Canadian Natural Resources to shut its 100,000 bpd Hori zon oil-sands project because of a fire, which may curtail crude supplies to the US.

Tuesday, January 11, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are up +3.5 ticks. T-note prices yesterday traded firm most of the day and settled higher: TYH11 +6.5, FVH11 +4, EDM11 +1.0.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern Portugal will follow Greece and Ireland in seeking a bailout from the European Union, (2) comments from Atlanta Fed President Lockhart who said he sees further "headwinds" to the recovery even as the US economy improves in 2011, and (3) the action by the Fed in purchasing $7.79 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) Fed data that showed primary-dealer holdings of US Treasuries tumbled to an 11-month low of $2.34 billion on Dec 29 from $81.3 billion on Nov 24, the biggest decline since Jun 2009, and (2) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tue.



•   The dollar index this morning is weaker with the dollar/yen +0.27 yen and the euro/dollar +0.23 cents. The dollar index yesterday fell back from a 1-1/4 month high and settled lower: Dollar Index -0.131, USDJPY -0.339, EURUSD +0.00417.

                Bearish factors included (1) a recovery in the euro which rebounded from a 3-3/4 month low against the dollar and settled higher after ECB President Trichet said that recent European economic indicators "were better than forecast," and (2) the stronger than expected Nov French industrial and manufacturing production, which is euro positive.

                Bullish factors included (1) the early slump in the euro to a 3-3/4 month low against the dollar on concern the European sovereign-debt crisis may worsen after the Markit iTraxx SovX Western Europe Index of credit-default swaps on the debts of 15 European governments rose to a record high 223, and (2) the prediction from BlueGold Capital Management that Germany, France and other European to p-rated nations risk having their credit ratings downgraded in the event that European policy makers expand bailout funds.



•   February crude oil prices this morning are trading up +43 cents a barrel and February gasoline is -0.55 of a cent per gallon. Crude oil and gasoline prices yesterday finished moderately higher: CLG11 +1.22, RBG11 +4.12.

                Bullish factors included (1) a reversal in the dollar after the dollar index closed lower after it had climbed to a 1-1/4 month high, (2) the closure of the Trans Alaska Pipeline System, which carries 15% of US crude output, after an oil leak in the pipeline prompted its closure over the weekend, and (3) the prediction from Morgan Stanley that crude will remain "high" this year and breach $100 a barrel "as OPEC spare capacity falls from elevated levels to 4.1 million barrels a day by year end."

                Bearish factors included (1) equity market weakness, which reduces optimism in the economic outlook and energy demand, and (2) concern that Europe's sovereign debt crisis may spread and slow the global economy and fuel demand.

Wednesday, January 12, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down -8 ticks. T-note prices yesterday moved lower on supply pressures and stock market strength: TYH11 -10.5, FVH11 -5.2, EDM11 +0.5.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after the stock market rallied, (2) comments from Philadelphia Fed President Plosser who said the Fed's $600 billion QE2 asset-purchase program "may soon backfire on us" and spur inflation if "we don't begin to gradually reverse course," which indicates he is not in favor of completing the entire asset-purchase program, and (3) supply pressures ahead of the Treasury's $21 billion auction of 10-year T-notes on Wed.

                Bullish factors included (1) the Fed's action to purchase $7.802 billion of Treasuries as part of its QE2 asset-purchase program, (2) comments from Minneapolis Fed President Kocherlakota who said "this is not the time to start" the Fed's exit strategy due to high unemployment and disin flation, and (3) data from the BLS that showed the US job openings rate, or the number of job openings as a percent of total employment plus job openings, fell to 2.4% in Nov from 2.5% in Oct.



•   The dollar index this morning is lower with the dollar/yen +0.13 yen and the euro/dollar +0.03 cents. The dollar index yesterday closed little changed: Dollar Index -0.035, USDJPY +0.536, EURUSD +0.00225.

                Bearish factors included (1) strength in the euro after Japanese Finance Minister Noda said his country plans to buy more than 20% of bonds to be issued later this month by the European Financial Stability Facility as Japan joins China in promising to purchase Euro-Zone debt in an attempt to stem the European debt crisis, (2) comments from Portuguese Prime Minister Socrates who said that Portugal doesn't need a bailout from the European Union and its 2010 budget deficit will be lower than forecast, and (3) strength in the yuan after China's foreign-exchange reserves climbed to a record and China's bank lending exceeded the government's annual target.

                Bullish factors included (1) apprehension ahead of Portugal's, Spain's and Italy's debt auctions later this week, whic h may see increased safe-haven demand for the dollar as the indebted European nations struggle to fund their deficits, (2) comments from ECB Council member Weber who said optimism on containing the European sovereign-debt crisis is "premature," and (3) comments from Philadelphia Fed President Plosser who said the Fed's $600 billion QE2 asset-purchase program "may soon backfire on us" and spur inflation if "we don't begin to gradually reverse course," which indicates he is not in favor of completing the entire asset-purchase program.



•   February crude oil prices this morning are trading unchanged and February gasoline is down -1.82 cents per gallon. Crude oil and gasoline prices yesterday closed higher for a second day: CLG11 +1.86, RBG11 +2.41. Feb gasoline posted a 27-month high.

                Bullish factors included (1) the continued shutdown of the Trans Alaska Pipeline System, which carries 15% of US crude output, after an oil leak in the pipeline prompted its closure over the weekend, (2) the report from the National Commission on the BP Deepwater Horizon Oil Spill that recommended that exploration in US deep waters be overseen by an independent agency in the Interior Department, which raises concern that it will become more difficult to drill for new crude supplies, (3) comments from the Kuwaiti Oil Minister who said that OPEC will not hold an emergency meeting if crude prices hit $100 a barrel, and (4) the action by the US Energy Department to increase its 2011 crude oil price forecast to average $93.42 a barrel, up from a Dec forecast of $86.08 and to hike its global crude consumption estimate for 2011 to 89.65 million barrels a day from 87.78 million estimated last month. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil stockpiles to fall -1.2 million bbl, gasoline supplies to increase +2.13 million bbl, distillate inventories to rise +1.0 million bbl and the refinery capacity rate to remain unchanged at 88.0%.

Thursday, January 13, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down -2 ticks. T-note prices yesterday settled nearly flat after strong demand for the Treasury's 10-year T-note auction helped the market overcome early losses: TYH11 +0.5, FVH11 unchanged, EDM11 +2.5.

                Bullish factors included (1) comments from St. Louis Fed President Bullard who said its "too soon" to reduce the Fed's QE2 asset-purchase program, (2) strong demand for the Treasury's $21 billion auction of 10-year T-notes that had a bid-to-cover ratio of 3.30, higher than the 10-auction average of 3.14 and the strongest in 9 months.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after the stock market rallied and on speculation that European leaders will increase their efforts to stem the debt crisis after European Union Economic and Monetary Affairs Commissioner Rehn called for a "comprehensive" plan to contain the sovereign debt crisis, (2) an upbeat Fed Beige Book that said the ec onomy strengthened the last 2 months of last year and that businesses are cautiously optimistic about their 2011 outlooks, and (3) supply pressures ahead of the Treasury's $13 billion auction of 30-year T-bonds on Thu.



•   The dollar index this morning is weaker and at a 1-week low with the dollar/yen -0.01 yen and the euro/dollar +0.41 cents. The dollar index yesterday settled sharply lower: Dollar Index -0.815, USDJPY -0.245, EURUSD +0.01587.

                Bearish factors included (1) strength in the euro after Portugal's borrowing costs fell from a month ago after a successful auction of 10-year notes, which temporarily eases sovereign-debt concerns, (2) speculation that European leaders will increase their efforts to stem the debt crisis after European Union Economic and Monetary Affairs Commissioner Rehn said that Europe's bailout fund "should be reinforced and the scope of its activity widened," (3) the stronger-than-expected Nov Euro-Zone industrial production, which is euro positive, and (4) euro supportive comments from PBOC Deputy Governor Yi Gang who said that China is a long-term investor in European financial markets and will continue that policy.

                Bullish factors included (1) a pprehension ahead of Spain's and Italy's debt auctions on Thursday, which may see increased safe-haven demand for the dollar as the indebted European nations struggle to fund their deficits, and (2) the warning from Nobel Prize-winning economist Pissarides that the European Union doesn't have the resources to rescue Spain from a full-blown fiscal crisis, which could lead to the end of the euro.



•   February crude oil prices this morning are trading down -16 cents a barrel and February gasoline is +0.49 of a cent per gallon. Crude oil and gasoline prices yesterday finished mixed: CLG11 +0.75, RBG11 -1.53. Feb crude climbed to a 1-week high.

                Bullish factors included (1) the weaker dollar, which boosts investment demand in commodities, (2) the larger-than-expected decline in weekly crude inventories which dropped to their lowest level in 11 months (-2.15 million bbl to 333.1 million bbl versus expectations of -1.4 million bbl), and (3) the rally in the S&P 500 Index to a 2-1/3 year high, which boosts confidence in the economic outlook and energy demand.

                Bearish factors included (1) the restarting of the Trans Alaska pipeline, after it was closed for several days to repair a leak, (2) the larger-than-expected increases in weekly gasoline and distillate inventories (gasoline +5.08 million bbl versus expectations of +2.12 million bbl and distillate inventories +2 .65 million bbl versus expectations of +1.0 million bbl), and (3) reduced US gasoline demand after the 4-week average slipped -1.5% to 9.07 million barrels a day.

Friday, January 14, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down -6 ticks. T-note prices yesterday gyrated on either side of unchanged into early afternoon when they rallied into the close and settled higher: TYH11 +17.5, FVH11 +10.2, EDM11 +1.5.

                Bullish factors included (1) the unexpected increase in weekly initial US unemployment claims which climbed to their highest level in 2 months (+35,000 to 445,000 versus expectations of unchanged at 409,000), (2) the Fed's action to purchase $8.412 billion of Treasuries as part of its QE2 bond-purchase plan, and (3) comments from Fed Chairman Bernanke who said that US growth of 3.0% to 4.0% this year won't be enough to reduce unemployment at the pace the Fed would like.

                Bearish factors included (1) the larger-than-expected increase in the Dec PPI which posted its biggest monthly advance in 11 months (+1.1% m/m and +4.0 y/y versus expectations of +0.8% m/m and +3.8% y/y), (2) the unexpected narrowing of the Nov US trade balance to its smallest deficit in 10 months (-$38.3 billion versus expectations of -$40.5 billion), which is positive for GDP growth, and (3) carry-over weakness from a plunge in German bunds after the 10-year bund yield shot up to an 8-1/2 month high after ECB President Trichet said that inflation risks "could move to the upside."



•   The dollar index this morning is slightly higher and rebounded from a 2-week low with the dollar/yen +0.12 yen and the euro/dollar -0.34 cents. The dollar index yesterday fell to a 1-week low and closed lower for a third day: Dollar Index -0.840, USDJPY -0.186, EURUSD +0.02311.

                Bearish factors included (1) euro supportive comments from ECB President Trichet who said the risks to medium term inflation "are still broadly balanced but could move to the upside," and (2) strong demand for Spain's auction of 5-year bonds, which eased sovereign-debt concerns and boosted the euro to a 1-week high against the dollar.

                Bullish factors included (1) the unexpected narrowing of the Nov US trade balance, which is dollar supportive, and (2) the larger-than-expected increase in Dec US producer prices which posted their biggest monthly gain in 11 months.



•   February crude oil prices this morning are trading down -$1.26 a barrel and February gasoline is +0.68 of a cent per gallon. Crude oil and gasoline prices yesterday closed lower: CLG11 -0.46, RBG11 -1.72.

                Bearish factors included (1) the unexpected surge in weekly initial US unemployment claims to a 2-month high, which may limit US economic growth and energy demand, and (2) the prediction from the World Bank that China's economy will grow 8.7% in 2011, less than 10% in 2010, which may lead to a reduction in Chinese energy demand.

                Bullish factors included (1) the slide in the dollar index to a 1-week low, which boosts investment demand in commodities, and (2) the unexpected narrowing of the Nov US trade balance to a 10-month low as global demand boosted US exports to their highest level in more than 2 years, which shows strength in the global economy that may lead to an increase in fuel demand.

Tuesday, January 18, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are up +2.5 ticks. T-note prices last Friday climbed early to a 1-1/4 month high on weak economic data high but then shed their gains and closed lower after the stock market rallied: TYH11 -8, FVH11 -3.2, EDM11 unchanged.

                Bearish factors included (1) the larger-than-expected gain in Dec CPI which posted its biggest monthly increase in 1-1/2 years (+0.5% m/m and +1.5% y/y versus expectations of +0.4% m/m and +1.3% y/y), (2) the larger-than-expected increase in Dec industrial production which posted its biggest gain in 5 months (+0.8% versus expectations of +0.5%), (3) the larger-than-expected jump in Dec capacity utilization which rose to its highest level in 2-1/3 years (+0.6 to 76.0 versus expectations of +0.4 to 75.6%), and (4) reduced safe-haven demand for Treasuries after the S&P 500 rallied to a 2-1/3 year high.

                Bullish factors included (1) the weaker-than-expected Dec US retail sales (+0.6% and +0.5% less autos versus e xpectations of +0.8% and +0.7% less autos, (2) the unexpected decline in the Jan US University of Michigan consumer confidence (-1.8 to 72.7 versus expectations of +1.0 to 75.5), (3) increased safe-haven demand for Treasuries after Fitch Ratings cut Greece's long-term foreign and local currency issuer default ratings to BB+, or junk, from BBB- with a negative outlook, and (4) the Fed's action to buy $7.306 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is weaker and at a 1-3/4 month low with the dollar/yen -0.14 yen and the euro/dollar +1.11 cents. The dollar index last Friday rebounded from a 2-week low to settle little changed: Dollar Index -0.029, USDJPY +0.186, EURUSD +0.00096.

                Bearish factors included (1) weaker-than-expected US economic data on retail sales and consumer confidence, (2) strength in the euro after euro supportive comments from ECB Council member Weber who said "the economic outlook has brightened considerably" and that inflation risks "could well move to the upside," (3) the action by Citigroup to revise its forecast for the ECB's first rate increase to the second half of this year from the first quarter of 2012, and (4) the recommendation from BNP Paribas that investors buy the euro against the dollar after recent comments from ECB President Trichet and fellow council member Weber "are a significant change in tone" and will prompt the m arket to price in earlier rate hikes from the ECB.

                Bullish factors included (1) the stronger-than-expected Dec US industrial production and capacity utilization, and (2) the prediction from Brown Brothers Harriman that he euro may weaken to $1.18 by Jun as the European debt crisis weighs on sentiment.



•   February crude oil prices this morning are trading down -17 cents a barrel and February gasoline -0.03 of a cent per gallon. Crude oil and gasoline prices last Friday settled higher on a weak dollar and on Royal Dutch Shell's action to shut a 340,000 barrel-a-day refinery in Texas for unscheduled repairs: CLG11 +0.14, RBG11 +4.87.

                Bullish factors included (1) the fall in the dollar index to a 2-week low, which boosts investment demand in commodities, (2) the bigger-than-expected increases in Dec US industrial production and capacity utilization, which signals strength in the economy that may lead to increased energy demand, and (3) strength in gasoline after Royal Dutch Shell Plc shut a 340,000 barrel-a-day refinery in Texas for unscheduled repairs, which may limit gasoline supplies.

                Bearish factors included (1) China's action to boost banks reserve ratio requirements for the fourth time in 2 months, which may slow its economy and energy demand, and (2) the weaker tha n expected Dec US retail sales along with an unexpected drop in Jan US University of Michigan consumer confidence, which signals a possible slowdown in consumer spending that may limit fuel demand.

Wednesday, January 19, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down -2 ticks. T-note prices yesterday erased an early rally and sold-off on an increase in inflation concerns: TYH11 -8.5, FVH11 -2.2, EDM11 +1.0.

                Bearish factors included (1) as increase in inflation concerns as the yield curve steepened to an all-time high after the yield spread between 2-year T-notes and 30-year T-bonds widened to a record 409 bp, the steepest since data began in 1977, (2) comments from Philadelphia Fed President Plosser who said he won't rule out raising interest rates despite unemployment remaining too high for the foreseeable future, and (3) reduced safe-haven demand for Treasuries after the S&P 500 climbed to a 2-1/3 year high.

                Bullish factors included (1) strong foreign demand for US Treasuries after the Nov long-term TIC data showed total foreign purchases of US Treasury notes and bonds were $61.7 billion in Nov, up from $24.7 billion in Oct, the prediction from the CIBC that the Fed will be on hold until 2013 as the US housing and labor markets struggle to recover, and (3) the unexpected stagnation in the Jan NAHB housing market index (unchanged at 16 versus expectations of +1 to 17).


•   The dollar index this morning is weaker and at a 1-3/4 month low with the dollar/yen -0.32 yen and the euro/dollar +0.91 cents. The dollar index yesterday slid to a 1-3/4 month low and finished weaker on speculation Euro-Zone finance ministers will increase efforts to prevent the sovereign-debt crisis from deepening: Dollar Index -0.375, USDJPY -0.442, EURUSD +0.00142.

                Bearish factors included (1) a rally in the euro to a 1-month high against the dollar on speculation that European leaders will increase their efforts to stem the debt crisis after European Union Economic and Monetary Affairs Commissioner Rehn said, "We shall improve our current existing financial backstops so that the so-called market forces cannot have even the slightest doubt about our capacity to act even in the most stresses scenarios," (2) the larger-than-expected increase in the Jan German ZEW economic sentiment survey to a 6-month high, which is euro supportive, (3) strength in the British pound which climbed to a 1-3/4 month high against the dollar after Dec UK CPI matched its highest level in 2 years and fuels speculation the BOE may need to raise interest rates, and (4) the prediction from the Canadian Imperial Bank of Commerce that the Fed will be on hold until 2013 as the US housing and labor markets struggle to recover.

                Bullish factors included (1) comments from Philadelphia Fed President Plosser who said he won't rule out raising interest rates despite unemployment remaining too high for the foreseeable future, and (2) the larger-than-expected increase in the Nov long-tern TIC flows, which signals strong foreign demand for US dollar assets.


•   February crude oil prices this morning are trading up +58 cents a barrel and February gasoline is +1.75 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged and finally settled lower after the IEA said that global crude supplies are ample: CLG11 -0.16, RBG11 -1.54. Feb gasoline climbed to a 2-1/3 nearest-futures high but erased its gains and finished lower.

                Bearish factors included (1) comments from the IEA that global oil supplies in the most developed economies still "looks relatively comfortable," with North American inventories "well above" the 5-year average, (2) IEA data that shows OPEC compliance with its late 2008 crude oil production cuts fell to 45% in Dec from 51% in Nov as the recent rise in prices encouraged OPEC members to cheat and overproduce from their quotas.

                Bullish factors included (1) the slide in the dollar index to a 1-3/4 month low, which boosts investment demand for commodities, and (2) the action by the IEA to raise their 2011 global oil demand forecast for a fourth month after they hiked their global oil consumption estimate for 2011 to 89.1 million barrels a day, up 360,000 barrels a day from last month's forecast.

Thursday, January 20, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down -3.5 ticks. T-note prices yesterday fluctuated on either side of unchanged and finished slightly higher after Dec US housing starts and the stock market plunged: TYH11 +6.0, FVH11 +4.2, EDM11 +0.5.

                Bullish factors included (1) the weaker-than-expected Dec US housing starts which matched a 20-month low (-4.3% to 529,000 versus expectations of -0.9% to 550,000), (2) increased safe-haven demand for Treasuries after the stock market swooned, and (3) the action by the Fed to purchase $7.716 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) the larger-than-expected increase in Dec building permits which rose to their best level in 9 months (+16.7% to 635,000 versus expectations of +2.0% to 555,000), and (2) reduced safe-haven demand for Treasuries after a successful 750 billion bill auction in Portugal, which signals Europe's high-deficit countries can still finance their debt.



•   The dollar index this morning is weaker with the dollar/yen +0.21 yen and the euro/dollar +0.19 cents. The dollar index yesterday slumped to a 1-3/4 month low and settled lower amid signs the US economic recovery will remain sluggish: Dollar Index -0.322, USDJPY -0.538, EURUSD +0.00855.

                Bearish factors included (1) the slump in Dec US housing starts to a 20-month low, which may weaken the economy as the housing crisis lingers, and (2) strength in the euro which rose to a 1-3/4 month high against the dollar as debt concerns eased as Portugal's borrowing costs fell after strong demand was seen at the sale of 750 million euros of 1-year Portuguese bills.

                Bullish factors included (1) comments from ECB Council member Nowotny who said that ECB President Trichet's CPI statements were interpreted by financial markets in a "one-sided-way" and that he "sees present rates adequate" for the "foreseeable future," which diminishes speculation that the ECB is on the verge or raising borrowing costs, and (2) the fall in Greek 10-year government bonds after Die Zeit newspaper reported that the German government is considering a plan that would help Greece "restructure" its debt, which raised sovereign-debt concerns and increased safe-haven demand for the dollar.



•   February crude oil prices this morning are trading down -66 cents a barrel and February gasoline is -2.28 cents per gallon. Crude oil and gasoline prices yesterday gyrated on both sides of unchanged throughout the day and finally settled mixed as a weaker dollar offset economic concerns from a plunge in housing starts: CLG11 -0.52, RBG11 +0.24.

                Bearish factors included (1) concerns the US economy may be slowing after Dec US housing starts fell more than expected and matched a 2-month low, and (2) the fall in equity prices, which erodes confidence in the economic outlook and energy demand.

                Bullish factors included (1) the drop in the dollar index to a 1-3/4 month low, which boosts investment demand for commodities, and (2) the outlook for weekly crude oil inventories to fall for the seventh consecutive week when the DOE inventory report is released on Thu. Expectations for the weekly DOE inventory report are for crude oil stockpiles to fall -500,000 bbl, gasoline supp lies to increase +2.5 million bbl, distillate inventories to gain +1.0 million bbl and the refinery capacity rate to fall -0.5 to 85.9%.

Friday, January 21, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are up +5.5 ticks. T-note prices yesterday fell to a 1-1/2 week low and closed lower as unemployment claims fell more than expected and US existing home sales increased: TYH11 -30.5, FVH11 -18.5, EDM11 -1.5.

                Bearish factors included (1) the larger-than-expected decline in weekly initial US unemployment claims (-37,000 to 404.000 versus expectations of -25,000 to 420,000), (2) the stronger-than-expected Dec existing home sales which rose to their best level in 7 months (+12.3% to 5.28 million versus expectations of +4.1% to 4.87 million), (3) the bigger-than-expected increase in Dec leading indicators (+1.0% versus expectations of +0.6%), and (4) weak demand for the Treasury's $13 billion auction of 10-year TIPS that had a bid-to-cover ratio of 2.37, below the 12-auction average of 2.60.

                Bullish factors included (1) the larger-than-expected decline in the Jan Philadelphia Fed manufacturing index (-1.5 to 19.3 versus expectations o f -0.1 to 20.7), and (2) the Fed's action to purchase $2.2 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is weaker with the dollar/yen -0.26 yen and the euro/dollar +0.55 cents. The dollar index yesterday strengthened on stronger-than-expected US economic data along with weakness in commodity currencies: Dollar Index +0.183, USDJPY +0.980, EURUSD -0.00004.

                Bullish factors included (1) signs of strength in the US economy after weekly US initial unemployment claims fell more than expected and Dec existing home sale rose to a 7-month high, and (2) weakness in the commodity currencies of the world (i.e., Australian and Canadian dollars) on concerns that Chinese demand for commodities may weaken on speculation the PBOC may hike interest rates further after China's Q4 GDP expanded more than forecast.

                Bearish factors included (1) the stronger-than-expected Dec German producer prices, which is euro bullish, and (2) the warning from Fitch Ratings that record US budget deficits due to stimulus measures and a lack of a plan to reduce debt may undermine confidence in the dollar and will place the US as the "worst of any AAA rated sovereign."



•   March crude oil prices this morning are trading up +36 cents a barrel and March gasoline is +1.02 cents per gallon. Crude oil and gasoline prices yesterday both plunged to 1-1/2 week lows on a stronger dollar, an unexpected increase in weekly crude inventories, and Chinese rate hike concerns: CLH11 -2.22, RBH11 -5.42.

                Bearish factors included (1) concerns that China may raise interest rates further after its Q4 GDP was stronger-than-expected, (2) the rally in the dollar, and (3) the unexpected increase in weekly DOE crude oil inventories which rose for the first time in seven weeks (+2.62 million bbl versus expectations of -500,000 bbl), and the larger-than-expected build in weekly gasoline inventories (+4.44 million bbl versus expectations of +2.5 million bbl).

                Bullish factors included (1) the rise in Dec China crude oil processing by +2.2% m/m to a record 9.16 million barrels a day, and (2) the larger-than-expected decline in the refinery capacity rate which tumbled to a 2-month low (-3.4 to 83.0% versus expectations of -0.5 to 85.9%) and indicates reduced amounts of gasoline and distillate products in the weeks ahead.

Monday, January 24, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down -1 tick. T-note prices last Friday finished slightly higher after the Fed purchased Treasuries as part of its QE2 asset-purchase program: TYH11 +10.5, FVH11 +6.0, EDM11 +1.0.

                Bullish factors included (1) the Fed's action to purchase $8.4 billion of Treasuries as part of its QE2 asset-purchase program, and (2) increased safe-haven demand for Treasuries after Fitch Ratings warned that there is a continuing risk that Euro-Zone nations will have their credit ratings downgraded until fiscal consolidation is secured and the economic recovery is broad-based.

                Bearish factors included (1) carry-over weakness from a fall in German bunds after the yield on the 10-year German bund rose to a 9-month high after German business confidence in Jan unexpectedly rose to a record high, and (2) reduced safe-haven demand for Treasuries after the stock market rallied.



•   The dollar index this morning is higher with the dollar/yen +0.33 yen and the euro/dollar -0.63 cents. The dollar index last Friday slid to a 2-month low and closed lower after business confidence in Germany unexpectedly increased: Dollar Index -0.610, USDJPY -0.416, EURUSD +0.01414.

                 Bearish factors included (1) the rally in the euro to a 2-month high against the dollar after the unexpected increase in the Jan IFO German business climate to its highest level since records for a reunified Germany began in 1991, which is euro supportive, and (2) the increase in the Jan French business confidence indicator to a 2-3/4 year high.

                Bullish factors for the dollar last Friday was the warning from Fitch Ratings that there is a continuing risk that Euro-Zone nations will have their credit ratings downgraded until fiscal consolidation is secured and the economic recovery is broad-based, which may lead to renewed safe-haven demand for the dollar.



•   March crude oil prices this morning are trading down -71 cents a barrel and March gasoline is +0.12 of a cent per gallon. Crude oil prices fell in overnight electronic trade after Saudi Arabian Oil Minister Ali al-Naimi said OPEC might boost oil supply this year to meet growing demand in China and India. Crude oil and gasoline prices last Friday fluctuated on either side of unchanged and settled mixed as concern over further Chinese interest rate hikes outweighed a jump in German business confidence: CLH11 -0.48, RBH11 +3.64.

                Bearish factors included (1) concerns that China may raise interest rates further to curb inflation, which may slow its economy and demand for fuel, and (2) the recommendation from JPMorgan Chase for investors to "pare risk and take some profits" in crude oil on the prospects that OPEC may increase production.

                Bullish factors included (1) the slump in the dollar index to a 2-month low, which boosts investment demand for commodities, (2 ) the unexpected increase in the Jan German IFO business climate to its highest level since records for a reunified Germany began in 1991, which may lead to further economic expansion and increased energy demand, and (3) data from the API that showed US fuel consumption in 2010 climbed +2.3% y/y to 19.2 million barrels a day, a 6-year high.

Tuesday, January 25, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are up +5.5 ticks. T-note prices yesterday strengthened as the yield curve flattened: TYH11 +2.5, FVH11 +0.7, EDM11 +1.0.

                Bullish factors included (1) a narrowing of the 2-year/30-year yield spread as bond dealers purchase the long end of the yield curve (i.e., 10-year T-notes and 30-year T-bonds) and sell the short-end of the curve (i.e., 2-year T-notes and 5-year T-notes) ahead of $99 billion of Treasury auctions of T-notes this week, (2) increased safe-haven demand for Treasuries after a suicide bomber blew himself up at Russia's busiest airport, and (3) the action by the Fed to purchase $8.869 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) reduced safe-haven demand for Treasuries as the stock market rallied, and (2) supply pressures ahead of the Treasury's $35 billion 2-year T-note auction on Tue.



•   The dollar index this morning is stronger with the dollar/yen -0.09 yen and the euro/dollar -0.12 cents. The dollar index yesterday fell to a 2-1/4 month low and closed lower on reduced safe-haven demand for the dollar as the stock market rallied: Dollar Index -0.195, USDJPY -0.051, EURUSD +0.00234.

                Bearish factors included (1) a rally in the euro to a 2-month high against the dollar after the unexpected increase in the Jan Euro-Zone PMI composite index which expanded at its fastest level in 6 months, and (2) reduced safe-haven demand for the dollar after the equity market rallied.

                Bullish factors for the dollar included (1) dovish comments from ECB Council member Stark who said "I could imagine" the European Financial Stability Facility "recapitalizing banks or buying sovereign-debt," which would be negative for the euro, and (2) comments from ECB President Trichet who said the ECB wouldn't react to a temporary jump in inflation caused by higher c ommodity prices as long as it doesn't fuel wage increases, or so-called "second-round effects," which signals no near-term interest rate hike by the ECB despite any uptick in inflation.



•   March crude oil prices this morning are trading down -$1.30 a barrel at a 1-3/4 month low and March gasoline is -3.20 cents per gallon as a stronger dollar and the unexpected contraction in the UK economy uncercuts commodity prices. Crude oil and gasoline prices slipped yesterday after Saudi Arabia's Oil Minister hinted at OPEC increasing crude output: CLH11 -1.24, RBH11 -4.06. Mar crude fell to a 3-week low.

                Bearish factors included (1) comments from Saudi Arabian Oil Minister Ali al-Naimi who said OPEC might boost oil supply this year to meet growing demand in China and India, and (2) weakness in gasoline as forecasts for a cold snap in the US Northeast signal less driving and reduced gasoline demand.

                Bullish factors included (1) the fall in the dollar index to a 2-1/4 month low, which boosts investment demand for commodities, (2) the unexpected increase in the Jan Euro-Zone PMI composite index which expanded at its fastest level in 6 months and signals increased e nergy consumption in Europe, and (3) the prediction from Saudi Arabian Oil Minister Ali al-Naimi that global oil demand may increase in 2011 by as much as 1.8 million barrels a day, or 2%.

Wednesday, January 26, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -10 ticks. T-note prices yesterday erased an early rally after Jan US consumer confidence rose to an 8-month high but then rallied into the close on speculation President Obama will propose a 5-year freeze on non-security discretionary spending: TYH11 +22, FVH11 +12, EDM11 +0.5.

                Bullish factors included (1) carry-over support from a rally in European government bonds which gained after Q4 UK GDP unexpectedly contracted, (2) the Fed's action to purchase $7.72 billion of Treasuries as part of its QE2 asset-purchase program, (3) a statement from an Obama administration official who said that President Obama will propose in his State of the Union speech Tuesday night a 5-year freeze on non-security discretionary spending, and (4) strong demand for the Treasury's $35 billion 2-year T-note auction that had a bid-to-cover ratio of 3.47, compared with the 12-auction average of 3.33.

                Bearish factors included (1) the large r-than-expected increase in Jan US consumer confidence which rose to its best level in 8 months (+7.3 to 60.6 versus expectations of +1.5 to 54.0), and (2) supply pressures ahead of the Treasury's $35 billion 5-year T-note auction on Wed.



•   The dollar index this morning is lower and at a 2-1/2 month low with the dollar/yen -0.07 yen and the euro/dollar +0.22 cents. The dollar index moved higher early yesterday but finished little changed after Treasury yields fell on speculation President Obama will propose a 5-year freeze on non-security discretionary spending: Dollar Index -0.048, USDJPY -0.276, EURUSD +0.00443.

                Bullish factors included (1) a slump in the British pound to a 1-1/2 week low against the dollar after Q4 UK GDP unexpectedly contracted, (2) the jump in Jan US consumer confidence to an 8-month high, and (3) renewed European sovereign-debt concerns after Moody's Investors Service warned that Spain's banks may need as much as 89 billion euros in a stressed case scenario.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after the IMF raised their forecast for global economic growth this year to 4.4% from an Oct forecast of 4.2%, (2) the unexpected increase in Feb German GfK consumer confidence which climbed to a 3-year high and is euro supportive, and (3) the 9 bp drop in the 10-year T-note yield on speculation President Obama will propose a 5-year freeze on non-security discretionary spending, which weakened the dollar's interest rate differentials.



•   March crude oil prices this morning are trading up +69 cents a barrel and March gasoline is +2.74 cents per gallon. Crude oil and gasoline prices weakened yesterday after England's Q4 GDP unexpectedly contracted: CLH11 -1.68, RBH11 -6.73. Mar crude sank to a 1-3/4 month low and Mar gasoline fell to a 3-week low.

                Bearish factors included (1) the unexpected decline in Q4 UK GDP, which signals a weak economy and energy demand, and (2) the outlook for increases in weekly crude oil and gasoline supplies when the DOE reports weekly inventories on Wed.

                Bullish factors included (1) the larger-than-expected increase in Jan US consumer confidence to its best level in 8 months, which may lead to improved consumer spending and fuel demand, and (2) the unexpected increase in the Feb German GfK consumer confidence survey to a 3-year high, which may also lead to increased fuel demand. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil stockpiles to increase +1.35 million bbl, gasoline supplies to rise 2.5 million bbl, distillate inventories to fall -500,000 bbl and the refinery capacity rate to remain unchanged at 83.0%.

Thursday, January 27, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -5.5 ticks. T-note prices yesterday weakened on stock market strength and on the stronger-than-expected Dec US home sales: TYH11 -21.5, FVH11 -8.7, EDM11 -0.5.

                Bearish factors included (1) the stronger-than-expected Dec US new home sales (+17.5% to an 8-month high of 329,000, higher than expectations of +3.5% to 300,000), (2) reduced safe-haven demand for Treasuries as the equity market rallied, (3) a possible increase in Treasury issuance after the CBO projected the US government's budget deficit will widen this year to $1.5 trillion, up from last year's $1.3 trillion deficit because of the cost of the $858 billion tax cut measure passed in Congress, and (4) supply pressures ahead of the Treasury's $29 billion 5-year T-note auction on Wed.

                Bullish factors included (1) strong demand for the Treasury's $35 billion 5-year T-note auction that had a bid-to-cover ratio of 2.97, the highest in 6 months and better than the 12-auction average of 2.76, and (2) the post FOMC statement that said "inflation is too low and unemployment is too high to be consistent in the long run with policy makers' congressional mandates for stable prices and full employment," which signals the Fed will maintain plans to buy the full $600 billion of Treasuries in its bond-purchase program.



•   The dollar index this morning is weaker and fell to a fresh 2-1/2 month low in overnight trade with the dollar/yen +0.82 yen and the euro/dollar +0.09 cents. The dollar index fell to a 2-1/2 month low yesterday but finished little changed on speculation that continued stimulus from the Fed will sustain the US economic recovery: Dollar Index -0.104, USDJPY -0.079, EURUSD +0.00306.

                Bearish factors included (1) strength in the euro which rallied to a 2-month high against the dollar after Dec German import prices rose +12.0% y/y, the fastest annual pace in 29 years, and (2) the increase in the 3-month Euribor rate to a 1-1/2 year high of 1.051%, which shows strong demand for euros.

                Bullish factors for the dollar included (1) speculation that the Fed's quantitative easing will sustain the US economic recovery, (2) the stronger-than-expected Dec US home sales which rose to an 8-month high and signals strength in the US economy, and (3) comments from ECB President Trichet wh o said that ECB government bond purchases are an "ongoing program," which is euro negative as it signals no immediate end to ECB bond purchases.



•   March crude oil prices this morning are trading down -51 cents a barrel and March gasoline is -0.98 of a cent per gallon. Crude oil and gasoline prices closed higher after the dollar weakened and after Dec US new home sales surged: CLH11 +1.14, RBH11 +8.60. Mar crude rebounded from a 1-3/4 month low and closed higher.

                Bullish factors included (1) the slump in the dollar index to a 2-1/2 month low, which boosts investment demand for commodities, (2) the prediction from the China Petroleum and Chemical Industry Association that China's crude-processing volume may rise +7.5% this year, a sign of strong demand, (3) comments from OPEC Secretary-General El-Badri who said that oil prices are in a "comfortable zone," which suggests OPEC has no intention of boosting crude output anytime soon, and (4) the larger-than-expected increase in Dec US new home sales to an 8-month high, which bolstered optimism in the economy and energy demand.

                Bearish factors included (1) t he larger-than-expected increase in weekly crude oil inventories (+4.84 million bbl versus expectations of +1.35 million bbl), and (2) the larger-than-expected increase in weekly gasoline inventories, which climbed to an 11-month high (+2.40 million bbl to 230.1 million bbl versus expectations of +2.3 million bbl).

Friday, January 28, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -5 ticks. T-note prices yesterday erased early losses and moved higher into the close after the conclusion of this week's T-note auctions: TYH11 +13.5, FVH11 +10.2, EDM11 +2.0.

               Bullish factors included (1) the larger-than-expected increase in weekly US initial unemployment claims which rose to their highest level in 2-3/4 months (+51,000 to 454,000 versus expectations of +1,000 to 405,000), (2) the weaker-than-expected Dec durable goods orders (-2.5% and +0.5% ex transportations versus expectations of +1.5% and +0.9% ex transportation), (3) dealer short-covering after the Treasury auctioned $99 billion worth of T-notes this week, and (4) the Fed's action to purchase $5.790 billion of Treasuries as part of its QE2 asset-purchase program.

               Bearish factors included (1) the stronger-than-expected Dec US pending home sales (+2.0% m/m versus expectations of +1.0% m/m), (2) reduced safe-haven demand for Treasuries after the S&P 500 climbed to a 2-1/3 year high, and (3) carry-over weakness from a jump in the yield on the 10-year German bund to a 9-1/2 month high as inflation concerns intensified after the Jan German CPI rose to a 2-1/4 year high.



•   The dollar index this morning is lower with the dollar/yen -0.73 yen and the euro/dollar -0.13 cents. The dollar index slipped to a 2-1/2 month low yesterday and finished lower on concern the US economy will struggle to sustain the recovery: Dollar Index -0.171, USDJPY +0.745, EURUSD +0.00206.

               Bearish factors for the dollar included (1) weak US economic data on Dec durable goods orders and weekly jobless claims, which may prevent the Fed from ending its stimulus measures, (2) euro supportive comments from ECB Council member Bini Smaghi who said that policy makers in advanced economies "can no longer afford" to ignore imported inflation, and (3) jawboning from French President Sarkozy that boosted the euro when he said European leaders would continue defending the euro and that "the consequences of a euro failure would be so cataclysmic that we can't even entertain the idea."

               Bullish factors included (1) the drop in the Japanese yen to a 2-week low against the dollar after Standard & Poor's cut Japan's credit rating one step to AA-, saying the government lacks a "coherent strategy" to address a 943 trillion yen ($11 trillion) debt burden, and (2) the prediction from S&P that it sees Spain, Ireland, Greece and Portugal "stuck in recession" due to the sovereign-debt crisis, which would be euro negative.



•   March crude oil prices this morning are trading up +23 cents a barrel and March gasoline is +1.44 cents per gallon. Crude oil and gasoline prices moved lower yesterday after US weekly unemployment claims rose to a 2-3/4 month high and bolstered concern that the US economy and energy demand may be slow to recover: CLH11 -1.69, RBH11 -4.34. Mar crude tumbled to a 1-3/4 month low.

               Bearish factors included (1) the weaker than expected Dec durable goods orders along with the larger-than-expected increase in weekly US unemployment claims to a 2-3/4 month high, which indicates an uneven recovery that may limit fuel demand, and (2) carry-over weakness from a drop in demand after total US fuel demand last week fell -1.6% w/w to a 2-month low of 18.9 million barrels a day.

               Bullish factors included (1) the fall in the dollar index to a 2-1/2 month low, which boosts investment demand in commodities, (2) carry-over support from a jump in heating oil prices to a 2-1/4 year high af ter the National Weather Service predicted below-normal temperatures in the US Northeast from Feb 1 through Feb 9, and (3) the larger-than-expected increase in Dec US pending home sales, which boosts confidence in the economic outlook and energy demand.

Monday, January 31, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -1.5 ticks. T-note prices last Friday shed early losses and rallied to a 2-week high and closed higher on increased safe-haven demand after protests in Egypt intensified: TYH11 +15.5, FVH11 +8.5, EDM11 -1.0.

                Bullish factors included (1) strong safe-haven buying of Treasuries on concern that civil unrest in Egypt and Tunisia may spread throughout the Middle East, (2) the weaker-than-expected Q4 GDP (+3.2% annualized versus expectations of +3.5% annualized), (3) the smaller-than-expected increase in the Q4 employment cost index (+0.4% versus expectations of +0.5%), and (4) a lack of inflation pressures after the Q4 core PCE deflator rose +0.4% q/q, the smallest increase since data began in 1959.

               Bearish factors included (1) the stronger-than-expected Q4 US personal consumption, which expanded at its fastest level in 4-1/2 years (+4.4% versus expectations of +4.0%), and (2) the larger-than-expected increase in the J an US University of Michigan consumer confidence (+1.5 to 74.2 versus expectations of +0.6 to 73.3).



•   The dollar index this morning is weaker with the dollar/yen +0.09 yen and the euro/dollar +0.65 cents. The dollar index last Friday overcame early weakness and finished higher on increased safe-haven demand on concern that civil unrest in Egypt may spread: Dollar Index +0.406, USDJPY -0.789, EURUSD -0.01239.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar after Fitch Ratings lowered the outlook on Egypt's debt rating to "negative" from "stable," saying the civil unrest increases the "uncertainty" over political and economic prospects, and (2) the larger-than-expected increase in the Jan US University of Michigan consumer confidence, which bolsters the prospects for the US economy.

                Bearish factors included (1) the weaker-than-expected US Q4 GDP, and (2) the warning from Moody's Investors Service that it may need to place a "negative" outlook on the US debt rating sooner than anticipated.



•   March crude oil prices this morning are trading down -3 cents a barrel and March gasoline is -1.85 cents per gallon. Crude oil and gasoline prices last Friday recovered from early losses and settled sharply higher on concern that civil unrest in Egypt might spread to major oil-producing parts of the Middle East: CLH11 +3.70, RBH11 +7.27. Mar crude fell to a 1-3/4 month low early in the session but rebounded and finished the day sharply higher.

                Bullish factors included (1) concerns that civil unrest in the Middle East will spread to oil-producing areas of the region or force a closure of the Suez Canal, which would disrupt global crude supplies, and (2) the +4.4% increase in Q4 US personal consumption, a 4-1/2 year high which shows strong consumer spending that may lead to increased fuel demand.

                Bearish factors included (1) the rally in the dollar, which discourages investment in commodities, (2) the weaker than expected US Q4 GDP, and (3) Bloomberg data that shows OP EC crude output in Jan climbed 210,000 barrels to a 2-year high of 29.395 million barrels a day.

Tuesday, February 1, 2011...

Today's Market Focus

March 10-year T-notes this morning are trading down -7.5 ticks. T-note prices yesterday fell back from a 2-week high after stronger-than-expected US economic data offset safe-haven demand from the Egyptian crisis: TYH11 -11.5, FVH11 -4.5, EDM11 -1.0.

                Bearish factors included (1) the stronger than expected Dec US personal spending (+0.7% versus expectations of +0.5%), (2) the unexpected increase in the Jan Chicago purchasing managers index which expanded at its fastest pace in 22-1/2 years (+2.0 to 68.8 versus expectations of -1.8 to 65.0), and (3) reduced safe-haven demand for Treasuries after the stock market rallied as geo-political concerns eased from the Egyptian crisis.

                Bullish factors included (1) the weaker than expected Dec core PCE deflator (unchanged m/m and +0.7% y/y versus expectations of +0.1% m/m and +0.8% y/y), with the +0.7% y/y increase the smallest year-over-year gain since records began in 1959, (2) the Fed's action to purchase $7.72 billion of Treasuries as part of its QE2 asset-purchase program, and (3) comments from Atlanta Fed President Lockhart who said the Fed should continue its quantitative easing measures to bring down unemployment which is "nowhere near acceptable" levels.



The dollar index this morning is weaker and posted a fresh 2-1/2 month low with the dollar/yen -0.41 yen and the euro/dollar +0.58 cents. The dollar index yesterday fell to a 2-1/2 month low and closed moderately lower after US inflation slowed further below the Fed's long-term forecast and after the euro strengthened when Euro-Zone inflation accelerated this month: Dollar Index -0.415, USDJPY -0.087, EURUSD +0.00843.

                Bearish factors for the dollar included (1) the +0.7% y/y increase in the Dec PCE core deflator, the Fed's preferred price index, which posted its smallest increase since records began in 1959 and may prompt the Fed into additional stimulus measures, which would be dollar negative, (2) the increase in the Jan Euro-Zone CPI estimate to +2.4% y/y, its biggest increase in 2-1/4 years, which may prompt the ECB into raising interest rates sooner than expected, and (3) stronger interest rate differentials for the euro after the 3-month Euribor rate rose to a 1- 1/2 year high of 1.074%.

                Bullish factors included (1) the unexpected decline in Dec German retail sales which fell for the second straight month and is euro negative, and (2) stronger-than-expected US economic data on Dec personal spending and the Jan Chicago purchasing managers index, which is dollar supportive as it indicates continued expansion of the US economy.



March crude oil prices this morning are trading down -70 cents a barrel and March gasoline is -0.69 of a cent per gallon. Crude oil fell in overnight trade on an easing of Egyptian concens after Suez Canal officials said traffic is moving normally through the canal and the Egyptian military said it won't fire on protestors. Crude oil and gasoline prices yesterday settled sharply higher for a second day due to a weak dollar and concern that unrest in Egypt may disrupt crude supplies: CLH11 +2.85, RBH11 +1.42. Mar crude posted a 2-1/4 year nearest-futures high and Mar gasoline climbed to a 1-week high.

                Bullish factors included (1) concern that the civil protests in Egypt will spread to major oil-producing parts of the Middle East or lead to a closure of the Suez Canal, (2) the slump in the dollar index to a 2-1/2 month low, which boosts investment demand for commodities, and (3) strong US economic data as Dec personal spending was stronger than expected and the Jan Chi cago purchasing managers index unexpectedly expanded at its fastest pace in 22-1/4 years, which signals strong fuel consumption.

                Bearish factors included (1) speculation that forecasted winter storms for the central and eastern US will reduce gasoline demand, and (2) comments from OPEC Secretary-General Abdalla el-Badri who said that OPEC would increase its crude output if current unrest in Egypt disrupts oil supplies from the Middle East.

Wednesday, February 2, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +6 ticks. T-note prices yesterday traded in negative territory the entire day due to strong economic data and reduced safe-haven demand from the Egyptian crisis: TYH11 -16, FVH11 -11, EDM11 unchanged.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after the Egyptian military pledged not to fire on protesters, (2) the unexpected increase in the Jan ISM manufacturing index which expanded at its fastest level in 6-1/2 years (+2.3 to 60.8 versus expectations of -0.5 to 58.0), (3) inflation concerns after the Jan ISM prices paid sub-index accelerated to its highest level in 2-1/2 years (+9.0 to 81.5 versus expectations of +1.0 to 73.5), and (4) carry-over weakness from strong European economic data that pushed the 10-year German bund yield up to an 11-month high of 3.237%.

                Bullish factors included (1) the action by the Treasury to lower its Jan-Mar borrowing estimate to $237 billion from an earlie r estimate of $431 billion, which should lead to reduced Treasury issuance, and (2) the unexpected plunge in Dec construction spending for a second month along with the downward revision to Nov (Dec -2.5% m/m versus expectations of +0.1% m/m and Nov revised down to -0.2% m/m from the previously reported +0.4% m/m).



•   The dollar index this morning is weaker and posted a fresh 2-3/4 month low in overnight trade with the dollar/yen +0.12 yen and the euro/dollar -0.25 cents. The dollar index yesterday posted a 2-1/2 month low and closed lower for a second day on reduced tensions in Egypt along with strength in the euro on speculation that the Euro-Zone rescue fund may buy distressed government debt: Dollar Index -0.668, USDJPY -0.624, EURUSD +0.01327.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after concern eased from the Egyptian crisis when the Egyptian military said it won't fire on protesters, (2) a rally in the euro to a 2-1/2 month high against the dollar after people familiar with the situation said European officials were near an agreement to enable the 440 billion euro rescue fund to buy bonds directly from distressed governments instead of offering bailout loans, (3) strong European economic data which is euro supportive after German unemployment fell to an 18-year low in Jan and the Jan Euro-Zone PMI manufacturing index was unexpectedly revised up to a 9-month high, (4) strength in the British pound which rallied to a 2-1/2 month high against the dollar after the Jan UK PMI manufacturing index unexpectedly expanded at its best level since data began in 1992, and (5) stronger interest rate differentials for the euro after the 3-month Euribor rate rose to a 1-1/2 year high of 1.082%.

                Bullish factors included (1) the unexpected increase in the Jan ISM manufacturing index which expanded at its best level in 6-1/2 years and points to strong growth in the US manufacturing sector, and (2) the action by the ECB to fail to sterilize its recent bond purchases with deposits when it drained 68.2 billion euros ($93.9 billion) from money markets via 7-day term deposits, -8.3 billion euros less than the 76.5 billion euros it intended to absorb, which amounts to quantitative easing and is negative for the euro.



•   March crude oil prices this morning are trading up +4 cents a barrel and March gasoline is -0.97 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged and settled mixed as strong global economic data was offset by reduced concerns from the Egyptian crisis: CLH11 -1.42, RBH11 +1.90.

                Bearish factors included (1) reduced concern that the civil unrest in Egypt will disrupt global oil supplies after Suez Canal officials said traffic is moving normally through the canal and the Egyptian military said it won't fire on protesters, and (2) the outlook that US crude inventories increased for a third week when the DOE releases its weekly figures on Wed.

                Bullish factors included (1) the slump in the dollar index to a 2-1/2 month low, which boosts investment demand in commodities, (2) the unexpected increase in the Jan ISM manufacturing index which expanded at its best level in 6-1/2 years and indicates strong energy consumption, and (3) strong European economic data that points to strong fuel consumption after German unemployment fell to an 18-year low in Jan and the Jan UK PMI manufacturing index unexpectedly expanded at its best level since data began in 1992. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil supplies to increase +2.5 million bbl, gasoline stockpiles to gain +2.0 million bbl, distillate inventories to slip -1.0 million bbl and the refinery utilization rate to fall -0.3 to 81.5%.

Thursday, February 3, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -3 ticks. T-note prices yesterday slipped to a 1-1/2 week low and finished with moderate losses on supply pressures and the outlook for employment growth: TYH11 -13, FVH11 -12.2, EDM11 -0.5.

                Bearish factors included (1) the larger-than-expected increase in the Jan ADP employment change (+187,000 versus expectations of +140,000), and (2) supply pressures after the Treasury announced that it will auction $72 billion in T-notes and bonds in next week's Feb quarterly refunding.

                Bullish factors included (1) increased safe-haven demand for Treasuries after Standard & Poor's cut Ireland's credit rating to A- from A, and (2) increased safe-haven demand on concern that the civil unrest in Egypt may spread throughout the Middle East and lead to global instability after riots broke out between anti-government protesters and people loyal to President Mubarak.



•   The dollar index this morning is higher with the dollar/yen +0.13 yen and the euro/dollar -0.48 cents. The dollar index yesterday sank to a 2-3/4 month low but erased its losses and finished higher after the euro plunged when S&P cut Ireland's credit rating: Dollar Index +0.036, USDJPY +0.201, EURUSD -0.00179.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar and weakness in the euro after Standard & Poor's cut Ireland's credit rating to A- from A and said the country remains on "creditwatch with negative implications," and (2) the action by the German government to rule out allowing the European Financial Stability Facility to fund bond buybacks for distressed European nations, which revives concern the sovereign-debt crisis may worsen.

                Bearish factors included (1) strength in the British pound which rallied to a 2-3/4 month high against the dollar after BOE policy member Sentance said the BOE must raise interest rates now at a steady pace to avoid a large increase later, and (2) the increase in the Dec Euro-Zone PPI to a 2-year high of 5.3% y/y, which raises expectations for rate hikes by the ECB and is euro supportive.



•   March crude oil prices this morning are trading up +73 cents a barrel and March gasoline is +1,62 cents per gallon. Crude oil and gasoline prices yesterday traded on both sides of unchanged and settled mixed as soaring gasoline supplies undercut gasoline prices and riots in Egypt lifted crude: CLH11 +0.09, RBH11 -0.82.

                Bullish factors included (1) concern that protests in Egypt will spread throughout the Middle East and disrupt global oil supplies after riots broke out between anti-government protesters and people loyal to President Mubarak, and (2) optimism that expanding global economic growth will boost energy demand.

                Bearish factors included (1) the rebound in the dollar after the dollar index recovered from a 2-3/4 month low and closed higher, which may reduce investment demand in commodities, (2) weakness in gasoline after the larger-than-expected increase in weekly gasoline inventories which surged to their highest level in 17-3/4 years (+6.15 million bbl to 2 36.2 million bbl versus expectations of a +2.0 million bbl build), and (3) a severe winter storm that shut down much of the central US, which reduces jet fuel and gasoline consumption and demand.

Friday, February 4, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -2.5 ticks. T-note prices yesterday tumbled to a 1-month low and settled lower after services industries in the US expanded at their fastest pace in 5 years and factory orders unexpectedly increased: TYH11 -14.5, FVH11 -9.2, EDM11 +0.5.

                Bearish factors included (1) the larger-than-expected decrease in weekly initial US unemployment claims (-42,000 to 415,000 versus expectations of -34,000 to 420,000), (2) the unexpected increase in the Jan ISM non-manufacturing index to its best level in 5-1/3 years (+2.3 to 59.4 versus expectations of unchanged at 57.1), and (3) the unexpected increase in Dec factory orders (+0.2% versus expectations of -0.5%).

                Bullish factors included (1) the stronger-than-expected Q4 nonfarm productivity (+2.6% versus expectations of +2.0%), and for all of 2010 productivity rose +3.6%, the most since 2002, (2) a lack of wage pressures with the unexpected decline in Q4 unit labor costs (-0.6% v ersus expectations of +0.3%), and for all of 2010 labor costs fell -1.5% after a -1.6% drop in 2009, the first back-to-back declines since 1962-63, and (3) the Fed's action to purchase $8.87 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is slightly higher with the dollar/yen +0.03 yen and the euro/dollar -0.05 cents. The dollar index yesterday settled higher after the euro slumped on dovish remarks from ECB President Trichet: Dollar Index +0.643, USDJPY +0.068, EURUSD -0.01766.

                Bullish factors for the dollar included (1) euro weakness after comments from ECB President Trichet who said that interest rates "remain appropriate" and inflation risks are "broadly balanced," which dims the prospects for ECB rate hikes, and (2) the stronger-than-expected Q4 nonfarm productivity and the unexpected decline in Q4 unit labor costs, which is dollar supportive.

                Bearish factors included (1) strength in the British pound which rallied to a 2-3/4 month high against the dollar after the Jan UK PMI services index increased to an 8-month high, which boosts expectations of interest rate hikes by the BOE this year, and (2) the unexpected upward revision to the Jan Euro-Zon e PMI composite index to a 9-month high, which is euro supportive.



•   March crude oil prices this morning are trading up +29 cents a barrel and March gasoline is +0.69 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated on either sides of unchanged and settled mixed as a strong dollar offset violent political protests in Egypt: CLH11 -0.32, RBH11 +0.17. Mar gasoline posted a contract high.

                Bearish factors included (1) dollar strength, which may curtail investment demand for commodities, and (2) the prediction from tanker tracker Oil Movements that OPEC crude oil shipments will rise +1.7% to 24.16 million barrels a day in the four weeks to Feb 19.

                Bullish factors included (1) concern that violent political protests in Egypt will escalate throughout the Middle East and disrupt fuel supplies, and (2) the larger-than-expected increase in the Jan ISM non-manufacturing index to its best level in 5-1/3 years, which indicates strong fuel demand and consumption.

Monday, February 7, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -3.5 ticks. T-note prices last Friday sank to a 7-1/2 month low and closed lower after the Jan US unemployment rate unexpectedly fell to a 1-3/4 year low: TYH11 -27.5, FVH11 -17.5, EDM11 unchanged. The 10-year T-note yield climbed to a 9-month high of 3.659%.

                Bearish factors included (1) the unexpected decline in the Jan US unemployment rate to a 1-3/4 year low (-0.4 to 9.0% versus expectations of +0.1 to 9.5%), (2) the larger-than-expected increase in Jan manufacturing payrolls (+49,000 versus expectations of +10,000), and (3) the statement from the US Labor Department that said bad weather prevented 886,000 Americans from going to work to the week of the Labor Department's Jan monthly job survey, compared with an average of 282,000 over the past 5 Januarys, which suggests that winter storms caused much of the weakness in the Jan payrolls report.

                Bullish factors included (1) the early spike higher in T-note pri ces after Jan nonfarm payrolls were reported up only +36,000, versus expectations of +143,000, and (2) the Fed's action to purchase $7.272 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is stronger with the dollar/yen +0.15 yen and the euro/dollar -0.33 cents. The dollar index last Friday finished higher after the US Labor Department said the weak payrolls report was due to winter storms: Dollar Index +0.227, USDJPY +0.575, EURUSD -0.00470.

                Bullish factors for the dollar included (1) the statement from the US Labor Department that said bad weather prevented 886,000 Americans from going work to the week of the Labor Department's Jan monthly job survey, compared with an average of 282,000 over the past 5 Januarys, which suggests that winter storms caused much of the weakness in the Jan payrolls report, and (2) euro weakness after comments from ECB Council member Nowotny who said "The ECB anticipates 1.8% inflation" next year, which suggests the ECB still expects inflation to fall back below its 2.0% limit over its policy-relevant time horizon and reduces pressure on them to increase interest rates.

                Bearish factor s included (1) early weakness in the dollar after the weaker-than-expected Jan nonfarm payrolls, although the dollar recovered after the US Labor Department said weather caused most of the weakness, and (2) strong demand for euros as the 3-month Euribor rate climbed to a 19-month high of 1.088% as banks hoard euros on concern the ECB may withdraw its emergency cash supplies in April.



•   March crude oil prices this morning are trading up +28 cents a barrel and March gasoline is +2.97 cents per gallon. Crude oil and gasoline prices last Friday spiked higher early but then sold-off and finished lower on concern the US economy is not producing enough jobs to increase energy demand: CLH11 -1.51, RBH11 -6.77.

                Bearish factors included (1) dollar strength, which may curtail investment demand for commodities, and (2) the weaker-than-expected Jan US payrolls report, which questions the sustainability of the US economic recovery and fuel demand.

                Bullish factors included (1) a temporary spike higher in gasoline prices after the US unemployment rate in Jan unexpectedly fell to a 1-3/4 year low, and (2) concerns that the civil unrest in Egypt will spill over into the major oil-producing regions of the Middle East or force the closure of the Suez Canal.

Moving the goalposts...
QE2 failed to achieve both of its stated goals: to "foster maximum employment and price stability". Unemployment remains stubbornly high, while long-term treasury yields are increasing — reflecting rising inflation expectations.

But if you listened to the Fed Chairman recently, you may be tempted to question either your memory or your hearing:
"Since August, when we announced our policy of reinvesting maturing securities and signaled we were considering more purchases, equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen from low to more normal levels. Yields on 5- to 10-year Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases."
He now claims that falling bonds and rising stock prices, in anticipation of higher inflation, are evidence that the strategy is succeeding. A clear case of moving the goalposts to fit the result.



•   March 10-year T-notes this morning are trading down -3.5 ticks. T-note prices last Friday sank to a 7-1/2 month low and closed lower after the Jan US unemployment rate unexpectedly fell to a 1-3/4 year low: TYH11 -27.5, FVH11 -17.5, EDM11 unchanged. The 10-year T-note yield climbed to a 9-month high of 3.659%.

                Bearish factors included (1) the unexpected decline in the Jan US unemployment rate to a 1-3/4 year low (-0.4 to 9.0% versus expectations of +0.1 to 9.5%), (2) the larger-than-expected increase in Jan manufacturing payrolls (+49,000 versus expectations of +10,000), and (3) the statement from the US Labor Department that said bad weather prevented 886,000 Americans from going to work to the week of the Labor Department's Jan monthly job survey, compared with an average of 282,000 over the past 5 Januarys, which suggests that winter storms caused much of the weakness in the Jan payrolls report.

                Bullish factors included (1) the early spike higher in T-note pri ces after Jan nonfarm payrolls were reported up only +36,000, versus expectations of +143,000, and (2) the Fed's action to purchase $7.272 billion of Treasuries as part of its QE2 asset-purchase program.

Tuesday, February 8, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -1 tick. T-note prices yesterday fell to a 7-1/2 month low on reduced safe-haven demand after tensions eased in Egypt and the S&P 500 rallied but recovered their losses and finished little changed: TYH11 +1.0, FVH11 +1.0, EDM11 +0.5. The 10-year T-note yield climbed to a 9-month high of 3.693%.

                Bearish factors included (1) reduced safe-haven demand for Treasuries as geo-political concerns eased in Egypt after Egyptian Vice President Suleiman promised to draft a list of constitutional changes needed for free elections within a month and the S&P 500 Index rallied to a 2-1/2 year high, (2) the larger-than-expected increase in Dec US consumer credit (+$6.1 billion versus expectations of +$2.0 billion), which increases the chances that consumer spending will continue to expand, and (3) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tue.

                Bullish factors included (1) data from Merrill Lynch that shows 40% of the government bonds the Fed bought In Jan for its QE2 program were auctioned in the previous 90 days, or so-called on-the-run bonds, up from 20% purchased in Dec and 15% in Nov, which gives bond dealers more incentive to increase their bids at Treasury auctions and helps keep yields down, and (2) the Fed's action to purchase $8.359 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is weaker with the dollar/yen -0.14 yen and the euro/dollar +0.63 cents. The dollar index yesterday rallied to a 2-week high as the euro declined on weak German factory orders but gave up most of its gains and finished little changed on reduced safe-haven demand after the stock market rallied to a 2-1/2 year high: Dollar Index +0.012, USDJPY +0.130, EURUSD -0.00041.

                Bullish factors for the dollar included (1) the slump in the euro to a 2-week low against the dollar after Dec German factory orders contracted more than expected, and (2) expectations for strong US economic data this week on US consumer credit and weekly initial jobless claims, which will bolster optimism that the US economic recovery can be sustained.

                Bearish factors included (1) euro supportive comments from ECB Council member Gonzalez-Paramo who said that interest rates would have to rise if inflation doesn't start to decline by the end of the year, and (2) the larger-than -expected increase in the Feb Euro-Zone Sentix investor confidence which rose to a 3-1/4 year high and is euro bullish.



•   March crude oil prices this morning are trading down -$1.14 a barrel and March gasoline is -1.25 cents per gallon as China's interst rate hike undercuts commodities. Crude oil and gasoline prices yesterday traded sideways to lower and settled mixed as the dollar strengthened and tensions eased in Egypt: CLH11 -1.55, RBH11 +1.52. Mar crude slipped to a 1-week low.

                Bearish factors included (1) the rally in the dollar index to a 2-week high, which may curb investment demand for commodities, and (2) reduced tensions in Egypt after Egyptian Vice President Suleiman promised within a month to draft a list of constitutional changes needed for free elections.

                Bullish factors included (1) strength in gasoline on concerns that several refinery closures by ConocoPhillips in Texas, Exxon-Mobile in Louisiana and Valero Energy in Aruba may limit US gasoline supplies, and (2) the rally in the S&P 500 Index to a 2-1/2 year high, which bolsters confidence in the economic outlook a nd energy demand.

Wednesday, February 9, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +0.5 of a tick. T-note prices yesterday traded with small losses into early afternoon and then tumbled into the close after the Treasury's 3-year T-note auction was met with weak demand: TYH11 -20, FVH11 -17.2, EDM11 -1.5. The 10-year T-note yield climbed to a 9-1/4 month high of 3.733%.

                Bearish factors included (1) hawkish comments from Richmond Fed President Lacker who said the quickening US recovery means policy makers need to take "quite seriously" their commitment to review the $600 billion asset-purchase program, which suggests he favors ending the QE2 program sooner rather than later, (2) weak demand for the Treasury's $32 billion auction of 3-year T-notes that had a bid-to-cover ratio of 3.01, below the 12-auction average of 3.12, and (3) supply pressures ahead of the Treasury's $24 billion auction of 10-year T-notes on Wed.

                Bullish factors included (1) comments from Atlanta Fed President Lockhar t who said economic concern that the US recovery may falter is "justified" as hiring lags behind economic growth, and (2) the Fed's action to purchase $2.19 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is little changed with the dollar/yen +0.19 yen and the euro/dollar +0.25 cents. The dollar index yesterday weakened after China raised interest rates and on reduced safe-haven demand for the dollar as the stock market rallied: Dollar Index -0.030, USDJPY +0.043, EURUSD +0.00428.

                Bearish factors for the dollar included (1) the action by China to raise interest rates for the third time since mid-Oct, (2) reduced safe-haven demand for the dollar after the stock market rallied and as tensions eased in Egypt, and (3) hawkish comments from ECB Council member Mersch that lifted the euro when he said policy makers would need to come up with "a rigorous intervention" if higher inflation persists.

                Bullish factors included (1) dollar supportive comments from Richmond Fed President Lacker who said the quickening US recovery means policy makers need to take "quite seriously" their commitment to review the $600 billion asset-purcha se program scheduled to end in June, which suggests he favors ending the QE2 program sooner rather than later, and (2) the unexpected decline in Dec German industrial production, which is euro negative.



•   March crude oil prices this morning are trading up +40 cents a barrel and March gasoline is +1.32 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged as the action by China to raise interest rates was offset by refinery shutdowns that may limit gasoline supplies: CLH11 -0.54, RBH11 +0.95. Mar crude and Mar gasoline fell to 1-week lows.

                Bearish factors included (1) the action by China to raise interest rates for the third time since mid-Oct, which may slow China's economy and its fuel demand, (2) an easing of the political tension in Egypt, which reduces chances of civil unrest spreading throughout the Middle East that may disrupt global oil supplies, (3) carry-over weakness from a fall in natural gas prices to a 1-1/2 month low after the DOE raised its forecast for 2011 US natural gas production to 62.43 billion cubic feet a day from last month's forecast of 61.38 billion cubic feet a day, and (4) the outlook for US crude s upplies to increase for a fourth week when the DOE releases its weekly inventory figures on Wed.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, and (2) strength in gasoline on concerns that several refinery closures by ConocoPhillips in Texas, Exxon-Mobile in Louisiana and Valero Energy in Aruba may limit US gasoline supplies. Expectations for Wednesday's weekly DOE inventory report are for crude oil stockpiles to increase by +2.0 million bbl, gasoline supplies to rise +2.7 million bbl, distillate inventories to fall -1.0 million bbl and the refinery utilization rate to fall -0.2 to 84.7%

Thursday, February 10, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -1.5 ticks. T-note prices yesterday recovered from a 7-1/2 month low and closed higher after Fed Chairman Bernanke said US job growth will remain sluggish along with strong foreign demand for the Treasury's 10-year T-note auction: TYH11 +19, FVH11 +11.2, EDM11 +1.5. The 10-year T-note yield rose to a 9-1/2 month high of 3.766% but fell back and closed 12 bp lower at 3.640%.

                Bullish factors included (1) comments from Fed Chairman Bernanke who said US unemployment will "remain elevated for some time," which suggests the Fed will keep its quantitative easing program in place through June and may even expand it, (2) strong foreign demand for the Treasury's $24 billion 10-year T-note auction in which indirect bidders, a class of investors that includes foreign central banks, bought 71.3% of the T-notes, well ahead of the 12-auction average of 44.3% and the highest since 2003, and (3) the Fed's action to purc hase $7.51 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) comments from Treasury Secretary Geithner who said the US economic "recovery is accelerating" and that the US is growing twice as fast as Europe or Japan, and (2) supply pressures ahead of the Treasury's $16 billion auction of 30-year T-bonds on Thursday.



•   The dollar index this morning is higher with the dollar/yen +0.46 yen and the euro/dollar -1.08 cents. The dollar index yesterday weakened and closed lower after Fed Chairman Bernanke told the House Budget Committee that high US unemployment will persist: Dollar Index -0.358, USDJPY -0.014, EURUSD +0.01072.

                Bearish factors for the dollar included (1) comments from Fed Chairman Bernanke who said the US unemployment rate is likely to remain high "for some time," which is dollar bearish as it may prompt the Fed to keep its quantitative easing measures intact and possibly expand them, and (2) the increase in the 10-year German bund yield to a 1-year high of 3.315%, which benefits the euro's interest rate differentials.

                Bullish factors included (1) the report from Reuters that well-known monetary policy hawk Axel Weber will drop out of the race to succeed Jean-Claude Trichet as head of the ECB, which is euro negative as rate-hike expectations were reduced, and (2 ) comments from Treasury Secretary Geithner who said the US economic "recovery is accelerating" and that the US is growing twice as fast as Europe or Japan.



•   March crude oil prices this morning are trading down -44 cents a barrel and March gasoline is -0.57 of a cent per gallon. Crude oil and gasoline prices yesterday gyrated on both sides of unchanged and settled mixed as a weaker dollar offset the rise in US gasoline supplies to a nearly 21-year high: CLH11 -0.23, RBH11 +3.18.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, and (2) the action by pirates to hijack a US bound supertanker of Kuwaiti oil off the coast of Oman, which may increase the costs of shipping oil as insurance rates rise and shippers take longer routes to avoid pirate filled waters.

                Bearish factors included (1) comments from Fed Chairman Bernanke who said the US unemployment rate is likely to remain high "for some time," which may keep US economic growth and energy demand stagnant, (2) the larger-than-expected increase in US gasoline inventories (+4.66 million bbl to 240.9 million bbl, the high est since March 1990 and more than expectations of +2.7 million bbl), (3) slack gasoline demand, as measured by deliveries to wholesalers, which fell -0.3% to 8.52 million barrels a day, the lowest level in a year, and (4) the unexpected increase in distillate supplies (+288,000 bbl versus expectations of a -1.0 million bbl decline).

Friday, February 11, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +11 ticks. T-note prices yesterday traded weaker after weekly initial unemployment claims fell more than expected along with slack demand for the Treasury's 30-year T-bond auction: TYH11 -14.5, FVH11 -12.5, EDM11 -1.0.

                Bearish factors included (1) the larger-than-expected decline in weekly initial US unemployment claims which fell to their lowest level in 2-1/2 years (-36,000 to 383,000 versus expectations of -5,000 to 410,000), (2) below average demand for the Treasury's $16 billion auction of 30-year T-bonds that has a bid-to-cover ratio of 2,51, below the 12-auction average of 2.67, and (3) reduced safe-haven demand for Treasuries on speculation that President Mubarak of Egypt would soon step down.

                Bullish factors included (1) renewed European sovereign-debt concerns that boosted the safe-haven demand for Treasuries after the yield on the 10-year Portuguese bond climbed to its highest since the introduction of t he euro in 1999, and (2) bond dealer short covering as the Treasury concluded with its Feb quarterly refunding of $72 billion of T-notes and T-bonds.



•   The dollar index this morning is trading higher and at a 3-week high with the dollar/yen +0.36 yen and the euro/dollar -0.84 cents. The dollar index yesterday rallied on strong US economic data and renewed European sovereign-debt concerns: Dollar Index +0.609, USDJPY +0.868, EURUSD -0.01313.

                Bullish factors for the dollar included (1) the fall in weekly initial US unemployment claims to a 2-1/2 year low, which suggests improvement in the US economy, and (2) weakness in the euro on renewed sovereign-debt concerns after the yield on the 10-year Portuguese bond climbed to 7.64%, the highest since the introduction of the euro in 1999.

                Bearish factors included (1) euro supportive comments from ECB Council member Wellink who said that upside risks to price stability "clearly dominate" in the short term and that Europe's recovery was becoming more self-sustaining, and (2) reduced safe-haven demand for the dollar on speculation that Egyptian President Mubarak woul d shortly bow to protesters' demands and step down as President of Egypt.



•   March crude oil prices this morning are trading up +22 cents a barrel and March gasoline is +0.92 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged and settled mixed as a stronger dollar and the IEA's action to raise its global crude demand forecast gyrated prices: CLH11 +0.02, RBH11 -5.62. Mar gasoline rallied to a 2-1/3 nearest-futures high but erased its gains and settled lower.

                Bullish factors included (1) the action by the IEA to raise its 2011 global oil demand forecast for a fifth month by +140,000 barrels a day from its Jan forecast to 89.3 million bpd and say that oil supplies in the OECD countries fell by 55.6 million bbl to a 2-year low of 2.67 billion bbl in Dec, and (2) the larger-than-expected decline in weekly US initial unemployment claims to their lowest level in 2-1/2 years, which signals improvement in the labor market that may lead to increased fuel demand.

                Bearish factors included (1) dollar strength , which reduces investment demand for commodities, and (2) updated weather forecasts that call for above-normal temperatures for the US Northeast from Feb 15-23, which may reduce demand for heating fuels.

Monday, February 14, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading unchanged. T-note prices last Friday gained on Middle East uncertainty and a post-refunding rally: TYH11 +12, FVH11 +5.2, EDM11 unchanged.

                Bullish factors included (1) increased safe-haven demand for Treasuries as the resignation of Egyptian President Mubarack increases uncertainty on who will lead Egypt, (2) the action by the Fed to purchase $7.375 billion of Treasuries as part of its QE2 asset-purchase program, and (3) a post-refunding rally as the Treasury concluded with its Feb quarterly refunding of $72 billion of T-notes and T-bonds.

                Bearish factors included (1) the larger-than-expected increase in the Feb US University of Michigan consumer confidence, which rose to its best level in 8 months (+0.9 to 75.1 versus expectations of +0.8 to 75.0), and (2) reduced safe-haven demand for Treasuries after the S&P 500 posted a fresh 2-1/2 year high.



•   The dollar index this morning is trading higher and at a 3-week high with the dollar/yen -0.01 yen and the euro/dollar -1.00 cent. The dollar index last Friday rallied to a 3-week high on uncertainty in Egypt along with the increase in Feb US consumer confidence: Dollar Index +0.210, USDJPY +0.223, EURUSD -0.00540.

                Bullish factors for the dollar included (1) increased safe-haven demand for the dollar after Egyptian President Mubarak stepped down, which increases uncertainty on who is going to take control in Egypt, (2) weakness in the euro which fell to a 3-week low against the dollar after ECB Council Member and Bundesbank President Weber said he will step down effective Apr 30, which may reduce ECB rate-hike expectations as Weber is a staunch inflation fighter and his absence from the ECB is euro negative, (3) the jump in the Feb US University of Michigan consumer confidence to an 8-month high, which is positive for the US economy and supportive for the dollar.

                Bearish factors included (1) the rally in the S&P 500 Index to a 2-1/2 year high, which reduces the safe-haven demand for the dollar, and (2) hawkish comments from ECB Council member and Bank of France President Noyer who said that "we are not willing to make compromises on second-round effects" of higher inflation to feed through into higher wage demands.



•   March crude oil prices this morning are trading down 3 cents a barrel and March gasoline up +2.28 cents per gallon. Crude oil and gasoline prices last Friday settle lower due to a stronger dollar and after Egyptian President Mubarak stepped down: CLH11 -$1.15, RBH11 -0.46. Mar crude fell to a 2-1/2 month low.

                Bearish factors included (1) the rally in the dollar index to a 3-week high, which reduces investment demand for commodities, (2) the action by Egyptian President Mubarak to step down and hand power to the Egyptian military, which reduces concern that crude shipments from the Middle East will be disrupted, and (3) carry-over weakness from the plunge in natural gas prices to a 2-3/4 month low on speculation that demand for heating fuels will weaken after the Commodity Weather Group predicted warmer-than-normal temperatures in the eastern two-thirds of the US from Feb 16-20.

                Bullish factors included (1) the prediction from Deutsche Bank that China may increase its crude oil imports this year by 530,000 barrels a day or 11% to 5.4 million barrels as additional emergency storage tanks come into operation as it continues its stockpiling of commodities, and (2) the increase in Feb US University of Michigan consumer confidence to an 8-month high, which may portend to increased consumer spending and demand for fuel.

Tuesday, February 15, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -9.5 ticks. T-note prices yesterday shook off early weakness and closed higher on dovish comments from the New York Fed President along with Fed purchases of Treasuries: TYH11 +4, FVH11 +2, EDM11 unchanged.

                Bullish factors included (1) comments from New York Fed President Dudley who said that he backs continued Fed asset purchases to "help ease financial conditions" and stimulate economic growth, (2) a paper from the San Francisco Fed that said there appears to be "little need" to raise the Fed funds rate target anytime soon, given unemployment and inflation aren't meeting the central bank's objectives, and (3) the action by the Fed to purchase $1.497 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) revised deficit figures from the White House that predict the US deficit for the current fiscal year will climb to a record $1.6 trillion, up from a pre vious estimate $1.4 trillion, which may lead to increased Treasury issuance, (2) the rally in the S&P 500 to a fresh 2-1/2 year high, and (2) reduced safe-haven demand for Treasuries on optimism that the global economic expansion may continue after Jan China exports and imports rose more-than-expected and Japan's Q4 GDP contracted less than expected.



•   The dollar index this morning is trading weaker with the dollar/yen +0.35 yen and the euro/dollar +0.47 cents. The dollar index yesterday pushed up to a 3-week high after the euro weakened when Euro-Zone finance ministers ruled out immediate steps to tackle the debt crisis: Dollar Index +0.154, USDJPY -0.122, EURUSD -0.00586.

                Bullish factors for the dollar included (1) the slump in the euro to a 3-week low against the dollar on renewed concerns over the European sovereign-debt crisis after Reuters reported that a rescue plan for WestLB AG, the German state-owned bank bailed out during the financial crisis, may founder, (2) disagreement among European leaders on debt reduction targets after Ireland's main opposition party said a new Irish government would seek to renegotiate detail's of the country's recent financial bailout and Greece said that demands from the European Union and the IMF that Greece sell state assets to raise as much as 50 billion euros by 2015 to pay down debt were "unacceptable."

                Bearish factors included (1) strength in the yen against the dollar after Japan's Q4 GDP contracted less than expected, and (2) dollar negative comments from New York Fed President Dudley who said that he backs continued Fed asset purchases to "help ease financial conditions" and stimulate economic growth.



•   March crude oil prices this morning are trading up +41 cents a barrel and March gasoline is up +0.31 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated and settled mixed as the dollar strengthened and undercut crude but a fire at a St. Croix refinery lifted gasoline as it threatens to limit US gasoline supplies: CLH11 -$0.77, RBH11 +5.22. Mar crude fell to a 2-1/2 month low and Mar gasoline climbed to a 2-1/3 nearest futures high.

                Bearish factors included (1) the rally in the dollar index to a 3-week high, which reduces investment demand for commodities, (2) reduced concern that civil unrest in the Middle East will disrupt crude supplies after Egypt's ruling army council said it aims to transfer power within 6 months to a democratically elected government, and (3) comments from the UAE oil minister who said the oil market is "well supplied" and that OPEC is ready to provide more crude to consumers as demand grows.

                Bullish factors included (1) strength in gasoline prices as a fire in the 525,000 barrel a day Hovensa LLC refinery in St. Croix threatens to limit US gasoline supplies, (2) the +27% y/y increase in Jan China crude oil imports to a 4-month high of 21.5 MMT, which signals strong demand, (3) the larger-than-expected increase in Jan China exports and imports, which suggests growing demand in the world's largest energy-consuming country, and (4) the warning from JPMorgan Chase that the departure of Egyptian President Mubarak "inspires" protesters in the Middle East and that "the prospect of regional contagion impacting a key oil supplier appears elevated.

Wednesday, February 16, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +4 ticks. T-note prices yesterday moved higher after mid-morning as weak US retail sales and housing data offset strong import prices and growth in New York manufacturing: TYH11 +0.5, FVH11 +2.2, EDM11 unchanged.

                Bullish factors included (1) the weaker-than-expected Jan US retail sales (+0.3% and +0.3% less autos versus expectations of +0.5% and +0.5% less autos), (2) the stagnant US housing market after the Feb NAHB housing market index remained unchanged for the fourth consecutive month, (3) the Fed's purchase of $6.689 billion of Treasuries as part of its QE2 asset-purchase program, and (4) the prediction from BNP Paribas Asset Management that the US yield curve will flatten as yields on longer-dated Treasuries rise less than on shorter-maturity notes as the Fed continues to buy longer-term Treasuries to keep rates down.

                Bearish factors included (1) the larger-than-expected increase in Jan import prices (+1.5% m /m and +5.3% y/y versus expectations of +0.8% m/m and 4.4% y/y), as the +5.3% y/y gain is the highest in 9 months, (2) the stronger-than-expected Feb Empire manufacturing index which expanded at its best level in 8 months (+3.5 to 15.4 versus expectations of +3.1 to 15.0).



•   The dollar index this morning is trading lower with the dollar/yen +0.03 yen and the euro/dollar +0.17 cents. The dollar index yesterday closed slightly lower as weaker-than-expected US retail sales and an increase in German investor confidence undercut support for the dollar: Dollar Index -0.041, USDJPY +0.446, EURUSD -0.00014.

                Bearish factors for the dollar included (1) the increase in the Feb German ZEW investor confidence to a 7-month high, which is euro supportive, and (2) the weaker-than-expected Jan US retail sales, which is dollar negative.

                Bullish factors included (1) the weaker-than-expected Q3 Euro-Zone GDP, which is euro negative, and (2) the larger than expected increase in the Dec net long-term TIC flows, which shows continued strong foreign demand for US dollar assets.



•   March crude oil prices this morning are trading up +24 cents a barrel and March gasoline is +1.57 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on both sides of unchanged and finally settled lower as concerns over increasing crude supplies offset fears of escalating civil unrest in the Middle East: CLH11 -$0.49, RBH11 -2.86. Mar crude sank to a 2-1/2 month low.

                Bearish factors included (1) the weaker-than-expected Q4 Euro-Zone GDP, which signals slower than expected energy consumption in Europe, (2) weaker than expected US Jan retail sales, signaling reduced fuel demand, and (3) the outlook for US crude supplies to increase for a fifth straight week when the DOE reports weekly crude inventories on Wed.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) concerns that crude supplies may be disrupted after civil unrest spread to Bahrain, Yemen and Iran, the second-largest OPEC producer, and (3) the larger-than-expected increase in the Feb Empire manufacturing index to an 8-month high, which indicates economic expansion and increased fuel consumption. Expectations for Wednesday's weekly DOE inventory report are for crude supplies to increase +2.0 million bbl, gasoline stockpiles to climb +1.65 million bbl, distillate inventories to fall -400,000 bbl and the refinery utilization rate to slip -0.1 to 84.6%.

Thursday, February 17, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +3.5 ticks . T-note prices yesterday fluctuated on either side of unchanged as stronger-than-expected housing starts offset increased safe-haven demand from an escalation in Middle East tensions: TYH11 +0.5, FVH11 +2.2, EDM11 unchanged.

               Bearish factors included (1) the larger-than-expected increase in Jan core PPI (+0.5% m/m and +1.6% y/y versus expectations of +0.2% m/m and +1.2% y/y) as the +1.6% y/y gain matches a 16-month high, (2) the larger-than-expected increase on Jan US housing starts that climbed to a 4-month high (+14.6% to 596,000 versus expectations of +2.1% to 540,000), and (3) the minutes of the Jan 25-26 FOMC meeting in which the Fed raised its US growth projections for this year to 3.4% to 3.9%, compared with a Nov forecast of 3.0% to 3.6%, saying household spending picked up and recent economic data showed a "stronger tenor."

               Bullish factors included (1) the unexpected decline in Jan ind ustrial production (-0.1% versus expectations of +0.5%), (2) the decline in MBA mortgage applications to a 2-year low, which may keep the US housing market depressed, (3) increased safe-haven demand for Treasuries after Israel's foreign minister called Iran's plans to sail 2 gunboats through the Suez Canal a "provocation," and (4) the Fed's purchase of $1.89 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading little changed with the dollar/yen -0.07 yen and the euro/dollar -0.12 cents. The dollar index yesterday weakened on reduced safe-haven demand for the dollar as global stock markets rallied on optimism the global economic recovery can continue: Dollar Index -0.350, USDJPY -0.096, EURUSD +0.00816.

               Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after the S&P 500 climbed to a 2-1/2 year high, (2) comments from an unnamed German government official that the G-20 will discuss ways of diversifying global currency reserves when they meet this weekend in Paris, which may lead to reduced demand for dollars or a reduction in the dollar's status as the world's reserve currency.

               Bullish factors included (1) stronger-than-expected US economic data on Jan housing starts and Jan producer prices, and (2) data from the IMF that shows Greek and Irish banks have issued at least 70 billion euros ($95 billi on) of bonds to create the collateral required to get cash from the ECB, which is a form of quantitative easing and euro negative as the banks are basically issuing unsecured loans to themselves.



•   March crude oil prices this morning are trading down -28 cents a barrel and March gasoline is -0.72 of a cent per gallon. Crude oil and gasoline prices yesterday moved higher on rising Middle East tensions and on lower than expected increases in weekly crude supplies: CLH11 +$0.67, RBH11 +5.59.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) the lower-than-expected increases in weekly crude and gasoline supplies (crude +860,000 bbl versus expectations of +2.0 million bbl and gasoline +205,000 bbl versus expectations of +1.65 million bbl, (3) the larger-than-expected draw in weekly distillate supplies (-3.10 million bbl versus expectations of -400,000 bbl) and (4) rising tensions in the Middle East after civil unrest spread to Libya, the holder of Africa's largest oil reserves and after Israeli Foreign Minister Lieberman said 2 Iranian gunboats are planning to move through the Suez Canal to Syria, which spurred concern that oil shipments may be disrupted.

                Bearish factors included (1) the prediction from energy researcher JBC Energy GmbH that the narrowing spread between premium fuels such as naphtha and cheaper heavy fuel oil may signal a slowdown in the world economy, and (2) despite the smaller-than-expected increase in weekly gasoline supplies, US gasoline supplies now stand at 241.1 million bbl, a nearly 21-year high and a sign of slack demand.

Friday, February 18, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -3 ticks. T-note prices yesterday rallied to a 2-week high and finished higher on an escalation in Middle East tensions along with an increase in weekly jobless claims: TYH11 +13.5, FVH11 +11.7, EDM11 +2.0.

                Bullish factors included (1) the larger-than-expected increase in weekly US initial unemployment claims (+25,000 to 410,000 versus expectations of +17,000 to 400,000), (2) increased safe-haven demand for Treasuries after Iran said it is sending 2 warships through the Suez Canal, which risks an Iranian confrontation with Israel, (3) dovish comments from Chicago Fed President Evans who said monetary stimulus is needed to spur the "disappointing" pace of the economic recovery, and (4) the Fed's purchase of $7.24 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) the larger-than-expected increase in Jan core CPI (+0.2% m/m and +1.0% y/y versus expectations of +0 .1% m/m and +0.9% y/y), (2) the larger-than-expected increase in the Feb Philadelphia Fed manufacturing index which expanded at its fastest level in 7 years (+16.6 to 35.9 versus expectations of +1.7 to 21.0), and (3) reduced safe-haven demand for Treasuries after the S&P 500 climbed to a 2-1/2 year high.



•   The dollar index this morning is trading higher with the dollar/yen +0.10 yen and the euro/dollar -0.54 cents. The dollar index yesterday closed lower for a third day as Treasury yields weakened and US jobless claims rose more than expected: Dollar Index -0.233, USDJPY -0.369, EURUSD +0.00400.

                Bearish factors for the dollar included (1) the drop in Treasury yields to a 2-week low, which weakens the dollar's interest rate differentials and reduces demand for dollar assets, (2) the larger-than-expected increase in weekly US jobless claims, which indicates a struggling labor market that may prompt the Fed into additional stimulus at the expense of the dollar, (3) strength in the British pound which rallied to a 2-week high against the dollar after BOE policy maker Sentance said the BOE should raise interest rates to boost the pound as a means of curbing inflation, and (4) reduced safe-haven demand for the dollar after the S&P 500 climbed to a 2-1/2 year high.

                Bullish factors included (1) comments from Portuguese government minister Pereira who said that delay in an "effective" European response to the "turbulence" in sovereign debt markets hurts the euro, and (2) a possible increase in the safe-haven demand for the dollar after Iran said it is sending 2 warships through the Suez Canal, which risks an Iranian confrontation with Israel.



•   March crude oil prices this morning are trading down -10 cents a barrel and March gasoline is +0.66 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated on both sides of unchanged and settle mixed as rising Middle East tensions offset a larger-than-expected increase in US jobless claims: CLH11 +$1.37, RBH11 -1.70. Mar gasoline climbed to a 2-1/3 year high but erased its gains and closed lower.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) escalating tensions in the Middle East as demonstrators clashed with police in Bahrain and Libya, the holder of Africa's largest oil reserves, and after Iran said it plans to send 2 warships through the Suez Canal, which raised concern about a possible confrontation with Israel, and (3) the increase in the Feb Philadelphia Fed manufacturing index to its best level in 7 years, which indicates strength in the economy and increased fuel consumption and demand.

                Bearish factors included (1) the larger-than-expected increase in weekly US jobless claims, which indicates a weak labor market that may hinder fuel demand, and (2) the forecast from the National Weather Service's Climate Prediction Center for normal temperatures for the US Northeast from Feb 22 through Mar 2, which may lead to reduced demand for heating fuels.

Tuesday, February 22, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +12.5 ticks on increased safe-haven demand as global equity markets tumble. T-note prices last Friday settled slightly higher as an increase in safe-haven demand offset hawkish comments from an ECB official: TYH11 +1.5, FVH11 +1.7, EDM11 unchanged.

                Bullish factors included (1) increased safe-haven demand for Treasuries on continued civil unrest in the Middle East, and (2) the Fed's purchase of $6.688 billion of Treasuries as part of its QE 2 asset-purchase program.

                Bearish factors included (1) comments from ECB Executive Board member Smaghi who said that due to rising price pressures, the "degree of accommodation of monetary policy has to be monitored and, if needed, corrected," which undercut European and US bond markets on concern the ECB may soon raise interest rates, and (2) reduced safe-haven demand for Treasuries after the S&P 500 climbed to a 2-1/2 year high.



•   The dollar index this morning is trading higher with the dollar/yen -0.04 yen and the euro/dollar +0.01 cent. The dollar index last Friday slid to a 1-week low and settled lower after an ECB Council member said interest rates may need to be raised to combat inflation: Dollar Index -0.331, USDJPY -0.201, EURUSD +0.00764.

                Bearish factors for the dollar included (1) the rally in the euro to a 1-week high against the dollar after ECB Executive Board member Smaghi said the ECB may need to raise interest rates as global inflation pressures mount, and (2) strength in the British pound which climbed to a 2-week high against the dollar after Jan UK retail sales rose by almost four times expectations.

                Bullish factors included (1) the unexpected decline in Feb France business confidence, which is euro negative, and (2) comments from former Japanese vice finance minister Gyohten who said the dollar won't lose its status as the world's reserve currency as it will take China 10 to 15 years to complete the financial reforms needed for the yuan to be included in the IMF's foreign-exchange basket.



•   March crude oil prices this morning are trading sharly higher by $6.85 a barrel and March gasoline +8.77 cents per gallon. Crude and gasoline prices surged to 2-1/3 year highs in overnight trade as violence escalates in Libya, owner of Africa's biigest oil reserves. Crude oil and gasoline prices last Friday settled mixed after China's action to raise banks' reserve requirements was offset by continued unrest in the Middle East: CLH11 -$0.16, RBH11 +2.36.

                Bullish factors included (1) the drop in the dollar index to a 1-week low, which boosts investment demand for commodities, (2) heightened tensions in the Middle East as escalating protests in Bahrain and Libya fueled concern that supplies from oil-producing countries in the Middle East will be disrupted, and (3) the rally in the S&P 500 to a 2-1/2 year high, which boosts confidence in the economic outlook and energy demand.

                Bearish factors included (1) the action by China to raise banks' reserve ratios for the se cond time this year, which may slow is economy and fuel demand, and (2) the action by Deutsche Bank AG to cut its price forecast for WTI crude this year to $91 a barrel from a previous forecast of $96 and to cut ni goldits 2012 WTI crude price forecast to $95 a barrel from an earlier forecast of $98 a barrel.

Wednesday, February 23, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -8.5 ticks. T-note prices yesterday posted a 2-1/2 week high and closed sharply higher on increased safe-haven demand along with Fed purchases of Treasuries: TYH11 +1-1/32, FVH11 +22.5, EDM11 +0.5.

                Bullish factors included (1) increased safe-haven demand for Treasuries as an escalation of civil unrest and violence intensified in Libya and prompted a sell-off in world equity markets, (2) the larger-than-expected decline in the Dec S&P/CaseShiller composite-20 home price index which posted its biggest year-over-year decline in 1 year (-2.4% y/y versus expectations of -2.3% y/y), which indicates continued weakness in the US housing market, and (3) the Fed's purchase of $7.240 billion of Treasuries as part of its QE 2 asset-purchase program.

                Bearish factors included (1) the unexpected increase in Feb US consumer confidence which rose to a 3-year high (+5.6 to 70.4 versus expectations of -2.1 to 63.5), (2) the une xpected increase in the Feb Richmond Fed manufacturing index (+7 to 25 versus expectations of -1 to 17), and (3) supply pressures ahead of the Treasury's $35 billion auction of 5-year T-notes on Wed.



•   The dollar index this morning is trading lower with the dollar/yen +0.20 yen and the euro/dollar +0.87 cents. The dollar index yesterday closed higher but well off its best levels after strong safe-haven demand for the dollar was offset by hawkish comments from an ECB official: Dollar Index +0.079, USDJPY -0.337, EURUSD -0.00348.

                Bullish factors included (1) increased safe-haven demand for the dollar as violent protests escalated in Libya, (2) the action by Moody's Investors Service to lower the outlook on Japan's Aa2 debt rating to negative from stable, which is yen negative, (3) the unexpected increase in Feb US consumer confidence to a 3-year high, which is dollar supportive, and (4) the prediction from the head of Germany's Ifo research institute that Greece is likely to be forced to restructure its debt because EU governments won't flood Greece with financial aid, that exiting the euro would wreck Greece's banking system, and a 20% to 30% cut in domestic wages in Greece to restore competitiveness would trigger civil disorder.

                Bearish factors for the dollar included (1) hawkish comments from ECB Council member Mersch who said ECB officials may toughen their language on inflation when they meet next week, which suggests the ECB may be ready to raise interest rates in the near future, and (2) the larger-than-expected decline in Dec S&P/CaseShiller composite-20 home price index which showed US home prices fell -2.4% y/y, their biggest year-over-year decline in a year, and signals continued weakness in the US housing market.


•   April crude oil prices this morning are trading up +50 cents a barrel and April gasoline is +3.21 cents per gallon. Crude oil and gasoline prices yesterday surged to 2-1/3 year highs and closed sharply higher on concern that violent unrest in Libya may disrupt crude supplies: CLJ11 +$5.71, RBJ11 +5.63.

                Bullish factors included (1) an escalation of violent civil unrest in Libya, owner of Africa's biggest oil reserves, which fueled concern that crude supplies from Libya may be disrupted, (2) Iran's action to sail 2 warships through the Suez Canal, which Israel considers "a provocation," and (3) concern that the ongoing civil unrest in North Africa and the Middle East will spread to the oil-producing areas of the region and disrupt global crude supplies.

                Bearish factors included (1) strength in the dollar, which may limit investment demand for commodities, and (2) comments from Saudi Arabian Oil Minister Ali al-Naimi who said OPEC is ready to step in to meet an y shortage in oil supply resulting from a disruption in crude shipments from Libya and that global oil markets have sufficient supply and prices at $70 to $80 a barrel would be "fair" for producers and consumers alike.

Thursday, February 24, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +14.5 ticks on increased safe-haven demand as equity markets slide. T-note prices yesterday recovered from early weakness and climbed to a 3-week high on increased safe-haven demand but erased their gains and moved lower after there was slack demand for the Treasury's $35 billion auction of 5-year T-notes: TYH11 -9.0, FVH11 -5.7, EDM11 +0.5.

                Bearish factors included (1) the unexpected increase in Jan US existing home sales which rose to their best level in 8 months (+2.7% to 5.36 million versus expectations of -1.5% to 5.20 million), (2) comments from Philadelphia Fed President Plosser who said "should economic prospects continue to strengthen, I would not rule out changing the policy stance to bring QE2 to an early close," (3) weak demand for the Treasury's $35 billion auction of 5-year T-notes that had a bid-to-cover ratio of 2.69, below the 12-auction average of 2.77, and (4) supply pressures ahead of t he Treasury's $29 billion auction of 7-year T-notes on Thu.

                Bullish factors included (1) increased safe-haven demand for Treasuries as the stock market tumbled on concern the rising instability in the Middle East that pushed crude up to a 2-1/3 year high will slow the global economy, (2) a report from the Financial Times that stated Chicago Fed President Evans said the Fed shouldn't hurry to tighten monetary policy as inflation is still low and monetary policy should remain relaxed until the risk of a "liquidity trap" diminishes, and (3) the Fed's purchase of $1.967 billion of Treasuries as part of its QE 2 asset-purchase program.



•   The dollar index this morning is trading weaker and at a 3-week low with the dollar/yen -0.68 yen and the euro/dollar +0.19 cents. The dollar index yesterday slipped to a 2-1/2 week low and settled lower on speculation that the BOE and ECB will hike interest rates before the Fed: Dollar Index -0.359, USDJPY -0.261, EURUSD +0.00978.

                Bearish factors included (1) strength in the British pound which rose to a 2-1/2 week high against the dollar after the minutes of the Feb 10 BOE policy meeting showed BOE policy maker Dale joined fellow policy members Sentance and Weale in voting for an interest rate increase, (2) speculation that the ECB may be ready to raise interest rates after ECB President Trichet said that policy makers will make the decisions "necessary to maintain price stability," and (3) the unexpected increase in Dec Euro-Zone industrial new orders, which is euro supportive.

                Bullish factors included (1) increased safe-haven demand for the dollar as the stock market slumped on continued unrest in North Africa and the Middle East, (2) the unexpected increase in the Jan existing home sales to their best level in 8 months, which is dollar supportive, and (3) comments from Philadelphia Fed President Plosser who said he "won't rule out" an early exit to the Fed's quantitative easing program if the economy strengthens.



•   April crude oil prices this morning are trading up +$2.53 a barrel and April gasoline is +7.23 cents per gallon. Crude prices surged to a 2-1/3 year high of $103.41 a barrel in overnight trade on speculation the unrest in Libya has caused it to lose as much as two-thirds of its oil output. Crude oil and gasoline prices yesterday rallied sharply for a second day to 2-1/3 year highs and closed higher on a weak dollar and on concern that violent unrest in Libya may disrupt crude supplies: CLJ11 +$2.68, RBJ11 +12.13.

                Bullish factors included (1) concern that civil unrest in North Africa and the Middle East will spill over into major oil-producing countries in the region, (2) the report from Al Arabiya that operations at Libyan oil ports are suspended and the report from Reuters that said Libya, owner of Africa's biggest oil reserves, declared force majeure on all oil-product exports, (3) the drop in the dollar index to a 2-1/2 week low, which bolsters investment demand fo r commodities, and (4) the prediction from Nomura Holdings that oil prices may surge to $220 a barrel if the spread of civil unrest halts crude production in Libya and Algeria as OPEC spare capacity would be reduced to 2.1 million barrels a day.

                Bearish factors include (1) a report that said Saudi Arabia, the UAE, Kuwait, Angola and Nigeria would be willing to boost their oil production if buyers demand it even if no OPEC emergency meeting is held, and (2) the outlook that weekly US crude oil inventories expanded for a sixth week when the DOE reports weekly inventories on Thu (one day later due to the President's Day holiday on Mon). Expectations for the weekly DOE inventory report are for crude supplies to climb +1.13 million bbl, gasoline stockpiles to gain +850,000 bbl, distillate inventories to fall -1.35 million bbl and the refinery utilization rate to rise +0.5 to 81.7%.

Friday, February 25, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -6.5 ticks. T-note prices yesterday posted a 3-week high and remained in positive territory the entire day as escalating violence in Libya boosted safe-haven demand for Treasuries: TYH11 +7.5, FVH11 +3.7, EDM11 +1.0.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the violence in Libya may spread to other oil-producing countries in the region and further boost oil prices, (2) the larger-than-expected decline in Jan US new home sales (-12.6% to 284,000 versus expectations of -7.3% to 305,000), (3) the larger-than-expected decline in home prices after the Dec FHFA house price index fell -0.3% m/m, versus expectations of -0.1% m/m, and the Q4 FHFA house price index dropped -0.8% q/q, versus expectations of a -0.6% q/q decline, and (4) the Fed's purchase of $5.008 billion of Treasuries as part of its QE 2 asset-purchase program.

                Bearish factors included (1) the larger-than-expected decline in weekly initial unemployment claims (-22,000 to 391,000 versus expectations of -5,000 to 405,000), and (2) comments from St. Louis Fed President Bullard who said that since November the risk of deflation has fallen and inflation expectations have increased, which may merit a reduction in the Fed's QE 2 asset-purchase program.



•   The dollar index this morning is trading higher with the dollar/yen unchanged and the euro/dollar -0.13 cents. The dollar index yesterday fell to a 3-week low on concerns the surge in energy prices will slow the US economy along with hawkish comments from ECB Council member Weber: Dollar Index -0.352, USDJPY -0.620, EURUSD +0.00517.

                Bearish factors included (1) concern that the jump in crude prices to a 2-1/3 year high will derail the US economic recovery, and (2) strength in the euro which climbed to a 3-week high against the dollar after ECB Council member Weber said "interest rates know only one direction, and that is north," which hints the ECB may be preparing the markets for an interest rate hike.

                Bullish factors included (1) increased safe-haven demand for the dollar as the stock market slumped on continued unrest in North Africa and the Middle East, and (2) comments from St. Louis Fed President Bullard who said that since November the risk of deflati on has fallen and inflation expectations have increased, which may merit a reduction in the Fed's QE 2 asset-purchase program.



•   April crude oil prices this morning are trading up +22 cents barrel and April gasoline is +0.54 of a cent per gallon. Crude oil and gasoline prices yesterday rallied sharply for a third day to 2-1/3 year highs on a reduction in Libyan oil output but shed their gains and finished mixed after the IEA said it is ready to release emergency stockpiles if needed: CLJ11 -$0.82, RBJ11 +0.72.

                Bullish factors included (1) the estimation from Goldman Sachs that the civil unrest in Libya has caused it to lose 1 million bbl of its 1.6 million bbl of daily crude output, (2) concern that civil unrest in North Africa and the Middle East will spill over into major oil-producing countries in the region, (3) the fall in the dollar index to a 3-week low, which bolsters investment demand for commodities, and (4) the unexpected decline in weekly gasoline inventories which fell for the first time this year (-2.80 million bbl versus expectations of +850,000 bbl).

                Bearish factors include (1) the statement from the IEA that it will release its emergency stockpiles of crude into the market if needed, (2) Saudi Arabia's pledge to make up for any lost Libyan crude production if the need arises, and (3) the larger-than-expected decline in Jan US new home sales, which indicates that housing may continue to be a drag on the US economy and fuel demand.

Monday, February 28, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +6 ticks. T-note prices last Friday recovered from early losses and settled higher after US GDP data was revised lower and safe-haven demand from the unrest in Libya was still prevalent: TYH11 +5, FVH11 +1.7, EDM11 +1.0.

                Bullish factors included (1) the larger-than-expected downward revision to US Q4 GDP (+2.8% annualized versus expectations of +3.3% annualized), (2) increased safe-haven demand for Treasuries on concern the violence in Libya may turn into an all-out civil war that may lead to further instability in North Africa and the Middle East, and (3) the action by JPMorgan Chase to cut its Q1 US GDP forecast to 3.5% from a prior estimate of 4.0% due to the recent surge in energy prices.

                Bearish factors included (1) the larger-than-expected increase in the Feb US University of Michigan consumer confidence which climbed to a 3-year high (+2.4 to 77.5 versus expectations of +0.3 to 75.4), and (2) hawkish comment s from Richmond Fed President Lacker who said "The improvement in the growth outlook has been noticeable enough to tilt the case further against QE2," which suggests he wants to end the asset-purchase program before its scheduled completion in June.



•   The dollar index this morning is trading weaker and slumped to a 3-1/2 month low with the dollar/yen +0.20 yen and the euro/dollar +0.74 cents. The dollar index last Friday rebounded from a 3-week low and finished higher on hawkish comments from Richmond Fed President Lacker: Dollar Index +0.197, USDJPY -0.224, EURUSD -0.00470.

                Bullish factors included (1) comments from Richmond Fed President Lacker who said an early end to the Fed's QE2 asset-purchase program may be needed to limit inflation pressures, and (2) weakness in the British pound which fell to a 1-week low against the dollar after UK Q4 GDP was unexpectedly revised lower.

                Bearish factors included (1) the larger-than-expected downward revision to US Q4 GDP, (2) comments from French Finance Minister Lagarde who said that Spain's finances have improved and the country won't need a bailout, and (3) the action by Morgan Stanley to raise its Q1 target for the euro to $1.32 from $1.25 and to raise its year-end tar get for the euro against the dollar to $1.24 from $1.20, citing increased rhetoric from the ECB about the need for tighter monetary policy to combat inflation.



•   April crude oil prices this morning are trading up +9 cents a barrel and April gasoline is down -0.86 of a cent per gallon. Crude oil and gasoline prices last Friday finished higher on concern that turmoil that has cut Libya's crude output may spread to other parts of the Middle East: CLJ11 +$0.60, RBJ11 +3.37. Crude oil prices in overnight trade gave up a $2.00 a barrel gain after the WSJ reported that some Libyan oil exports may bave resumed.

                Bullish factors included (1) concern that the unrest in Libya may blow up into a full civil war and knock out the rest of Libya's crude production, which was estimated by Goldman Sachs to be already cut to only 600,000 barrels day from its normal 1.6 million barrels a day, and (2) concern that the political unrest in Libya will spread to other oil-producing countries in the region and reduce global oil supplies further.

                Bearish factors include (1) the stronger dollar, which reduces investment demand for commodities, (2) the la rger-than-expected downward revision to US Q4 GDP, which indicates reduced energy demand and consumption, and (3) the action by NYMEX to raise its margin requirements on crude oil futures for the first time in nearly 2 years, which may prompt speculators to reduce their crude oil positions to balance their margin accounts.

Tuesday, March 1, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -15 ticks. T-note prices yesterday traded in positive territory the entire day on increased safe-haven demand due to concern the unrest in the Middle East is spreading: TYM11 +3.5, FVM11 +6, EDU11 +1.0.

                Bullish factors included (1) concern the turmoil in the Middle East is widening after civil unrest was reported in Oman, (2) the weaker-than-expected Jan personal spending which posted its smallest gain in 7 months (+0.2% versus expectations of +0.4%), (3) the larger-than-expected decline in Jan pending home sales (-2.8% m/m versus expectations of -2.4% m/m), (4) comments from New York Fed President Dudley who said that 9% unemployment and industrial capacity that's lower than the long-term average point to "considerable" economic "slack," (5) the Fed's action to purchase $6.690 billion of Treasuries as part of its QE2 asset-purchase program, and (6) speculation that Fed Chairman Bernanke on Tues day in his semiannual report on monetary policy to Congress will repeat his pledge to keep interest rates at record lows.

                Bearish factors included (1) the unexpected increase in the Feb Chicago purchasing managers index, which expanded at its best level in 22-1/2 years (+2.4 to 71.2 versus expectations of -1.3 to 67.5), and (2) reduced safe-haven demand for Treasuries as the stock market rallied.



•   The dollar index this morning is trading weaker and at a fresh 3-1/2 month low with the dollar/yen +0.29 yen and the euro/dollar +0.13 cents. The dollar index yesterday slumped to a 3-1/2 month low and finished lower on speculation that Fed Chairman Bernanke on Tuesday will signal the Fed will keep interest rates at a record low: Dollar Index -0.378, USDJPY +0.117, EURUSD +0.00532.

                Bearish factors included (1) strength in the euro on concern that rising inflation pressures will prompt the ECB to raise interest rates after Jan French producer prices rose +5.6% y/y, the fastest pace in 2-1/3 years and Jan Euro-Zone CPI rose +2.3% y/y, its fastest pace in 2-1/4 years, and (2) speculation that Fed Chairman Bernanke on Tuesday in his semiannual report on monetary policy to Congress will signal the Fed will keep interest rates at a record low for the foreseeable future.

                Bullish factors included (1) the surge in the Feb Chicago purchasing managers index to its best level in 22-1/2 years, which signals strength in the economy, and increased safe-haven demand for the dollar on concern the turmoil in the Middle East is spreading after civil unrest was reported in Oman.



•   April crude oil prices this morning are trading up +46 cents a barrel and April gasoline is +0.81 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged and moved lower late as a pledge by Saudi Arabia to make up for any lost Libyan crude production offset a weaker dollar: CLJ11 -$0.91, RBJ11 -1.59.

                Bearish factors include (1) the statement from the CEO of Saudi Arabian Oil that they are ready to compensate for any shortfall in the global oil supply from the reduction of output in Libya, (2) a report from the WSJ that oil shipments from Libya's rebel-controlled eastern territory may have resumed, and (3) the threat of long liquidation pressures after the CFTC reported that hedge funds and large speculators increased their long crude oil positions in NYMEX futures by 30% in the week ended Feb 22 to 240,572 contracts, a 4-1/2 year high.

                Bullish factors included (1) the slump in the dollar index to a 3-1/2 month low, which bo osts investment demand for commodities, and (2) the spread of civil unrest to Oman, which produced 885,600 barrels of oil a day in Jan and raises concern that Middle Eastern oil production may be disrupted further.

Wednesday, March 2, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -4.5 ticks. T-note prices yesterday traded weaker into early afternoon but shed their losses and settled higher on concern the unrest in the Middle East is spreading: TYM11 +2.5, FVM11 +3, EDU11 +1.5.

                Bullish factors included (1) concern the turmoil in the Middle East is widening after civil unrest was reported in Iran, which undercut stock prices and fueled an increase in safe-haven demand for Treasuries, (2) the Fed's action to purchase $1.890 billion of Treasuries as part of its QE2 asset-purchase program, and (3) revised data from the Treasury that shows China increased its holdings of US debt to a record $1.175 trillion in Oct and that China's year-end holdings of Treasuries in 2010 were $1.16 trillion, up from a previously reported $891.6 billion, which shows continued strong demand from China, America's largest creditor.

               Bearish factors included (1) comments from Fed Chairman Bernanke who said that "do wnside risks to the recovery have receded, and the risk of deflation has become negligible," which suggests the Fed will not add to its monetary stimulus once QE2 ends in June, and (2) the larger-than expected increase in the Feb ISM manufacturing index which matched its 27-year high from May-2004 (+0.6 to 61.4 versus expectations of +0.2 to 61.0).



•   The dollar index this morning is trading lower with the dollar/yen +0.10 yen and the euro/dollar +0.48 cents. The dollar index yesterday rebounded from a 3-1/2 month low and finished higher on strong US manufacturing data along with increased safe-haven demand on concern the civil unrest in the Middle East is spreading: Dollar Index +0.160, USDJPY +0.074, EURUSD -0.00288.

                Bullish factors included (1) the stronger-than-expected Feb US ISM manufacturing index which matched its 27-year high from May-2004 and signals US economic strength, (2) increased safe-haven demand for the dollar on concern the turmoil in the Middle East is spreading to Iran, and (3) comments from Fed Chairman Bernanke who said that rising oil and commodity prices won't derail the economic recovery.

                Bearish factors included (1) strength in the euro after the European Commission revised up their 2011 GDP and inflation forecasts for the Euro-Zone, which will keep pressure on the ECB to tighten monetary policy, and (2) strength in the British pound which surged to a 13-month high against the dollar after Feb UK PMI manufacturing remained unchanged at its best level since 1992, which may prompt the BOE to increase interest rates.



•   April crude oil prices this morning are trading up +43 cents a barrel and April gasoline is +1.68 cents per gallon. Crude oil and gasoline prices yesterday moved sharply higher on concern the civil unrest in North Africa and the Middle East was spreading to Iran: CLJ11 +$2.66, RBJ11 +8.71.

                Bullish factors included (1) the fall in the dollar index to a 3-1/2 month low, which boosts investment demand for commodities, (2) concern that the political upheaval in North Africa and the Middle East may spread to Iran, OPEC's second-largest oil producer, after Iranian authorities arrested opposition leaders in an attempt to stop planned protests, and (3) strong global manufacturing growth that may increase fuel demand after Feb US manufacturing activity expanded at its best level in 27 years, while Europe's manufacturing activity in Feb rose to a 10-1/3 year high and Feb Chinese manufacturing activity expanded for the 24th consecutive month.

                Bearish factors include (1) data fro m Bloomberg that shows Nigeria plans to increase its daily crude exports to 2.01 million barrels a day in April, up +9.3% from 1.84 million barrels in March, and (2) the outlook for weekly crude supplies to increase for a seventh straight week when the DOE releases its weekly crude inventory data on Wed. Expectations for the weekly inventory report from the DOE are for crude oil stockpiles to rise +875,000 bbl, gasoline supplies to remain unchanged, distillate inventories to fall -1.3 million bbl and the refinery utilization rate to increase +0.4 to 79.8%.

Thursday, March 3, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -7 ticks. T-note prices yesterday fluctuated on either side of unchanged and retreated into the close as an upbeat Beige Book offset a sharp rally in oil prices: TYM11 -13, FVM11 -6.2, EDU11 -2.5.

                Bearish factors included (1) the larger-than-expected increase in employment growth in the Feb ADP employment change (+217,000 versus expectations of +175,000), (2) hawkish comments from Kansas City Fed President Hoenig who said the Fed should lift the Fed funds rate to 1.00% from near zero rather than ease during the current economic recovery, (3) reduced safe-haven demand for Treasuries after the stock market rallied, and (4) the Fed's Beige Book that stated the labor market improved throughout the country early this year, driven by increasing retail sales and "solid growth" in manufacturing.

                Bullish factors included (1) the rally in crude oil amid the turmoil in the Middle East, which threatens to choke off global economic growth, (2) comments from Fed Chairman Bernanke who said he wouldn't rule out further Fed purchases of Treasuries if the economy stalls, and (3) the Fed's action to purchase $6.7 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading little changed with the dollar/yen -0.03 yen and the euro/dollar -0.09 cents. The dollar index yesterday sank to a 3-3/4 month low and closed lower as a surge in oil prices threatens economic growth: Dollar Index -0.378, USDJPY +0.010, EURUSD +0.00878.

                Bearish factors included (1) a rally in crude oil to near a 2-1/2 year high, which threatens to derail economic growth, (2) comments from Fed Chairman Bernanke who said a "sustained period of strong job creation" is needed to ensure a solid recovery and that interest rates will stay low for an "extended period," which signal's the Fed will not raise interest rates anytime soon and that spurred inflation concerns and weakens the dollar's interest rate differentials, and (3) strength in the euro which climbed to a 3-3/4 month high against the dollar after the Jan Euro-Zone PPI accelerated to its fastest pace of increase in 2-1/3 years.

                Bullish factors included ( 1) renewed European sovereign-debt concerns that are bearish for the euro after Standard & Poor's kept ratings on Greece's and Portugal's debt credit watch negative, saying both countries debt ratings remain at risk of being cut on concern about how a European Union rescue fund may affect holders of the two nations' sovereign bonds, and (2) the prediction from Axa Investment Managers that Portugal will accept a financial bailout "within the next few weeks" as the cost of issuing debt becomes unsustainable.



•   April crude oil prices this morning are trading down -56 cents a barrel and April gasoline -2.77 cents per gallon. Crude oil and gasoline prices yesterday rallied sharply for a second day on concern the civil unrest in Libya will spread to other oil producing countries in the region: CLJ11 +$2.60, RBJ11 +4.20. April gasoline rose to a contract high and nearest-futures Mar gasoline soared to a 2-1/2 year high.

                Bullish factors included (1) the decline in the dollar index to a 3-3/4 month low, which boosts investment demand for commodities, (2) concern that the civil unrest that is curbing oil exports from Libya will spread to other oil-producing countries in the region, and (3) the unexpected declines in weekly DOE inventories of crude oil and gasoline (crude -364,000 bbl versus expectations of +875,000 bbl and gasoline -3.59 million bbl versus expectations of no change).

                Bearish factors include (1) the +1.13 million bbl increase in crude oil inventories at Cushing, Ok lahoma, the delivery point for NYMEX WTI crude contracts, to 38.6 million barrels, the highest level since at least 2004 when the DOE began tracking stockpiles at the hub, and (2) the prediction from Petomatrix GmbH that oil markets are showing signs of "demand destruction" as high prices erode consumption.

Friday, March 4, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading up +3.5 ticks. T-note prices yesterday fell to a 1-week low and closed lower on strong economic data and an increase in inflation expectations: TYM11 -28.5, FVM11 -22.7, EDU11 -3.5.

                Bearish factors included (1) the unexpected decline in weekly initial unemployment claims which fell to a 2-3/4 year low (-20,000 to 368,000 versus expectations of +4,000 to 395,000), (2) the unexpected increase in the Feb ISM non-manufacturing index to its best level in 5-1/2 years (+0.3 to 59.7 versus expectations of -0.1 to 59.3), (3) increased inflation expectations after the difference between yields on 10-year T-notes and 10-year Inflation Protected Securities (TIPS) widened to 249 bp, the most in 2-1/2 years, and (4) carry-over negative sentiment from a plunge in bund prices after ECB President Trichet hinted at raising interest rates as soon as next month's policy meeting.

                Bullish factors included (1) the lack of any downward revisi on to Q4 US nonfarm productivity and unit labor costs (productivity +2.6% versus expectations on 2.3% and Q4 unit labor costs -0.6% versus expectations of -0.5%), (2) comments from Minneapolis Fed President Kocherlakota who said the Fed's "highly accommodative" policy is warranted given a natural rate of unemployment that may range between 5.8% and 8.9%, and (3) the Fed's action to purchase $7.24 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading little changed with the dollar/yen +0.21 yen and the euro/dollar +0.01 cents. The dollar index yesterday fell to a 3-3/4 month low but closed well off of its worst levels after ECB President Trichet hinted at raising interest rates as soon as next month: Dollar Index -0.197, USDJPY +0.579, EURUSD +0.01035.

                Bearish factors included (1) hawkish comments from ECB President Trichet which boosted the euro when he said "strong vigilance is warranted" and an "increase of interest rates in the next meeting is possible," (2) stronger-than-expected Jan German retail sales and Jan Euro-Zone retail sales, which are euro bullish, and (3) dovish comments from Minneapolis Fed President Kocherlakota who said the Fed's "highly accommodative" policy is warranted given a natural rate of unemployment that may range between 5.8% and 8.9%.

                Bullish factors included (1) strong US economic data on weekly jobless and Feb IS M non-manufacturing activity, which shows economic strength, and (2) the unexpected downward revision to the Feb Euro-Zone PMI composite index, which is euro negative.



•   April crude oil prices this morning are trading up +83 cents a barrel at a 1-week high and April gasoline is +1.09 cents per gallon. Crude oil and gasoline prices yesterday retreated after the Arab League said it may mediate discussions to end the conflict in Libya: CLJ11 -$0.32, RBJ11 -0.53.

                Bearish factors included (1) the actions by Venezuela and the Arab League to send mediators to Libya in an attempt to end the conflict there, and (2) long liquidation pressures after crude prices surged over $16 a barrel in the past 2 weeks (+19%).

                Bullish factors include (1) the slump in the dollar index to a 3-3/4 month low, which boosts investment demand for commodities, and (2) stronger than expected US economic data on weekly jobless claims and Feb ISM non-manufacturing activity, which signals economic growth that may boost fuel demand.

Monday, March 7, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -7.5 ticks. T-note prices last Friday rebounded from a 2-week low and closed higher on increased safe-haven demand as concerns rose that the turmoil in the Middle East may escalate: TYM11 +25.5, FVM11 +21.5, EDU11 +4.5.

                Bullish factors included (1) an increase in safe-haven demand for Treasuries on concern the violence in Libya may spread to other countries in the region and further destabilize the Middle East, (2) the surge in crude oil to a 2-1/2 year high, which acts as a tax on consumers and businesses and may derail the US economy, (3) the lack of wage inflation in the Feb payrolls report with the weaker-than-expected average hourly earnings (unchanged m/m and +1.7% y/y versus expectations of +0.2% m/m and +1.9% y/y), and (4) the Fed's action to purchase $1.5 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) the unexpected decline in the Feb US unemployment rate to its lowest level in 1-3/4 years (-0.1 to 8.9% versus expectations of +0.1 to 9.1%), (2) the stronger-than-expected Feb manufacturing payrolls (+33,000 versus expectations of +25,000), and (3) the larger-than-expected increase in Jan factory orders which posted their biggest monthly gain in 4-1/4 years (+3.1% versus expectations of +2.0%).



•   The dollar index this morning is trading weaker and at a 4-month low with the dollar/yen -0.23 yen and the euro/dollar +0.37 cents. The dollar index last Friday fell to a 4-month low but closed only slightly lower after Fitch Ratings revised down its outlook on Spain's debt rating: Dollar Index -0.126, USDJPY -0.126, EURUSD +0.00166.

                Bearish factors included (1) the surge in crude oil to a 2-1/2 year high, which threatens US economic growth and may prompt the Fed into maintaining its overly easy monetary policy, and (2) the action by Rabobank Group to raise its 3-month target for the euro against the dollar to $1.42 from a previous forecast of $1.40, citing increased hawkishness from the ECB.

                Bullish factors included (1) strong US economic data after the Feb US unemployment rate unexpectedly declined to a 1-3/4 year low and Jan factory orders increased by the most in 4-1/4 years, which indicates economic strength, and (2) the action by Fitch Ratings to revise its outl ook on Spain's debt rating to negative from stable, which is euro bearish, as it cited the potential cost of rescuing its savings banks and risks to the economic recovery.



•   April crude oil prices this morning are trading up +$2.01 a barrel and April gasoline is +3.76 cents per gallon, both at fresh 2-1/2 year highs. Crude oil and gasoline prices last Friday rallied to 2-1/2 year highs on concern unrest in Libya will spread to other North African and Middle Eastern energy producers: CLJ11 +$2.51, RBJ11 +2.02.

                Bullish factors included (1) concerns the unrest in Libya may spread to other oil producing nations in the region and curb global oil supplies further, (2) the slump in the dollar index to a 4-month low, which boosts investment demand for commodities, and (3) signs that US economic growth is accelerating which may boost energy demand after the Feb US unemployment rate unexpectedly declined to its lowest level in 1-3/4 years and Jan US factory orders posted their biggest increase in 4-1/4 years.

                Bearish factors include (1) the decline in the stock market which erodes confidence in the economic outlook and energy demand, and (2) the ac tion by the CME to raise margins on NYMEX crude and petroleum contracts, which may reduce speculation and prompt long liquidation as traders raise funds to cover margins.

Tuesday, March 8, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -4 ticks. T-note prices yesterday rebounded from early losses and closed little changed on Fed purchases of Treasuries along with increased safe-haven demand from the decline in the equity market: TYM11 -0.5, FVM11 -1.7, EDU11 -0.5.

                Bullish factors included (1) increased safe-haven demand for Treasuries after the stock market fell, (2) comments from Atlanta Fed President Lockhart who said "In my opinion, it is premature to declare a jobs recovery firmly established" and that the Fed shouldn't rule out additional asset purchases beyond the $600 billion planned by Jun because the economy could slow again, and (3) the Fed's action to purchase $6.61 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) increased inflation expectations as crude oil climbed to a 2-1/2 year high along with the widening in the yield spread between 10-year T-notes and 10-year TIPS to a 2-1/ 2 year high of 253 bp, (2) hawkish comments from Chicago Fed President Evans who said the US labor market is "improving" and the "economy is growing nicely right now," and (3) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tue.



•   The dollar index this morning is trading higher with the dollar/yen +0.35 yen and the euro/dollar -0.62 cents. The dollar index yesterday slid to a 4-month low but recovered its losses and finished slightly higher after the euro weakened on renewed European sovereign-debt risks: Dollar Index +0.096, USDJPY -0.079, EURUSD -0.00178.

                Bullish factors included (1) weakness in the euro on rising sovereign-debt concerns after Moody's Investor's Service cut Greece's credit rating three steps to B1, citing the rising risk of default along with the surge in Ireland's 10-year bond yield to 9.477%, the highest since 1993, after the incoming Irish government said it may need to introduce new laws to allow the restructuring of some senior bank bonds, as the country's debt level risks becoming "unsustainable," and (2) increases safe-haven demand for the dollar as the stock market tumbled.

                Bearish factors included (1) the surge in crude oil to a 2-1/2 year high, which threa tens US economic growth and may prompt the Fed into maintaining its overly easy monetary policy, (2) the increase in the March Euro-Zone Sentix investor confidence to a 3-1/2 year high, which is euro supportive, and (3) the statement from Morgan Stanley that it is no longer "bearish" on the euro given the outlook for the ECB to raise interest rates this year and next as they revised up their 2011 year-end forecast for the euro to $1.45 from an earlier forecast of $1.24.



•   April crude oil prices this morning are trading down -20 cents a barrel and April gasoline is -0.23 of a cent per gallon. Crude oil and gasoline prices yesterday rallied to 2-1/2 year highs and closed mixed on concern that oil supply disruptions may spread through the Middle East: CLJ11 +$1.02, RBJ11 -4.25.

                Bullish factors included (1) escalating violence in Libya and concern that unrest in North Africa and the Middle East may spread to other oil producing nations in the region after websites in Saudi Arabia called for a nationwide "Day of Rage" on Mar 11 and Mar 20, which may further intensify unrest in the region and lead to decreased crude oil output, (2) the early decline in the dollar index to a 4-month low, which boosts investment demand for commodities, and (3) the action by Commerzbank AG to raise its crude oil price forecast for Q2 to $107 per barrel form a previous estimate of $91 a barrel citing a "fear premium" because of the potential f or further production disruptions in the Middle East.

                Bearish factors include (1) the fall in stock prices which erodes confidence in the economic outlook and energy demand, (2) weakness in gasoline prices on increased speculation that consumer demand for gasoline will drop after prices reached a 2-1/2 year high, and (3) comments from the Obama administration that it will consider using the Strategic Petroleum Reserve if rising oil prices threaten the US economy.

Wednesday, March 9, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading up +0.5 of a tick. T-note prices yesterday moved lower on reduced safe-haven demand after stocks rose and crude oil prices fell: TYM11 -8.5, FVM11 -4.7, EDU11 -1.0.

                Bearish factors included (1) a rally in stocks and a drop in crude oil, which reduced the safe-haven demand for Treasuries, and (2) supply pressures ahead of the Treasury's $21 billion auction of 10-year T-notes on Wed.

                Bullish factors included (1) concern that the European sovereign-debt crisis is worsening after the yield on the 10-year Greek bond jumped 51 bp to 12.84%, the highest since Bloomberg data began in 1988, which boosted the safe-haven demand for Treasuries, (2) decent demand for the Treasury's $32 billion auction of 3-year T-notes that had a bid-to-cover ratio of 3.22, above the 3.14 average of the past 12 auctions, and (3) the Fed's action to purchase $7.657 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading slightly weaker with the dollar/yen +0.02 yen and the euro/dollar +0.31 cents. The dollar index yesterday strengthened on increased safe-haven demand after the euro fell back on concern the European sovereign-debt crisis will worsen: Dollar Index +0.096, USDJPY -0.079, EURUSD -0.00178.

                Bullish factors included (1) weakness in the euro after the yield on the 10-year Greek bond jumped 51 bp to 12.84%, the highest since Bloomberg data began in 1988, on weak demand for a Greek T-bill auction, and (2) weakness in the British pound which fell to a 1-week low against the dollar after Feb UK retail sales declined and home prices fell, which cut expectations for BOE rate hikes this year.

                Bearish factors included (1) the stronger-than-expected Jan German factory orders, which is euro bullish, and (2) comments from ECB Council member Weber who said he "doesn't want to correct market expectations" for as many as three quarter poi nt increases in the 2-week refinancing rate to 1.75% this year, and (3) the action by Danske Bank A/S to raise their 6-month forecast for the euro to $1.50 from $1.42, citing the outlook for ECB rate hikes.



•   April crude oil prices this morning are trading down -13 cents a barrel and April gasoline is up +1.80 cents per gallon. Crude oil and gasoline prices yesterday weakened as the dollar rallied and after Kuwait's oil minister said OPEC members are discussing holding an emergency meeting: CLJ11 -$0.42, RBJ11 -5.72.

                Bearish factors included (1) a rally in the dollar, which discourages investment demand in commodities, (2) the statement from Kuwait's oil minister who said OPEC members are holding "consultations" about whether to hold an "urgent meeting" related to an increase in OPEC oil production, and (3) the action by Merrill Lynch to cut its estimate for global oil demand growth to 1.1 million barrels a day this year from an earlier estimate of 1.5 million, saying higher crude prices will negatively impact demand going forward this year.

                Bullish factors include (1) an escalation of fighting in Libya after pro-Qaddafi forces launched an assault on re bel held territories, and (2) concerns over the spread of civil unrest to Saudi Arabia with protestors calling for a "Day of Rage" protest there on Friday. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil stockpiles to increase +1.13 million bbl, gasoline supplies to fall -1.5 million bbl, distillate inventories to drop -500,000 bbl and the refinery utilization rate to remain unchanged at 80.9%.

Thursday, March 10, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading up +4.5 ticks. T-note prices yesterday traded higher on concern rising fuel costs will slow economic growth along with strong demand for the Treasury's 10-year T-note auction: TYM11 +18.5, FVM11 +11.2, EDU11 +1.0.

                Bullish factors included (1) increased safe-haven demand for Treasuries after pro-Qaddafi troops stepped up attacks on rebel forces, which fuels concern that the economy will weaken as the Libyan conflict persists and pushes crude prices higher, (2) strong demand for the Treasury's $21 billion auction of 10-year T-notes that had a bid-to-cover ratio of 3.32, well above the 12-auction average of 3.16, and (3) the Fed's action to purchase $6.69 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) the larger-than-expected increase in Jan wholesale inventories along with the upward revision to Dec (Jan +1.1% versus expectations of +0.9% and Dec revised up to +1.3% from +1. 0%), which cut the Jan wholesale inventory-to-sales ratio to 1.13 months, matching the Apr 2010 record low and signals further increases in production as businesses try to keep up with demand, and (2) supply pressures ahead of the Treasury's $13 billion auction of 30-year T-bonds on Thu.



•   The dollar index this morning is trading stronger and at a 1-week high with the dollar/yen +0.19 yen and the euro/dollar -0.67 cents. The dollar index yesterday fell back on concern rising fuel costs will derail the US economy along with strength in the euro on speculation the ECB will buy the bonds of the Euro-Zone's most indebted nations: Dollar Index -0.077, USDJPY +0.070, EURUSD +0.00042.

                Bearish factors included (1) concern the recent surge in energy prices will derail the US economy and prompt the Fed into maintaining its overly easy monetary policy, (2) speculation the ECB will purchase the bonds of its most indebted nations after the yields on Portuguese debt climbed to a record, and (3) the larger-than-expected increase in Jan German industrial production, which is euro bullish.

                Bullish factors included (1) increased safe-haven demand for the dollar after the managing director of European sovereign ratings at Standard & Poor's warned some countries in the Euro-Zone might have their credit ratings cut further while a Greek debt default is a "possibility," and (2) concern the European sovereign-debt crisis will worsen after weak demand for a government auction of Portuguese debt sent the yield on Portugal's 10-year bond soaring to 7.70%, the highest since data began in 1997.



•   April crude oil prices this morning are trading down -$1.04 a barrel and April gasoline is -3.30 cents per gallon. Crude oil and gasoline prices yesterday traded mixed as weekly US gasoline supplies plunged but crude supplies in Cushing Oklahoma rose to a record: CLJ11 -$0.64, RBJ11 +8.05.

                Bullish factors include (1) the weaker dollar, (2) an escalation of fighting in Libya after pro-Qaddafi troops stepped up attacks on rebel forces, stoking concern the conflict will persist and continue to disrupt oil shipments, (3) the larger-than-expected decline in weekly DOE gasoline and distillate inventories (gasoline -5.49 million bbl versus expectations of -1.5 million bbl and distillates -3.98 million bbl versus expectations of -500,000 bbl), and (4) concerns over the spread of civil unrest to Saudi Arabia with protestors calling for a "Day of Rage" protest there on Friday.

                Bearish factors included (1) the larger-than-expected increase in weekly DOE crude oil inven tories (+2.52 million bbl versus expectations of +1.13 million bbl), and (2) the +1.69 million bbl increase in crude inventories at Cushing, Oklahoma, the delivery point for NYMEX WTI crude contracts, to 40.3 million barrels, the highest level since the DOE began tracking supplies in 2004.

Friday, March 11, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading up +12 ticks at a 1-1/4 month high as the global plunge in stocks spurs safe-haven buying of Treasuries. T-note prices yesterday rallied to a 1-1/4 month high on increased safe-haven demand after stocks slumped when Spain's credit rating was cut along with a larger-than-expected increase in weekly jobless claims: TYM11 +18.5, FVM11 +11.2, EDU11 +1.0. The 10-year T-note yield fell to a 1-1/4 month low of 3.36%.

                Bullish factors included (1) increased safe-haven demand for Treasuries after global stock markets plunged when Moody's Investors Service cut Spain's credit rating by one level to Aa2, which signals the European debt crisis may worsen, (2) the larger-than-expected increase in weekly initial US unemployment claims (+26,000 to 397,000 versus expectations of +8,000 to 376,000), (3) the larger-than-expected Jan US trade balance which widened by the most in 7 months (-$46.3 billion versus expectations of -$41.5 billio n), and is negative for US Q1 GDP growth, (4) strong demand for the Treasury's $13 billion auction of 30-year T-bonds that had a bid-to-cover ratio of 3.02, the most in 10-1/2 years and well above the 12-auction average of 2.51, and (5) increased safe-haven demand for Treasuries after reports that Saudi police opened fire on protestors, which fuels concern the civil unrest that has plagued North Africa and the Middle East has spread to Saudi Arabia.

                Bearish factors was Fed data that showed Q4 US household wealth climbed +3.9% q/q and +16.6% y/y to $56.8 trillion, which may help boost US consumer confidence and spending.



•   The dollar index this morning is trading higher and at a 1-1/2 week high with the dollar/yen -0.67 yen and the euro/dollar -0.04 cents. The dollar index yesterday rallied to a 1-1/2 week high on concern the European sovereign-debt crisis may worsen: Dollar Index +0.555, USDJPY +0.239, EURUSD -0.01114.

                Bullish factors included (1) increased safe-haven demand for the dollar after global stock markets slumped when Moody's Investors Service cut Spain's credit rating by one level to Aa2, saying the government has underestimated the cost of shoring up the banking industry, and (2) weakness in the euro which fell to a 1-week low against the dollar on concern that European debt risks are rising after the cost to insure Spain's government bonds rose to a 1-month high, while the cost to insure Portugal's debt rose to a 2-month high and the cost to insure Greek debt climbed to a record high.

                Bearish factors included (1) the larger-than-expected Jan US trade balance which widened by the most in 7 months and is dollar negative, and (2) the larger-than-expected increase in weekly US jobless claims, which may prompt the Fed to maintain its overly easy monetary policy as the US labor market continues to struggle.



•   April crude oil prices this morning are trading down -$2.77 a barrel and April gasoline is -5.88 cents per gallon. Crude oil and gasoline prices yesterday tumbled as the dollar strengthened and the European sovereign-debt crisis worsened although prices recovered some of their losses after the AP reported that Saudi police fired on protestors: CLJ11 -$1.68, RBJ11 -0.76.

                Bearish factors include (1) the rally in the dollar index to a 1-1/2 week high, which discourages investment demand in commodities, (2) the action by Moody's Investors Service to cut Spain's credit rating, which suggests a worsening of the European debt crisis, and (3) the slowest pace of growth in Feb China exports in 15 months along with the unexpected decline in Jan German exports, which bolsters concern that the global economic recovery and fuel-demand growth will slow.

                Bullish factors included (1) stepped up attacks by Libyan leader Qaddafi who sent warplanes to bomb rebel held oil refineries, whi ch may further reduce Libya's crude production, and (2) concerns over the spread of civil unrest to Saudi Arabia with protestors calling for a "Day of Rage" protest there on Friday along with AP reports that Saudi police had opened fire on a rally in the kingdom's east.

Monday, March 14, 2011...

Today's Market Focus

•June 10-year T-notes this morning are trading unchanged. T-note prices last Friday surged to a 3-month high immediately following news of the Japanese earthquake on safe-haven buying but relinquished most of their gains on strong US retail sales data and reduced safe-haven demand after the stock market erased its losses and closed higher: TYM11 +2, FVM11 +2.7, EDU11 unchanged.

                Bullish factors included (1) early safe-haven demand for Treasuries after the strongest earthquake in a century hit Japan, although those gains evaporated on speculation that many insurance companies may sell Treasuries to help pay for claims, and (2) the larger-than-expected decline in Mar US University of Michigan consumer confidence which fell to a 5-month low (-9.3 to 68.2 versus expectations of -1.0 to 76.5).

                Bearish factors included (1) strong Feb US retail sales which posted their biggest increase in 4 months (Feb +1.0% and +0.7% less autos) along with the upward revision to Jan retail sales (+0.7% and +0.6% less autos, stronger than the previously reported +0.3% and +0.3% less autos), and (2) reduced safe-haven demand for Treasuries after the stock market recovered from early sharp losses and moved higher.


•The dollar index this morning is weaker with the dollar/yen +0.17 yen and the euro/dollar +0.60 cents. The dollar index last Friday retreated from a 1-1/2 week high and closed lower as the euro strengthened from hawkish ECB comments and the yen strengthened on safe-haven demand following Japan's earthquake and on speculation companies will repatriate yen back to Japan to pay for quake damages: Dollar Index -0.500, USDJPY +1.088, EURUSD +0.01054.

                Bearish factors included (1) hawkish comments from ECB Council member Bini Smaghi who said new inflation forecasts "are based on market prices" and the ECB rate policy must adapt to increasing inflation pressures, which suggests he favors an immediate rate hike by the ECB, and (2) strength in the yen on increased safe-haven demand following the Japanese earthquake along with speculation that insurance companies will buy the yen to pay for damages from the 8.9-magnitude quake.

                Bullish factors included (1) strength in Feb US retail sales which gained the most in four months, and (2) infighting between EU leaders on how to fix the European sovereign-debt crisis, which is negative for the euro, after Irish Prime Minister Kenny rebuffed German Chancellor Merkel's conditions on easing bailout terms.


•April crude oil prices this morning are trading down -$1.81 a barrel and April gasoline is -5.16 cents per gallon, both at 1-1/2 week lows on concern energy demand may be limited in Japan, the world's third-largest economy. Crude oil and gasoline prices last Friday settled lower but well above their worst levels after the strongest earthquake on record to hit Japan, the world's third-largest oil-consuming country, forced it to shut refineries: CLJ11 -$1.54, RBJ11 -3.19. Apr crude fell to a 1-week low.

                Bearish factors include (1) the action by Japan to close many of its refineries because of earthquake damage, which will temporarily reduce its crude demand, (2) the larger-than-expected decline in Mar US University of Michigan consumer confidence to a 5-month low, which may lead to reduced fuel demand as the economy struggles to recover, and (3) a lack of violence in Saudi Arabia after Saudi police set up checkpoints to discourage protesters from their "Day of Rage" protests.

                Bullish factors included (1) the weaker dollar, and (2) the statement from the IEA that crude exports from Libya fell "well below" 500,000 barrels a day as fighting intensified.

Tuesday, March 15, 2011...

Today's Market Focus

•June 10-year T-notes this morning are trading up +24.5 ticks a a 3-1/4 month high as investors flock to the safety of Treasuries as global stocks plunge. T-note prices yesterday rallied to a 3-1/4 month high and closed higher on increased safe-haven demand as global equity markets tumbled: TYM11 +16, FVM11 +12.2, EDU11 +1.5. The yield on the 10-year T-note slipped to a 1-1/2 month low of 3.327%.

                Bullish factors included (1) increased safe-haven demand for Treasuries after world equity markets sold-off on concern that earthquake damage to Japan, the world's third-largest economy, will limit global economic growth, and (2) the Fed's action to purchase $7.56 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) speculation that Japanese insurance companies will sell their holdings of long-term US Treasuries to pay claims for earthquake damage, and (2) reduced safe-haven demand for Treasuries after credit default swaps on European sovereign debt declined when European leaders over the weekend agreed on a retooled bailout plan for Europe's most indebted nations, which eased concern the countries will be default on their debts.



•The dollar index this morning is stronger with the dollar/yen -0.26 yen and the euro/dollar -1.10 cents. The dollar index yesterday weakened for a second day after European Union leaders agreed over the weekend to expand the scope of their rescue fund in an attempt to quell the European debt crisis: Dollar Index -0.427, USDJPY -0.259, EURUSD +0.00894.

                Bearish factors included (1) strength in the euro after EU leaders over the weekend agreed to expand the scope of their rescue fund and allow officials to buy debt in primary markets, while also cutting the cost of bailout loans to Greece by extending the repayment period of Greek loans to 7-1/2 years from 3 years, and (2) early strength in the yen which rallied to a 4-monh high against the dollar on speculation Japanese domestic investors will repatriate yen back to Japan to pay for earthquake and tsunami damages.

                Bullish factors included (1) weakness in the yen which retreated from a 4-month high after the BOJ pumped a record 15 trillion yen ($183 billion) into money markets and doubled the size of its asset-purchase program in an attempt to stabilize financial markets which were hammered following the Japanese earthquake, and (2) increased safe-haven demand for the dollar after global equity markets tumbled.



•April crude oil prices this morning are trading down -$2.84 a barrel and April gasoline is -10.51 cents per gallon, both at fresh 2-week lows. Crude oil and gasoline prices yesterday fell to 2-week lows on speculation energy demand from Japan, the world's third-biggest economy, may decline after the strongest earthquake on record devastated its economy, but crude prices recovered their losses and finished mixed after Saudi Arabian troops entered Bahrain: CLJ11 +$0.03, RBJ11 -2.74.

                Bearish factors include (1) calculations from Japan's Petroleum Association that said last Friday's earthquake shut 29% of the country's domestic refining capacity, which signals reduced crude demand, (2) speculation that Japanese crude oil imports will drop as ports damaged by the quake and tsunami must be fixed before they can accept crude supplies, and (3) the tumble in global equity markets, which undercuts confidence in the global recovery and energy demand.

                Bullish factors included (1) the weaker dollar, and (2) the action by the Gulf Cooperation Council to send troops to Bahrain to protect "vital" oil installations, which fuels concern those violent protests in North Africa and the Middle East may be spreading to other oil-producing countries in the region.

Wednesday, March 16, 2011...

Today's Market Focus

•June 10-year T-notes this morning are trading up +4.5 ticks. T-note prices yesterday moved sharply higher after global stock markets plunged on concern a nuclear crisis in Japan will derail the world economy but gave up most of their gains when the stock market recovered from its worst levels: TYM11 +5, FVM11 -0.5, EDU11 -0.5. The yield on the 10-year T-note tumbled to a 3-month low of 3.203%.

               Bullish factors included (1) a surge in safe-haven demand for Treasuries after global stock markets plunged on fears of an impending nuclear disaster in Japan, and (2) the post-FOMC meeting statement in which the Fed reaffirmed its plans to buy $600 billion of Treasuries through June.

               Bearish factors included (1) the larger-than-expected increase in the Mar Empire manufacturing index which expanded at its fastest pace in 9 months (+2.1 to 17.5 versus expectations of +1.0 to 16.4), (2) the larger-than-expected increase in Feb import prices (+1.4% m/m and +6.9% y/y versus expectations of +0.9% m/m and +6.3% y/y, and (3) the as-expected +1 point increase in the Mar NAHB housing market index to a 10-month high of 17, which suggest a slight improvement in the US housing market.



•The dollar index this morning is higher with the dollar/yen -0.20 yen and the euro/dollar -0.55 cents. The dollar index yesterday rallied on increased safe-haven demand after global equity markets plunged along with the unexpected decline in German economic sentiment but gave up all of their gains when the Fed reaffirmed their plan to buy $600 billion of Treasuries through June: Dollar Index -0.021, USDJPY -0.911, EURUSD +0.00066.

               Bearish factors included (1) strength in the yen on speculation that insurers will repatriate dollar and euro assets back to yen to pay for earthquake damages, (2) the smaller-than-expected increase in Jan net long-term TIC flows, which indicates weakened foreign demand for US dollar assets, (3) the plunge in Treasury yields with the 10-year T-note yield falling to a 3-month low, which weakens the dollar's interest rate differentials, and (4) the post-FOMC statement in which the Fed reaffirmed its plan to buy $600 billion of Treasuries through June.

               Bullish factors included (1) increased safe-haven demand for the dollar after global stock markets plunged on fears of a Japanese nuclear disaster, (2) euro weakness after Mar German ZEW economic sentiment unexpectedly declined, and (3) comments from ECB President Trichet who said the package of economic-oversight rules adopted by EU finance ministers was "insufficient."



•April crude oil prices this morning are trading up +$1.41 a barrel and April gasoline is +2.78 cents per gallon. Crude oil and gasoline prices yesterday sold-off to 2-week lows and settled sharply lower as concern the damage from Japan's earthquake may reduce crude demand outweighed speculation of supply disruptions in the Middle East: CLJ11 -$4.01, RBJ11 -15.74.

               Bearish factors include (1) strength in the dollar, which discourages investment demand in commodities, and (2) speculation that crude oil demand in Japan, the world's third-biggest economy, will be reduced indefinitely as the country recovers from the worst earthquake in its recorded history.

               Bullish factors included (1) the action by Bahrain to declare a 3-month state of emergency and allow a second contingent of troops from the Gulf Cooperation Council into its country to support the government after a month of anti-government protests intensified, and (2) the statement from the IEA that Libya's oil exports may be halted for "many months" because of damage to facilities and trade sanctions against Libya's leader Muammar Qaddafi. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil supplies to rise +1.75 million bbl, gasoline stockpiles to drop -2.0 million bbl, distillate inventories to fall -1.5 million bbl and the refinery utilization rate to remain unchanged at 82.0%.

Thursday, March 17, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -3.5 ticks. T-note prices yesterday settled higher on increased safe-haven demand from the Japanese quake crisis and escalation of Middle East violence along with weakness in Feb US housing starts: TYM11 +29, FVM11 +17.5, EDU11 -1.0. The yield on the 10-year T-note tumbled to a 3-1/4 month low of 3.145%.

                Bullish factors included (1) a surge in safe-haven demand for Treasuries after conditions at Japan's crippled nuclear reactor deteriorated and the EU Energy Commissioner warned of a "major disaster," (2) a flight-to-safety into Treasuries as violence escalated in Bahrain, which declared a state of emergency on Tuesday, (3) the weaker-than-expected Feb US housing starts which fell to their lowest level in 1-3/4 years (-22.5% to 479,000 versus expectations of -4.9% to 567,000), and (4) the unexpected plunge in Feb US building permits which fell to their lowest level since records began in 1960 (-8.2% to 51 7,000 versus expectations of +1.2% to 570,000).

                Bearish factors included (1) the larger-than-expected increase in Feb PPI (+1.6% m/m and +5.6% y/y versus expectations of +0.7% m/m and +4.7% y/y), and (2) early weakness in Treasuries on reduced safe-haven demand after the Japanese stock market rallied for the first time in 3 days.



•   The dollar index this morning is weaker and trading at a 4-1/4 month low with the dollar/yen -1.18 yen and the euro/dollar +1.20 cents. The yen soared in overnight trade and posted a new post WWII high of 76.36 per dollar. The dollar index yesterday settled slightly lower as euro weakness from Moody's downgrade of Portugal's credit rating was offset by a rally in the yen to a new post-WWII high: Dollar Index -0.049, USDJPY -1.128, EURUSD -0.00999.

                Bearish factors included (1) strength in the yen which rallied to a new post WWII high against the dollar of 76.36 on speculation that insurers will repatriate dollar and euro assets back to yen to pay for earthquake damages along with strong demand for yen by banks after the yen libor rate rose 38 bp to 0.491%, a 2-year high, and (2) the 2.4% increase in Feb Euro-Zone CPI, a 2-1/4 year high, along with the larger-than-expected rise in Q4 Euro-Zone labour costs, which is euro positive as the data will keep the pressure on th e ECB to raise interest rates.

                Bullish factors included (1) euro weakness after Moody's Investors Service cut Portugal's long-term credit rating 2 levels to A3 from A1 and kept a negative outlook, which implies further downgrades in the future, and (2) the action by the BOJ to add 5 trillion yen into the financial system on top of the 28 trillion yen already injected into the system since Mar 14, which is yen negative.



•   April crude oil prices this morning are trading up +$1.78 a barrel and April gasoline is +4.03 cents per gallon. Crude oil and gasoline prices yesterday recovered from early weakness on concern that escalating violence in Bahrain will spill over into Saudi Arabia: CLJ11 +$0.80, RBJ11 +4.08.

                Bullish factors included (1) concern the escalation of violence in Bahrain will spread to Saudi Arabia, the world's biggest crude-exporting country, after Bahrain declared a 3-month state of emergency as a month of anti-government protests intensified, and (2) the larger-than-expected declines in weekly DOE gasoline and distillate inventories (gasoline -4.17 million bbl versus expectations of -2.0 million bbl and distillates -2.60 million bbl versus expectations of -1.5 million bbl).

                Bearish factors include (1) strength in the dollar, which discourages investment demand in commodities, and (2) comments from the EU Energy Commissioner who said that Japan's crippled nuclear power pla nt risks provoking a "major disaster," which sent the prices of most commodities tumbling.

Friday, March 18, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading down -3.5 ticks. T-note prices yesterday ratcheted lower throughout the day and finished with moderate losses on strong economic data and reduced safe-haven demand: TYM11 -10, FVM11 -6.7, EDU11 +0.5.

                Bearish factors included (1) the larger-than-expected decline in weekly initial US unemployment claims (-16,000 to 385,000 versus expectations of -10,000 to 387,000), (2) the larger-than-expected increase in Feb CPI (+0.5% m/m and +2.1% y/y versus expectations of +0.4% m/m and +2.0% y/y, (3) the unexpected increase in the Mar Philadelphia Fed manufacturing index which expanded at its fastest pace in 27 years (+7.5 to 43.4 versus expectations of -5.9 to 30.0), and (4) reduced safe-haven demand for Treasuries after the stock market rallied.

                Bullish factors included (1) the unexpected decline in Feb industrial production (-0.1 versus expectations of +0.6%), (2) the unexpected drop in Feb capacity utilization (-0.1 to 76.3% versus expectations of +0.4 to 76.5%), and (3) the Fed's action to purchase $6.989 billion of Treasuries as part of its QE 2 asset-purchase program.



•               The dollar index this morning is weaker with the dollar/yen +2.55 yen and the euro/dollar +1.09 cents. The yen plunged in overnight trade after the G-7 central agreed to sell the yen in currency markets in coordinated intervention. The dollar index yesterday sank to a 4-1/4 month low and finished lower as the yen surged on speculation there will be no currency intervention before Friday's G-7 meeting: Dollar Index -0.640, USDJPY -0.694, EURUSD +0.01223.

                Bearish factors included (1) strength in the yen which rallied to a new post WWII high against the dollar of 76.36 as Japan's quake crisis prompted increased safe-haven demand for yen along with speculation that insurers will repatriate dollar and euro assets back to yen to pay for earthquake damages and reconstruction, and (2) reduced safe-haven demand for the dollar as the stock market rallied.

                Bullish factors included (1) the action by the G-7 nations to call for an emergency meeting on Friday, which may lead to some form of coordinated intervention to curb the yen's gains, and (2) stronger-than-expected US economic data on weekly jobless claims and the Mar Philadelphia Fed manufacturing index, which signals economic strength and is positive for the dollar.



•               April crude oil prices this morning are trading up +66 cents a barrel and April gasoline is +1.98 cents per gallon. Crude oil surged over $2.00 a barrel in overnight trade on news the UN had passed a resolution for a no-fly zone over Libya, but prices fell back after China raised banks' reserve requirements. Crude oil and gasoline prices yesterday moved sharply higher on concern the civil unrest in North Africa and the Middle East will spread and reduce crude shipments from the region: CLJ11 +$3.44, RBJ11 +10.69.

               Bullish factors included (1) concern the escalation of violence in Bahrain will spread to Saudi Arabia, the world's biggest crude-exporting country, (2) the plunge in the dollar index to a 4-1/4 month low, which encourages investment demand in commodities, and (3) stronger-than-expected US economic data on weekly jobless claims and the Mar Philadelphia Fed manufacturing index, which signals economic strength that may support increased energy demand and consumption.

               Bearish factors include (1) the unexpected declines in Feb US industrial production and capacity utilization which signals reduced energy consumption, and (2) heightened concern that Japan's quake crisis may push its economy into recession which would slash global economic growth and energy demand.

Monday, March 21, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading down -15.5 ticks on reduced safe-haven demand as global equity markets rally. T-note prices last Friday weakened on reduced safe-haven demand after the G-7 intervened in currency markets to stabilize the yen and after Libya said it was stopping military action against rebel forces: TYM11 -8, FVM11 -5, EDU11 +1.0.

                 Bearish factors included (1) reduced safe-haven demand for Treasuries after G-7 nations agreed to intervene to weaken the yen, which may help keep Japan from falling into recession, and (2) a further reduction in safe-haven demand after Libya said it will halt all of its military operations against rebel forces.

                 Bullish factors included (1) the action by the UN to approve a no-fly zone over Libya, which may lead to military action against Libyan forces and prompt safe-haven buying of Treasuries, and (2) the action by the Fed to buy $1.568 billion of Treasuries as part of its QE 2 asset-purchase program.



•               The dollar index this morning is weaker with the dollar/yen +0.68 yen and the euro/dollar -0.13 cents. The dollar index last Friday tumbled to a 4-1/2 month low and finished lower on reduced safe-haven demand for the dollar after the stock market rallied and as Libya ordered a halt to its military action against rebel forces: Dollar Index -0.238, USDJPY +1.692, EURUSD +0.01606.

                 Bearish factors included (1) reduced safe-haven demand for the dollar after the stock market rallied, (2) reduced safe-haven demand for the dollar after Libya ordered a halt to all military operations against rebel forces, and (3) strength in the euro which climbed to a 4-1/2 month high against the dollar after ECB President Trichet said he doesn't want to change his hawkish stance on "strong vigilance" on inflation that he gave earlier this month, which fuels speculation the ECB still plans to raise interest rates next month.

                Bullish factors included (1) the action by the G-7 nations to announce coordinated currency intervention to weaken the yen, and (2) the plunge in Feb UK nationwide consumer confidence to its lowest level since data began in 2004, which is negative for the British pound.


•               April crude oil prices this morning are trading up $1.88 a barrel and April gasoline is +5.34 cents per gallon as allied air strikes in Libya threaten to prolong a supply outage in Africa's third biggest oil producer. Crude oil and gasoline prices last Friday fluctuated between gains and losses and settled slightly lower when Libya said it will halt all military action against rebel forces after the UN approved a no-fly zone over Libya: CLJ11 -$0.35, RBJ11 -0.12. Apr crude rose to a 1-week high but fell back and closed lower.

                Bearish factors include (1) the action by Libya to announce a halt to all of its military action against rebel forces and that it will start talks with the opposition, and (2) comments from the director of the Bureau of Ocean Energy Management, Regulation and Enforcement who said the Obama administration may cut the duration of US oil leases to accelerate development and production and cut the royalty rate of companies that step up crude production on federal lands, which may increase US oil supplies.

                Bullish factors included (1) the slump in the dollar index to a 4-1/2 month low, which boosts investment demand in commodities, (2) the action by the United Nations Security Council to approve a no-fly zone over Libya, which bolstered speculation of UN air attacks on Libyan forces, and (3) data from the API that showed US Feb fuel demand rose 4.4% y/y to 19.7 million barrels a day, the highest Feb total in 3 years.

Tuesday, March 22, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading down -7.5 ticks. T-note prices yesterday traded weaker the entire day on reduced safe-haven demand as the stock market rallied and after the Treasury announced it will liquidate its MBS holdings: TYM11 -15.5, FVM11 -12.7, EDU11 -1.5.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after the stock market rallied sharply and as Japan's nuclear crisis eased, (2) the announcement by the Treasury that it will wind down its $142 billion portfolio of MBS securities by $10 billion a month starting this month, which indicates a reduction in the Treasury's emergency liquidity measures, and (3) the estimate from the nonpartisan CBO that said President Obama's budget would produce $2.3 trillion more in deficits over the next decade than the administration currently projects, which may lead to increased issuance of government debt by the Treasury.

                Bullish factors included (1) the weaker-than-expected Feb existing home sales (-9.6% to 4.88 million versus expectations of -4.5% to 5.12 million, and (2) increased safe-haven demand for Treasuries on concern the civil unrest in North Africa and he Middle east is spreading after Yemen declared a state of emergency.



•              The dollar index this morning is weaker and trading at a fresh 1-1/4 year low with the dollar/yen -0.10 yen and the euro/dollar +0.15 cents. The dollar index yesterday slumped to a 1-1/4 year low and finished weaker on reduced safe-haven demand for the dollar after the stock market rallied along with hawkish rhetoric from the ECB: Dollar Index -0.317, USDJPY +0.440, EURUSD +0.04400.

                Bearish factors included (1) reduced safe-haven demand for the dollar after the stock market rallied, (2) hawkish comments from ECB Executive Board member Tumpel-Gugerell that lifted the euro to a 4-1/2 month high against the dollar after she reiterated ECB President Trichet's mantra that "strong vigilance" is necessary to keep a lid on inflation, which shows a consensus building among ECB policy makers for an interest rate hike as soon as next month's policy meeting, and (3) the weaker-than-expected Feb US existing home sales, which may prompt the Fed into keeping its overly easy monetary policy in place for the foreseeable future and further weaken the dollar's interest rate differentials.

                Bullish factors included (1) weakness in the yen on fears of further G-7 currency intervention, and (2) the announcement by the Treasury that it will wind down its $142 billion portfolio of MBS securities by $10 billion a month starting this month, which is dollar positive as it shows the Treasury reducing the size of its balance sheet.



•              April crude oil prices this morning are trading down -34 cents a barrel and April gasoline is -1.37 cents per gallon. Crude oil and gasoline prices yesterday climbed after allied forces launched air attacks on Libya along with continued weakness in the dollar: CLJ11 +$1.26, RBJ11 +4.80. Apr gasoline posted a 1-week high.

                Bullish factors included (1) allied air strikes in Libya that threaten to prolong a supply outage in Africa's third biggest oil producer, (2) the slump in the dollar index to a 1-1/4 year low, which boosts investment demand in commodities, and (3) concern the civil unrest in North Africa and the Middle East is worsening and may spread to other oil producing countries in he region after Yemen declared a state of emergency.

                Bearish factors include (1) estimates from JPMorgan Chase that about half of Japan's refineries remain shut due to its quake crisis, which indicates reduced crude demand, and (2) the weaker-than-expected Feb US existing home sales, which signals the weak housing market may keep pressure on the economy and energy demand.

Wednesday, March 23, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading up +5 ticks. T-note prices yesterday fell to a 1-week low and closed lower on an improvement in Japan's nuclear crisis along with hawkish comments from the Dallas Fed President: TYM11 -5, FVM11 -3.7, EDU11 -1.5.

                Bearish factors included (1) reduced safe-haven demand for Treasuries on speculation that Japan's nuclear crisis is nearer to containment, (2) reduced safe-haven demand after Allied Irish Banks Plc denied a rumor that it will default on a coupon payment after it said it has "no plans" to miss interest payments on is bonds, and (3) hawkish comments from Dallas Fed President Fisher who said there will be "no need for further monetary accommodation" in the US once the Fed's QE2 program ends in June.

                Bullish factors included (1) the larger-than-expected decline in the Jan FHFA US house price index along with the downward revision to Dec (Jan -0.3% m/m versus expectations of -0.2% m/m and Dec revised lower to -1.0% m/m from the originally reported -0.3% m/m), (2) the larger-than-expected decrease in the Mar Richmond Fed manufacturing index (-5 to 20 versus expectations of -1 to 24), (3) the action by the Fed to purchase $7.560 billion in Treasuries as part of its QE2 asset-purchase program, and (4) the prediction from Fukoku Mutual Insurance that Japanese investors will liquidate their Japanese government bond holdings to pay for reconstruction costs instead of selling their US Treasury holdings because Treasuries have a higher yield than their Japanese counterparts.



•               The dollar index this morning is little changed with the dollar/yen -0.20 yen and the euro/dollar -0.33 cents. The dollar index yesterday recovered from a 1-1/4 year low and finished little changed as the euro weakened on concern that European leaders cannot agree on a solution to the region's debt crisis: Dollar Index +0.033, USDJPY -0.060, EURUSD -0.00291.

                Bullish factors included (1) weakness in the euro which fell from a 4-1/2 month high against the dollar on sovereign-debt concerns after the yield on Irish 2-year notes surged to 10.18%, the highest since Bloomberg began collecting the data, as Germany and France demand that Ireland raise its corporation tax rate in return for better terms on loans from the European Financial Stability Facility bailout fund, and (2) dollar friendly comments from Dallas Fed President Fisher who said there will be "no need for further monetary accommodation" in the US once the Fed's QE2 program ends in June.

                Bearish factors included (1) the rally in the British pound to a 14-month high against the dollar on increased speculation the BOE will soon raise interest rates after Feb UK CPI rose at its fastest pace in 2-1/4 years, and (2) strong demand for euros from European banks after the 3-month Euribor rate, the rate at which Euro-Zone banks borrow between each other, rose 6 bp to a 1.185%, its highest level in 1-3/4 years.



•               May crude oil prices this morning are trading up +41 cents a barrel and May gasoline is +1.60 cents per gallon. Crude oil and gasoline prices yesterday finished higher on concern that civil unrest will spread to other oil-producing nations in the Middle East and North Africa: CLK11 +$1.88, RBK11 +0.76.

                Bullish factors included (1) the slump in the dollar index to a 1-1/4 year low, which boosts investment demand in commodities, (2) increased optimism that Japan's nuclear crisis will be contained, and (3) concern that the civil unrest in the Middle East and North Africa will spread to other oil-producing nations in the region.

                Bearish factors include (1) decreased oil demand from Japan, the world's third-largest crude consumer, after JX Nippon Oil & Energy, Japan's biggest refiner, sold 2 million bbl of crude to South Korea because the oil was not needed due to the closure of Nippon's refineries from quake damage, (2) early weakness in gasoline on speculation that US refiners that had been shut for seasonal maintenance were coming back online and producing more gasoline, and (3) the outlook for weekly US crude supplies to increase for a third week when the DOE reports inventories on Wed. Expectations for Wednesday's weekly DOE inventory figures are for crude oil supplies to increase 1.45 million bbl, gasoline stockpiles to fall -2.0 million bbl, distillate inventories to drop -1.5 million bbl and the refinery utilization rate to rise +0.4 to 83.8%.

Thursday, March 24, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading down -5.5 ticks. T-note prices yesterday traded higher until late morning when prices fell after the Fed purchased less debt than average in its asset-purchase program: TYM11 -2.5, FVM11 -0.7, EDU11 -1.0.

                Bearish factors included (1) the Fed's action to purchase 24.6% of the $30.766 billion of securities submitted by primary dealers for the Fed's asset-purchase program, less than the 30.8% the Fed purchased during a similar operation on Mar 14, and (2) hawkish comments from Dallas Fed President Fisher who said he sees "extraordinary speculative activity" in the US after the Fed's quantitative easing program pumped record liquidity into the economy, which signals he favors an immediate end to the Fed's QE 2 program.

                Bullish factors included (1) the unexpected decline in Feb new home sales which fell to their lowest level since records began in 1963 (-16.9% to 250,000 versus expectations of +2.1% to 290,000), and (2) increased safe-haven demand from the ongoing civil unrest in the Middle East along with concern the European sovereign-debt crisis will worsen after the yield on the 10-year Irish note exceeded 10% for the first time since the euro was introduced in 1999 and the yield on Portugal's 5-year bond rose to a record 8.14%.



•               The dollar index this morning is weaker with the dollar/yen +0.10 yen and the euro/dollar +0.35 cents. The dollar index strengthened yesterday and closed higher on concern Europe's sovereign-debt crisis may worsen: Dollar Index +0.360, USDJPY -0.055, EURUSD -0.01096.

                Bullish factors included (1) weakness in the euro after EU finance minister leader Juncker said the EU won't decide to expand the European Financial Stability Facility until June, dousing expectations for a resolution to the expansion of the bailout fund as soon as this weekend's EU summit, (2) weakness in the pound after the minutes of the Mar 10 BOE monetary policy meeting showed policy makers voted 6-3 to keep interest rates on hold along with the cut in Britain's 2011 GDP estimate to 1.7% from a Nov estimate of 2.1% by England's Office for Budget Responsibility, and (3) concern the European debt crisis will worsen after the yield on the 10-year Irish note exceeded 10% for the first time since the euro was introduced in 1999 and the yield on Portugal's 5-year bond rose to a record 8.14%.

                Bearish factors included (1) the unexpected plunge in Feb US new home sales to a record low, which may prompt the Fed to maintain its overly easy monetary policy at the dollar's expense, and (2) hawkish comments from ECB Executive Board member Smaghi who said that interest rates in the Euro-Zone are currently lower than the inflation rate and that keeping them at that level would be "very expansionist," which suggests he favors a rate hike as soon as next month.



•               May crude oil prices this morning are trading up +61 cents a barrel and May gasoline is -0.46 of a cent per gallon. Crude oil and gasoline prices yesterday rallied to 1-1/2 week highs as the US and its allies prepare to attack Libyan leader Qaddafi's ground troops and after protesters clashed with government troops in Syria: CLK11 +$0.78, RBK11 +1.50.

                Bullish factors included (1) concern that Libyan oil output will remain reduced after US Admiral Locklear said that more air strikes will be launched against Libya in the "coming hours and days," (2) the spread of civil unrest to Syria, which bolsters concern that civil unrest may spread to other oil-producing areas in the region and further cut global oil supplies, (3) the larger than expected decline in weekly gasoline inventories which fell to their lowest level this year (-5.32 million bbl to 219.7 million bbl versus expectations of -2.0 million bbl), and (4) increased demand after total US fuel demand for the week ending Mar 18 rose +1% to 19.3 million barrels a day.

                Bearish factors include (1) strength in the dollar, which reduces investment demand in commodities, (2) the larger-than expected increase in weekly crude oil inventories (+2.13 million bbl versus expectations of +1.45 million bbl), and (3) the action by Britain's OBR to cut its 2011 GDP forecast to 1.7% from a Nov estimate of 2.1%, which signals reduced energy demand and consumption.

Friday, March 25, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading up +1.5 ticks. T-note prices yesterday fell to a 2-week low and closed lower on reduced safe-haven demand after stock prices moved higher: TYM11 -15, FVM11 -10.5, EDU11 unchanged.

                Bearish factors included (1) the larger-than-expected decline in weekly initial unemployment claims (-5,000 to 382,000 versus expectations of -2,000 to 383,000), and (2) reduced safe-haven demand for Treasuries after the stock market rallied.

                Bullish factors included (1) the unexpected decline in Fed durable goods orders (-0.9% and -0.6% ex transportation versus expectations of +1.2% and +2.0% ex transportation), (2) increased safe-haven demand on concern the European sovereign-debt crisis will worsen after Moody's Investors Service cut the ratings on 30 Spanish banks and European officials said a bailout of Portugal may total as much as 70 billion euros ($99 billion), (3) the Treasury's $11 billion auction of 10-year TIPS that had a bid-to-cover ratio of 2.97, well above the 12-auction average of 2.60 and a sign of strong demand, and (4) the Fed's action to purchase $6.987 billion of Treasuries as part of its QE2 asset-purchase program.



•              The dollar index this morning is slightly higher with the dollar/yen +0.30 yen and the euro/dollar -0.07 cents. The dollar index closed lower yesterday as the euro strengthened on speculation that European leaders will come up with a solution to the region's debt crisis as they begin a 2-day meeting in Brussels: Dollar Index -0.138, USDJPY +0.063, EURUSD +0.00908.

                Bearish factors included (1) strength in the euro on anticipation that EU leaders will come up with a solution to the European debt crisis, and (2) heightened speculation that the ECB will raise interest rates when it meets next on Apr 7, which would further improve the euro's interest rate differentials against the dollar.

                Bullish factors included (1) concern the European sovereign-debt crisis will worsen after European officials speculated that a bailout of Portugal would cost as much as 70 billion euros ($99 billion), (2) the action by Moody's Investors Service to cut the ratings on 30 Spanish banks to reflect Spain's sovereign downgrade, and (3) weakness in the British pound which retreated against the dollar after Feb UK retail sales came in weaker than expected.



•               May crude oil prices this morning are trading up +13 cents barrel and May gasoline is +0.18 of a cent per gallon. Crude oil and gasoline prices yesterday closed mixed as allied air attacks on Libya supported prices while the lingering European debt crisis and an unexpected decline in US durable goods orders limited gains: CLK11 -$0.15, RBK11 +2.22. May crude posted a 2-week high but shed its gains and closed lower.

                Bearish factors include (1) concern the European debt crisis may worsen and slow the global economy and energy demand after European officials said a bailout of Portugal may total as much as 70 billion euros ($99 billion), (2) the unexpected decline in Feb US durable goods orders, which hints at economic weakness that may curtail fuel demand, and (3) the prediction from PFC Energy that OPEC may agree to an increase in production when it meets in Jun because of a "sustained" supply disruption from Libya.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) sustained allied attacks in Libya, which may further reduce Libyan crude output, and (3) an escalation of anti-government protests in Syria and Yemen, which may spread further civil unrest to oil-producing nations in the Middle East and North Africa.

Monday, March 28, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -10 ticks. T-note prices last Friday slid to a 2-week low and closed lower after US Q4 GDP was reported stronger than expected and Fed members urged an end to monetary stimulus: TYM11 -10, FVM11 -9.7, EDU11 -2.5.

                Bearish factors included (1) the larger-than-expected upward revision to US Q4 GDP (+3.1% annualized versus expectations of +3.0% annualized), (2) comments from Philadelphia Fed President Plosser who said the improving economy means the Fed should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates, and (3) comments from Dallas Fed President Fisher who said the Fed was at risk of "doing too much" and should end its quantitative easing program.

                Bullish factors included (1) the unexpected downward revision to the Q4 PCE deflator which shows the smallest increase since data began in 1959 (+0.4% q/q versus the previously reported +0.5% q/q), and (2) t he larger-than-expected drop in Mar U.S. University of Michigan consumer confidence to its lowest level in 16 months (-0.7 to 67.5 versus expectations of -0.2 to 68.0).



•   The dollar index this morning is higher and at a 1-week high with the dollar/yen +0.34 yen and the euro/dollar -0.34 cents. The dollar index last Friday settled higher on concern about European government efforts to end the region's debt crisis: Dollar Index +0.561, USDJPY +0.362, EURUSD -0.00891.

                Bullish factors included (1) weakness in the euro on concern European leaders lack the resolve to quell the region's debt crisis after EU leaders caved in to German demands to cut the amount of startup capital for a program for future emergency aid, and (2) dollar supportive comments from Philadelphia Fed President Plosser who said the improving economy means the Fed should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates.

                Bearish factors included (1) the smaller-than-expected decline in Mar IFO business confidence, which is euro positive, (2) supportive interest rate differentials for the euro with the 3-month Euribor rate rising to a 1-3/4 year high of 1.203%, and (3) the plunge in Mar U.S. University of Michigan consumer confidence to a 16-month low, which is dollar negative.



•   May crude oil prices this morning are trading down -58 cents a barrel and May gasoline is -1.90 cents per gallon. Crude oil and gasoline prices last Friday settled slightly lower as European debt concerns offset a stronger US economy: CLK11 -$0.20, RBK11 -0.13. May gasoline posted a 2-week high but shed its gains and closed lower.

                Bearish factors included (1) strength in the dollar, which discourages investment demand for commodities, (2) concern that Japan's rebuilding process may be delayed after a spokesman for Japan's Nuclear and Industrial Safety Agency said one reactor core at the quake-damaged Fukushima Dai-Ichi power plant might be cracked and leaking radiation, (3) concern that the European debt crisis will worsen and slow the economy and energy demand, and (4) the larger-than-expected drop in Mar U.S. University of Michigan consumer confidence which tumbled to a 16-month low and may lead to decreased consumer spending and fuel demand.

                Bullish factors includ e (1) the larger-than-expected upward revision to US Q4 GDP, which indicates stronger-than-expected fuel consumption, and (2) the ongoing civil unrest in North Africa and the Middle East that threatens to spread to major oil-producers in the region.

Tuesday, March 29, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading unchanged. T-note prices yesterday fell to a 2-1/2 week low and closed lower after hawkish Fed comments and slack demand for the Treasury's 2-year T-note auction: TYM11 -3.5, FVM11 -3.7, EDU11 -1.0.

                Bearish factors included (1) the stronger-than-expected Feb personal spending and the unexpected upward revision to Jan (Feb +0.7% versus expectations of +0.6% and Dec revised up to +0.3% from the originally reported +0.2%), (2) the stronger-than-expected Feb pending home sales (+2.1% m/m versus expectations of +0.9% m/m), (3) hawkish comments from St. Louis Fed President Bullard who said that policy makers should review halting the $600 billion QE2 asset-purchase program before its June completion because the economy may not require that much stimulus, (4) weak demand for the Treasury's $35 billion 2-year T-note auction that had a bid-to-cover ratio of 3.16, below the 12-auction average of 3.33, and (5) supply pressures ahe ad of the Treasury's $35 billion auction of 5-year T-notes on Tue.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis may worsen after the yield on Portugal's 10-year bond climbed to a euro-era record of 7.94%, and (2) the Fed's action to purchase $6.753 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is little changed with the dollar/yen +0.43 yen and the euro/dollar -0.10 cents. The dollar index yesterday rallied to a 1-week high but shed its gains and closed slightly lower after hawkish comments from ECB President Trichet boosted the euro: Dollar Index -0.025, USDJPY +0.035, EURUSD -0.00016.

                Bearish factors included (1) euro supportive comments from ECB President Trichet who said "inflation rates are durably above the price stability target," which nearly cements an April interest rate hike from the ECB, and (2) hawkish comments from ECB Council member Quaden who said a "moderate" increase in interest rates won't stifle the economic recovery.

                Bullish factors included (1) comments from St. Louis Fed President Bullard who said that policy makers should review halting the $600 billion QE2 asset-purchase program before its June completion because the economy may not require that much stimulus, and (2) stronger-than-e xpected US economic data on Feb personal spending and Feb pending home sales, which signals economic strength and is dollar supportive.



•   May crude oil prices this morning are trading down -$1.15 a barrel and May gasoline is -1.79 cents per gallon. Crude oil and gasoline prices yesterday closed lower on speculation that recent victories by Libyan rebels may speed up a resolution to the country's armed conflict and put Libyan oil back on the market: CLK11 -$1.42, RBK11 -2.19.

                Bearish factors included (1) the action by Qatar to agree to market crude from east Libyan oil fields that are now controlled by rebel forces, which eases concern that Libyan oil exports will be disrupted for an extended period, and (2) concern that a recovery in Japan will be delayed after Japan's chief government spokesman said a partial meltdown of fuel rods in the No. 2 reactor probably caused a jump in radioactive readings that will further complicate containment of Japan's nuclear crisis.

                Bullish factors include (1) the reversal in the dollar after the dollar index fell back from a 1-week high and closed lower, which boosts in vestment demand for commodities, (2) comments from Algeria's Oil Minister that the oil market is "well supplied" and there is no need to compensate for a decline in Libya's output, and (3) the stronger-than-expected Feb US personal spending, which shows strength in the economy that may bolster fuel demand.

Wednesday, March 30, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading unchanged. T-note prices yesterday fell to a 2-1/2 week low and closed lower due to strong equities and a smaller-than-expected decline in home prices: TYM11 -10, FVM11 -4.7, EDU11 unchanged.

                Bearish factors included (1) the smaller-than-expected decline in home prices in the Jan S&P/CaseShiller composite-20 home price index (-0.2% m/m and -3.1% y/y versus expectations of -0.5% m/m and -3.2% y/y), (2) hawkish comments from St. Louis Fed President Bullard who said the Fed might need to tighten monetary policy before the outlook for the global economy clears up later this year, (3) strength in the equity market, and (4) supply pressures ahead of the Treasury's $29 billion auction of 7-year T-notes on Wed.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis may worsen after Standard & Poor's cut Portugal's and Greece's sovereign-debt ratings, (2) th e larger-than-expected decline in Mar US consumer confidence (-8.6 to 63.4 versus expectations of -5.4 to 65.0), and (3) dovish comments from Boston Fed President Rosengren who said "right now there's an awful lot of slack in the economy" and that "overall, the core rate of inflation is quite low," which means now is not the time to tighten monetary policy.



•   The dollar index this morning is stronger with the dollar/yen +0.64 yen and the euro/dollar -0.21 cents. The dollar index yesterday finished slightly higher as rising European sovereign-debt risks and weakness in the yen outweighed the prospects of an ECB rate hike next week: Dollar Index +0.121, USDJPY +0.781, EURUSD +0.00258. The yen posted a 2-week low against the dollar.

                Bullish factors included (1) the action by Standard & Poor's to cut Portugal's sovereign credit rating to BBB-, the lowest investment grade, and to cut Greece's rating 2 grades to BB-, 3 levels below investment grade, on concern that new EU bailout rules will force both countries to renege on their debt obligations, and (2) comments from St. Louis Fed President Bullard who said the Fed might need to tighten monetary policy before the outlook for the global economy clears up later this year.

                Bearish factors included (1) hawkish comments from ECB Council member Makuch who said it is "highl y probable" that the ECB will raise interest rates next week, which would further strengthen the euro's interest rate differentials, and (2) the weaker-than-expected Mar US consumer confidence, which is dollar negative.



•   May crude oil prices this morning are trading down -40 cents a barrel and May gasoline is -0.76 of a cent per gallon. Crude oil and gasoline prices yesterday recovered from early losses and followed the equity market higher: CLK11 +$0.81, RBK11 +1.60.

                Bullish factors include (1) the rally in the stock market, which boosts confidence in the economic outlook and energy demand, and (2) strength in gasoline on speculation that US gasoline inventories will decline for a sixth straight week when the DOE releases inventory figures on Wed.

                Bearish factors included (1) the stronger dollar, (2) the advance of Libyan rebels against Mummar Qaddafi's troops, which spurs hope the conflict in Africa's third-largest oil producer may end soon and start Libyan crude exports flowing again, and (3) the weaker-than-expected Mar US consumer confidence, which may lead to reduced consumer spending and fuel demand. Expectations for Wednesday's weekly inventory report from the DOE are for cru de oil stockpiles to rise +1.5 million bbl, gasoline supplies to fall -1.8 million bbl, distillate inventories to drop -1.0 million bbl and the refinery capacity rate to increase +0.3 to 84.4%.

Thursday, March 31, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading up +1.5 ticks. T-note prices yesterday recovered from a 3-week low and closed higher after the Mar ADP employment change showed companies added fewer jobs than forecast: TYM11 +11.5, FVM11 +7, EDU11 +1.0.

                Bullish factors included (1) the smaller-than-expected increase in the Mar ADP employment change along with the downward revision to Feb (Mar +201,000 versus expectations of +208,000 and Feb revised down to +208,000 from the originally reported +217,000), and (2) the prediction from High Frequency Economics that demand for Treasuries is poised to increase as investors seek refuge from Europe's debt crisis and Japan's "grisly" economic prospects.

                Bearish factors included (1) the rally in the S&P 500 to a 2-1/2 week high, which reduced the safe-haven demand for Treasuries, (2) comments from Kansas City Fed President Hoenig who said current central bank policies risk undermining world growth and that the Fe d should raise the funds rate toward 1.00% in a "fairly short period," and (3) weak demand for the Treasury's $29 billion auction of 7-year T-notes that had a bid-to-cover ratio of 2.79, below the 2.88 average of the past 12 auctions.



•   The dollar index this morning is lower with the dollar/yen -0.03 yen and the euro/dollar +0.84 cents. The dollar index yesterday finished weaker as a rally in stocks reduced the safe-haven demand for the dollar along with the prospects for the dollar's interest rate differentials to weaken further on the near certainty of an ECB interest rate hike next week: Dollar Index -0.131, USDJPY +0.418, EURUSD +0.00144.

                Bearish factors included (1) market expectations of an Apr 7 interest rate hike by the ECB, which will further strengthen the euro's interest rate differentials against the dollar, and (2) reduced safe-haven demand for the dollar as global stock markets rallied on increased economic optimism.

                Bullish factors included (1) weakness in the yen as Japan's quake crisis may prompt the BOJ to keep an overly easy monetary policy that will further weaken the yen's interest rate differentials against the dollar, and (2) euro negative comments from ECB Council member Bini Smaghi who said the risk of the European sovereign-debt crisis spreading to other EU nations is "not insignificant."



•   May crude oil prices this morning are trading up +$1.10 a barrel and May gasoline is +2.08 cents per gallon. Crude oil and gasoline prices yesterday settled mixed as a larger-than-expected increase in weekly DOE crude supplies undercut crude while a larger-than-expected drop in gasoline inventories lifted gasoline: CLK11 -$0.52, RBK11 +1.37.

                Bearish factors included (1) the stronger dollar, which erodes investment demand for commodities, (2) the larger-than-expected increase in weekly crude inventories (+2.94 million bbl to a 3-1/2 month high of 356 million bbl versus expectations of +1.5 million bbl), and (3) reduced fuel demand after US gasoline demand dropped -2.3% w/w and -2.1% y/y to 8.87 million barrels a day in the week ended Mar 25, as higher prices have cut gasoline demand to lower than it was a year ago.

                Bullish factors include (1) strength in the stock market, which boosts confidence in the economic outlook and energy demand, and (2) strength in gasoline af ter weekly gasoline supplies fell more than expected (-2.68 million bbl to a 3-month low of 217 million bbl versus expectations of -1.8 million bbl).

Friday, April 1, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -12.5 ticks. T-note prices yesterday gyrated on either side of unchanged and closed slightly lower as manufacturing strength in the US Midwest offset a smaller-than expected decline in weekly jobless claims: TYM11 -3, FVM11 -1.5, EDU11 +3.5.

                Bearish factors included (1) the smaller-than-expected decline in the Mar Chicago purchasing managers index (-0.6 to 70.6 versus expectations of -1.6 to 69.6), (2) the action by Goldman Sachs to hike its yield estimate for the US 5-year T-note this year to 2.5% from an earlier estimate of 2.3%, saying the outlook for growth and inflation is becoming less friendly for bonds, and (3) comments from Minneapolis Fed Governor Kocherlakota who said the Fed funds rate may need to rise 75 bp by late 2011.

                Bullish factors included (1) the smaller-than-expected decline in weekly initial unemployment claims (-6,000 to 388,000 versus expectations of -2,000 to 380,000), (2) the unexpected d ecline in Feb factory orders (-0.1% versus expectations of +0.5%), and (3) the Fed's action to purchase $2.1 billion of Treasuries as par of its QE2 asset-purchase program.



•   The dollar index this morning is stronger with the dollar/yen +0.56 yen to a 1-1/2 month high and the euro/dollar -0.05 cents. The dollar index yesterday settled lower after the euro strengthened when Mar Euro-Zone inflation unexpectedly accelerated: Dollar Index -0.261, USDJPY +0.241, EURUSD +0.00304.

                Bearish factors included (1) the unexpected jump in the Mar Euro-Zone CPI estimate to +2.6% y/y, a 29-month high which lifted the euro and bolstered the case for an ECB interest rate hike next week, and (2) the larger than expected decline in Mar German unemployment to its lowest level since 1992, which is euro supportive.

                Bullish factors included (1) concern the European sovereign-debt crisis may worsen after credit-default swaps on Portuguese government debt rose 13 bp to a record 579 bp while default swaps on Irish government bonds rose 8 bp to a 2-1/2 month high of 633 bp, and (2) the smaller than expected decline in the Mar Chicago purchasing managers index, which shows economic strength and is dollar supportive.



•   May crude oil prices this morning are trading yp +49 cents a barrel and May gasoline is +1.18 cents per gallon. May crude rose to a 2-1/2 year high of $107.65 a barrel in overnight trade after manufacturing data in China accelerated for the firs time in 4 months. Crude oil and gasoline prices yesterday finished higher as the dollar weakened and after Libyan leader Mummar Qaddafi's troops forced rebels to retreat: CLK11 +$2.45, RBK11 +5.04. May crude rose to a 3-week high and May gasoline climbed to a contract high, while nearest-futures Apr gasoline posted a 2-1/2 year high.

                Bullish factors included (1) the weaker dollar, which bolsters investment demand for commodities, and (2) the action by Mummar Qaddafi's troops to repel the advances of rebel forces, which may prolong the Libyan conflict and further curtail Libyan oil production.

                Bearish factors include (1) the unexpected decline in US Feb factory orders, and (2) the statement from the IEA that crude oil prices are entering a "dangerous zone" for the global economy, which may already be seeing demand destruction due to high prices.

Monday, April 4, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -2.5 ticks. T-note prices last Friday fell to a 3-week low after stronger than expected US economic data on employment and manufacturing but prices closed well off of their worst levels after dovish comments from New York Fed President Dudley: TYM11 -2, FVM11 -4.5, EDU11 +0.5.

                Bearish factors included (1) the larger-than-expected increase in Mar nonfarm payrolls (+216,000 versus expectations of +190,000), (2) the unexpected decline in the Mar unemployment rate to a 2-year low (-0.1 to 8.8% versus expectations of unchanged at 8.9%), (3) the smaller-than-expected decline in the Mar ISM manufacturing index (-0.2 to 61.2 versus expectations of -0.4 to 61.0), and (4) the larger-than-expected increase in the Mar ISM prices paid sub-index which expanded at its fastest pace in 2-1/2 years (+3.0 to 85.0 versus expectations of +0.9 to 82.9).

                Bullish factors included (1) a lack of wage pressures after the smaller-than-expect ed increase in Mar avg hourly earnings (unchanged m/m and +1.7% y/y versus expectations of +0.2% and +1.9% y/y), (2) the weaker-than-expected Feb construction spending and the downward revision to Jan (Feb -1.4% versus expectations of -0.2% and Jan revised lower to -1.8% versus the originally reported -0.7%), and (3) comments from New York Fed President Dudley who said the US economy's recovery is "still tenuous" and to not be "overly optimistic about the growth outlook."



•   The dollar index this morning is slightly higher with the dollar/yen +0.10 yen and the euro/dollar -0.22 cents. The dollar index last Friday jumped to a 2-week high after Mar US payrolls were reported stronger than expected but then erased its gains and finished slightly lower after dovish comments from New York Fed President Dudley: Dollar Index -0.024, USDJPY +0.930, EURUSD +0.00770.

                Bearish factors included (1) comments from New York Fed President Dudley who said not to be "overly optimistic about the growth outlook," which signals he is not in favor of tightening Fed policy, and (2) reduced safe-haven demand for the dollar after the S&P 500 rallied to a 1-1/4 month high.

                Bullish factors included (1) strong US economic data on Mar manufacturing and employment which signals a faster pace of economic growth that may prompt the Fed into raising interest rates, (2) concern the European sovereign-debt crisis may worsen after Standard & Poor's cut Irela nd's credit rating after the cost of rescuing Irish banks rose to as much as 100 billion euros ($141.5 billion) and Fitch Ratings cut Portugal's debt ratings and kept a negative outlook on Ireland and Portugal, meaning their ratings may be cut further, and (3) weakness in the yen which tumbled to a 6-month low against the dollar on speculation Japan's economy will be hampered by the aftermath of its earthquake crisis.



•   May crude oil prices this morning are trading up +43 cents a barrel and May gasoline is +0.86 of a cent per gallon, both at fresh 2-1/2 year highs. Crude oil and gasoline prices last Friday rallied to 2-1/2 year highs and settled higher on signs of increased global demand along with intensified fighting in Libya: CLK11 +$1.22, RBK11 +3.84.

                Bullish factors included (1) the increase in Mar China PMI manufacturing for the first time in 4 months, which signals increased energy demand, (2) stronger than expected US economic data on Mar payrolls and Mar ISM manufacturing, which points to economic strength that may boost fuel demand, and (3) the action by Mummar Qaddafi's troops to repel the advances of rebel forces, which may prolong the Libyan conflict and further curtail Libyan oil production.

                Bearish factors include (1) weakness in European economic data after the Mar Euro-Zone PMI manufacturing index was unexpectedly revised down and Mar UK PMI manufacturing fell to a 5 -month low, which indicates decreased energy consumption, and (2) comments from New York Fed President Dudley who said not to be "overly optimistic about the growth outlook."

Tuesday, April 5, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading up +1.5 ticks. T-note prices yesterday erased early losses and finished higher after Atlanta Fed President Lockhart said the US economic recovery faces headwinds: TYM11 =8, FVM11 +8.5, EDU11 +4.0.

                Bullish factors included (1) comments from Atlanta Fed President Lockhart who said the US economic recovery faces headwinds, which reduced speculation the Fed may end its QE2 asset-purchase program before its scheduled completion in June, and (2) the action by the Fed to purchase $8.03 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) reduced safe-haven demand for Treasuries as global stock markets rallied, and (2) carry-over weakness from a decline in bund prices after Feb Euro-Zone PPI climbed to a 2-1/2 year high.



•   The dollar index this morning is higher with the dollar/yen +0.29 yen and the euro/dollar -0.43 cents. The dollar index yesterday finished slightly higher as the euro retreated from a 5-month high against the dollar on weaker than expected Euro-Zone investor confidence: Dollar Index +0.079, USDJPY -0.001, EURUSD -0.00141.

                Bullish factors included (1) weakness in the euro which fell back from a 5-month high against the dollar on concern a likely interest-rate increase by the ECB on Thursday will hurt the economies of the most indebted nations in the Euro-Zone, which could further exacerbate the European sovereign-debt crisis, and (2) the Apr Euro-Zone Sentix investor confidence fell which fell more than expected to a 3-month low and is euro negative.

                Bearish factors included (1) comments from Atlanta Fed President Lockhart who said the US economic recovery faces headwinds, which bolstered speculation the Fed will keep its overly easy monetary policy in place and keep t he dollar's interest rate differentials weak, and (2) the increase in the Feb Euro-Zone PPI to a 2-1/2 year high of +6.6% y/y, which boosted the euro on speculation the ECB will remain hawkish even after an expected 25 bp rate hike in the 2-week refinancing rate this Thursday.



•   May crude oil prices this morning are trading down -58 cents a barrel and May gasoline is -1.59 cents per gallon. Crude oil and gasoline prices yesterday climbed to 2-1/2 year highs and settled higher on concern that global oil supplies will be hindered as the civil war in Libya is prolonged: CLK11 +$0.53, RBK11 +2.10.

                Bullish factors included (1) increased fighting between rebels and troops loyal to Mummar Qaddafi in Libya, which fuels speculation that a protracted conflict in Libya will curtail global oil supplies, and (2) the rally in global stock markets which bolsters confidence in the economic outlook and energy demand.

                Bearish factors include (1) the stronger dollar, which reduces investment demand in commodities, (2) comments from IEA Director Tanaka that the "burden" that crude at more than $100 a barrel puts on the world economy is "worrisome" and may be as bad as in 2008, and (3) the prediction from the US Climate Prediction Center for a bove-average temperatures for much of the US from Apr 9 to Apr 13, which could reduce demand for heating fuels.

Wednesday, April 6, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading unchanged. T-note prices yesterday moved lower after hawkish comments from Fed Chairman Bernanke along with the Mar 15 FOMC meeting minutes in which several Fed members expressed increased inflation concerns: TYM11 -14.5, FVM11 -11.5, EDU11 -2.0.

                Bearish factors included (1) hawkish comments from Fed Chairman Bernanke who said that inflation must be watched "extremely closely," which fueled speculation that the Fed may tighten monetary policy sooner than previously expected, and (2) the minutes of the Mar 15 FOMC meeting in which some Fed members "indicated, in light of recent developments, that the risks to their forecasts of inflation had shifted somewhat to the upside."

                Bullish factors included (1) the larger-than-expected decline in the Mar ISM non-manufacturing index which fell to a 3-month low (-2.4 to 57.3 versus expectations of -0.2 to 59.5), (2) comments from Chicago Fed President Evans who said the Fed's decision to purchase $600 billion in large scale assets is the "right amount," which indicates he would not agree to an early end to the Fed's QE2 asset-purchase program, (3) comments from Treasury Secretary Geithner who said the "housing market in the US is still in crisis," (4) increased safe-haven demand for Treasuries after Moody's Investors Service cut Portugal's long-term government bond rating to Baa1 from A3, its
second downgrade in the last 3 weeks, and (5) the action by the Fed to purchase $7.566 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is weaker and posted a 1-1/2 week low with the dollar/yen +0.21 yen at a 6-1/4 month high and the euro/dollar +0.81 cents at a 14-1/2 month high. The dollar index yesterday erased an early rally and finished slightly lower after the Mar ISM non-manufacturing index fell more than expected: Dollar Index -0.030, USDJPY +0.806, EURUSD +0.00021. The yen fell to a 6-1/4 month low against the dollar.

                Bearish factors included (1) the larger-than-expected decline in the Mar ISM non-manufacturing index which fell to a 3-month low, and (2) expectations for an ECB rate hike on Thursday that will further improve the euro's interest rate differentials against the dollar.

                Bullish factors included (1) euro negative comments from ECB Council member Bonello who said that risks to the ECB's economic growth projections "are on the downside," (2) the action by Moody's Investors Service cut Portugal's long-term government bond rating to Baa1 from A3 , its second downgrade in the last 3 weeks, saying another downgrade may follow and the winner of Portugal's elections in June will probably tap Europe's bailout fund with "urgency," and (3) comments from Fed Chairman Bernanke who said that inflation must be watched "extremely closely," which fueled speculation that the Fed may tighten monetary policy sooner than previously expected.



•   May crude oil prices this morning are trading down -18 cents a barrel and May gasoline is -1.49 cents per gallon. Crude oil and gasoline prices yesterday settled mixed as crude fell after China raised interest rates and the May ISM non-manufacturing index fell more than expected, while gasoline closed higher on expectations that weekly US gasoline stockpiles fell for the seventh consecutive week: CLK11 -$0.13, RBK11 +3.25. May gasoline posted a 2-1/2 year high.

                Bearish factors include (1) the action by China to raise interest rates, which may slow its economy and energy demand, (2) the weaker-than-expected Mar ISM non-manufacturing index, which signals reduced fuel demand, and (3) the outlook for weekly US crude supplies to increase when the DOE releases its inventory figures on Wed.

                Bullish factors included (1) the statement from Iran's OPEC governor who said OPEC has no plans for an emergency meeting on higher oil prices, which reflect political and social situatio ns rather than supply and demand, and (2) strength in gasoline prices on the outlook for weekly DOE gasoline inventories to fall for a seventh consecutive week on Wed. Expectations for the weekly inventory report from the DOE are for crude oil supplies to climb +2.0 million bbl, gasoline stockpiles to decline -1.9 million bbl, distillate inventories to remain unchanged and the refinery utilization rate to increase +0.5 to 84.6%.

Thursday, April 7, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -1.5 ticks. T-note prices yesterday weakened as inflation expectations rose along with carry-over weakness from a jump in the 10-year German bund yield to a 1-1/2 year high: TYM11 -12.5, FVM11 -6.5, EDU11 +0.5. The 10-year T-note yield climbed to a 4-week high of 3.546%.

                Bearish factors included (1) an increase in inflation expectations after the difference between yields on 5-year T-notes and 5-year TIPS, or the break-even rate, reached 2.41 points, the widest in 2-3/4 years, and (2) carry-over weakness after the 10-year German bund yield surged to a 1-1/2 year high of 3.436%.

                Bullish factors included (1) dovish comments from Atlanta Fed President Lockhart who said he doesn't expect the Fed to tighten monetary policy by year-end with inflation still low and the economic recovery fragile, and (2) the Fed's action to purchase $1.970 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is higher with the dollar/yen -0.43 yen and the euro/dollar -0.50 cents. The dollar index yesterday slumped to a 1-1/2 week low as the euro strengthened to a 14-1/2 month high against the dollar on speculation the ECB will raise interest rates even further after they raise them on Thursday: Dollar Index -0.368, USDJPY +0.626, EURUSD +0.01088. The yen tumbled to a 6-1/4 month low against the dollar.

                Bearish factors included (1) speculation the euro's interest rate differentials will widen further in favor of the euro as the ECB begins to hike interest rates while the Fed maintains its overly easy monetary policy, (2) the larger-than-expected increase in the Feb German factory orders, which is euro supportive, (3) supportive interest rate differentials for the euro after the 3-month Euribor rate increased for the fourteenth consecutive day, +0.7 bp to a 1-3/4 year high of 1.269%, and (4) comments from Atlanta Fed President Lockhart who said he is not "leaning" to Fed policy tightening this year.

                Bullish factors included (1) the fall in the yen to 6-1/4 low against the dollar on the outlook for further emergency stimulus from the BOJ, and (2) the attempt from Jean-Claude Juncker, head of the Euro-Zone finance ministers, to jawbone the euro down from a 14-1/2 month high against the dollar when he said the euro's exchange rate may be "slightly overstated."



•   May crude oil prices this morning are trading up +9 cents a barrel and May gasoline is -0.41 of a cent per gallon. Crude oil and gasoline prices yesterday rallied to 2-1/2 year highs but finished mixed as gasoline closed lower on the smaller-than-expected drop in weekly inventories and crude settled higher after German factory orders surged: CLK11 +$0.49, RBK11 -0.84.

                Bullish factors included (1) the slide in the dollar index to a 1-1/2 week low, which boosts investment demand in commodities, and (2) the surge in Feb German factory orders by nearly 5 times estimates, which signals economic strength that may lead to increased energy demand.

                Bearish factors include (1) weakness in gasoline after weekly DOE gasoline inventories fell less than expected (-357,000 bbl versus expectations of -1.9 million bbl), and (2) comments from the UAE Energy Minister who said that world oil markets are "adequately supplied" and "the surge in prices is a reflection of geop olitics and natural disaster but not the fundamentals."

Friday, April 8, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -13.5 ticks at a 1-month low. T-note prices yesterday rebounded from a 1-month low and closed higher after a 7.1 magnitude earthquake struck Japan along with dovish comments from ECB President Trichet: TYM11 +3, FVM11 +6.2, EDU11 +3.0. The 10-year T-note yield rose to a 1-month high of 3.572%.

                Bullish factors included (1) increased safe-haven demand for Treasuries after a 7.1 magnitude earthquake struck Japan, which fuels concern that the global economy may slow as Japan's recovery from last month's earthquake is delayed, (2) dovish comments from ECB President Trichet who said after raising interest rates Thursday that the increase wasn't the "first of a series" of rate hikes, which eased concern that the ECB will continue to raise interest rates, and (3) the Fed's purchase of $6.58 billion of Treasuries as part of its asset-purchase program.

                Bearish factors included (1) the larger-than-expected decline in weekly initial unemployment claims (-10,000 to 382,000 versus expectations of -3,000 to 385,000), and (2) an early slump in prices on carry-over weakness from an increase in the 10-year bund yield to a 1-1/2 year high after the ECB raised interest rates by 25 bp.



•   The dollar index this morning is weaker and slumped to a 16-month low with the dollar/yen +0.39 yen and the euro/dollar +1.06 cents t a 14-3/4 month high. The dollar index yesterday moved higher on comments from ECB President Trichet along with a larger-than-expected drop in weekly initial unemployment claims: Dollar Index +0.011, USDJPY -0.578, EURUSD -0.00237.

                Bullish factors included (1) comments from ECB President Trichet who said after raising interest rates Thursday by 25 bp that the increase wasn't the "first of a series" of rate hikes, which dampened speculation that the ECB will be overly aggressive in tightening monetary policy, (2) the larger-than-expected decline in weekly jobless claims, which signals economic strength and is dollar supportive, and (3) the ongoing European sovereign-debt crisis after Portugal became the third Euro-Zone country to ask for a bailout.

                Bearish factors included (1) improved interest rate differentials for the euro af ter the ECB hiked interest rates 25 bp, and (2) the stronger-than-expected Feb German industrial production which is euro supportive.



•   May crude oil prices this morning are trading +$1.54 a barrel and May gasoline is +3.90 cents per gallon, both at fresh 2-1/2 year highs. Crude oil and gasoline prices yesterday settled mixed as a strong dollar and an ECB rate hike undercut gasoline but strong economic data along with an oil field fire in Libya lifted crude: CLK11 +$1.47, RBK11 -0.64. May crude posted a 2-1/2 year high.

                Bullish factors included (1) a fire at the al-Sarir oil field in Libya caused by Qadaffi's forces, and (2) stronger than expected economic data on weekly US jobless claims and Feb German industrial production, which signals economic strength that may boost energy demand.

                Bearish factors include (1) the stronger dollar, which reduces investment demand in commodities, and (2) the action by the ECB to raise interest rates, which bolsters concern that economic growth and energy demand will slow.

Monday, April 11, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -4.5 ticks. T-note prices last Friday tumbled to a 2-month low on mounting inflation concerns and hawkish Fed speak: TYM11 -3, FVM11 -3, EDU11 +1.0. The 10-year T-note yield rose to a 1-3/4 month high of 3.614%.

                Bearish factors included (1) increased inflation concerns after the difference in yields between 10-year T-notes and TIPS widened to a 3-year high of 2.64 percentage points, (2) comments from Dallas Fed President Fisher who said the Fed is "near a tipping point" and risks over-stimulating the economy and generating inflation, and (3) carry-over weakness from the plunge in bund prices as the 10-year German bund yield rose to a 1-1/2 year high of 3.496%.

               A supportive factor for Treasuries was comments from Atlanta Fed President Lockhart who said the Fed should be "patient" in withdrawing stimulus due to the fragile quality to the economy.



•   The dollar index this morning is higher with the dollar/yen -0.07 yen and the euro/dollar -0.27 cents. The dollar index last Friday plunged to a 16-month low on the dollar's negative interest rate differentials along with strong exports from Germany: Dollar Index -0.513, USDJPY -0.167, EURUSD -0.01759.

                Bullish factors included (1) strength in the euro which rallied to a 14-3/4 month high against the dollar after Feb German exports rose more than expected to their best level in 5 months, (2) supportive interest rate differentials for the euro with the 3-month Euribor rate rising to a 1-3/4 year high of 1.294%, (3) strength in the British pound which rallied to a 14-1/2 month high against the dollar after Mar UK PPI output prices rose +5.4% y/y, their fastest pace of increase in 29 months, and (4) dollar negative comments from Atlanta Fed President Lockhart who said the Fed should be "patient" in withdrawing stimulus due to the fragile quality to the economy.

                A bearish factor were comments from ECB President Trichet who attempted to jawbone the dollar higher when he said that it's important that the US dollar is a "strong currency.



•   May crude oil prices this morning are trading down -97 cents a barrel and May gasoline is -3.30 cents per gallon. Crude oil and gasoline prices last Friday rallied sharply as the dollar plunged and fighting intensified in Libya: CLK11 +$2.49, RBK11 +7.42. May crude posted a 2-1/2 year high and May gasoline soared to a 2-3/4 year high.

                Bullish factors included (1) the plunge in the dollar index to a 16-month low, which bolsters investment demand for commodities, (2) the ongoing strife in Libya with the prediction from Barclays Capital that damage to oilfields in Libya by forces loyal to Mummar Qaddafi are the "ultimate blow" to hopes for a prompt resumption of exports, and will help send oil prices towards $130 a barrel, and (3) the larger-than-expected increase in Feb German exports which boosts confidence in the global economic outlook and energy demand.

                A bearish factor was the report from JBC Energy GmbH that a jump in oil prices to an average of $125 a barrel this year may erode the economic recovery and reduce crude demand by 700,000 barrels a day.

Tuesday, April 12, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading up +6 ticks as equity markets decline. T-note prices yesterday traded mixed into early afternoon when they moved higher into the close on dovish comments from Fed Vice Chairman Yellen: TYM11 +2.5, FVM11 +1.0, EDU11 -0.5.

                Bullish factors included (1) comments from New York Fed President Dudley who said "We're probably going to have excess slack in the US labor market at least through the end of 2012, and that's one reason that colored my view that we shouldn't be overly enthusiastic about tightening monetary policy too early," and (2) comments from Fed Vice Chairman Yellen who said the increase in food and fuel costs will only have a temporary impact on inflation and consumer spending and warrants no reversal of record monetary stimulus.

                Bearish factors included (1) increased inflation concerns after the difference in yield between 10-year T-notes and 10-year TIPS widened to 2.67 percentage points, the highest in 3 years, and (2) supply pressures ahead of Tuesday's $32 billion auction of 3-year T-notes.



•   The dollar index this morning is lower with the dollar/yen -0.35 yen and the euro/dollar +0.16 cents. The dollar index yesterday strengthened on renewed European sovereign-debt risks and after US lawmakers averted a government shutdown: Dollar Index +0.201, USDJPY -0.149, EURUSD -0.00479.

                Bullish factors included (1) the action by US lawmakers to avert a government shutdown by agreeing to budget cuts, and (2) euro weakness on renewed European sovereign-debt concerns after German Finance Minister Schaeuble said it is "unclear" whether Greece will need another cut in its bailout rate or a further extension of repayment terms to return to fiscal health.

                Bearish factors included (1) dovish comments from New York Fed President Dudley who said the Fed shouldn't rush to tighten monetary policy "too early," which suggests he favors keeping the Fed's overly easy monetary policy in place, and (2) the action by the IMF to cut its GDP estimate for the US this year to 2.8% from a Jan estimate of 3.0%, which is dollar negative.



•   May crude oil prices this morning are trading down -24 cents a barrel and May gasoline is +2.45 cents per gallon. Crude oil and gasoline prices yesterday pulled back after the IMF cut its GDP growth estimates for the US and after Libyan leader Qaddafi agreed to a cease fire: CLK11 -$2.87, RBK11 -6.02. May crude posted a 2-1/2 year high but erased its gains and closed lower.

                Bearish factors included (1) a stronger dollar, which discourages investment demand in commodities, (2) the action by the IMF to cut its GDP estimate for the US this year to 2.8% from a Jan estimate of 3.0% and to cut its GDP forecast for Japan this year to 1.4% from 1.6%, which signals reduced fuel consumption, and (3) the report from the African Union that said Libyan leader Qaddafi agreed to a cease-fire plan, which bolstered speculation that Libyan oil exports may recover.

                Bullish factors included (1) the statement from Libyan rebels that they will not agree to a cease-fire deal if Libyan lead er Qaddafi or his sons are allowed to stay in power, and (2) the larger-than-expected increase in Mar China exports, which indicates economic strength that may lead to increased energy demand.

Wednesday, April 13, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -6 ticks. T-note prices yesterday moved higher on increased safe-haven demand after the severity of Japan's nuclear crisis was raised along with dovish Fed comments: TYM11 +20.5, FVM11 +15, EDU11 +2.0.

                Bullish factors included (1) increased safe-haven demand for Treasuries after the action from Japan's Nuclear and Industrial Safety Agency to raise the level of the Fukushima crisis to 7, the highest in the standard global scale, which fuels concern that Japan's nuclear crisis may linger and slow Japanese and global economic growth, (2) comments from New York Fed President Dudley who said the US economy is "far away" for what the Fed aims for on employment and job creation to allow for an exit from crisis-imposed policy measures, and (3) strong demand for the Treasury's $32 billion auction of 3-year T-notes that had a bid-to-cover ratio of 3.25, higher than the 12-auction average of 3.14.

                Bearish factors i ncluded (1) inflation concerns after Mar import prices rose more than expected and at their fastest pace since Jun 2009 (+2.7% m/m and +9.7% y/y versus expectations of +2.0% and +8.6% y/y), and (2) supply pressures ahead of Wednesday's $21 billion auction of 10-year T-notes.



•   The dollar index this morning is weaker with the dollar/yen +0.50 yen and the euro/dollar +0.31 cents. The dollar index yesterday slumped to a 16-1/4 month low and closed lower after the Feb US trade deficit widened more than forecast along with hawkish comments from ECB Council member Stark which lifted the euro: Dollar Index -0.203, USDJPY -1.016, EURUSD +0.00415.

                Bearish factors included (1) strength in the euro which rallied to a 14-3/4 month high against the dollar after comments from ECB Council member Stark who said the ECB will adjust interest rates at an "appropriate" pace, which indicates the ECB has embarked on a gradual tightening cycle, despite last week's comments from ECB President Trichet that last week's rate hike wasn't necessarily the start of a series of rate hikes, (2) the larger-than-expected US trade deficit for Apr (-$45.8 billion versus expectations of -$44.0 billion), and (3) strong safe-haven demand for the yen which rallied to a 1- week high against the dollar after Japan's Nuclear and Industrial Safety Agency raised the level of the Fukushima crisis to 7, the highest in the standard global scale.

                Bullish factors included (1) the weaker than expected Apr German ZEW economic sentiment which fell to a 4-month low and is euro negative, and (2) weakness in the British pound which slid to a 1-week low against the dollar after Mar UK core CPI rose less than expected, which undercut expectations for a BOE interest rate hike.



•   May crude oil prices this morning are trading up +18 cents a barrel and May gasoline is +2.07 cents per gallon. Crude oil and gasoline prices yesterday sold-off for a second day after the IEA said that prices above $100 a barrel are starting to hurt the global economy: CLK11 -$3.67, RBK11 -3.64. May crude posted a 1-1/2 week low and May gasoline slid to a 1-week low.

                Bearish factors included (1) the monthly report from the IEA that stated there are signs of an oil-demand "slowdown" due to current oil prices above $100 a barrel, (2) the statement from investment bank Rajhi Capital that Saudi Arabia plans to expand its oil rig count by about 28% in order to ensure adequate spare production capacity, and (3) expectations for weekly crude supplies to increase for the sixth straight week when the DOE releases its weekly inventory figures on Wed.

                Bullish factors included (1) the slump in the dollar index to a 16-1/4 month low, which encourages investment demand i n commodities, (2) the action by the US Energy Department to raise its crude oil price forecast for 2011 to $106.38 a barrel from an earlier forecast of $101.77 a barrel, and (3) the outlook for US gasoline supplies to fall for the eighth consecutive week when the DOE releases its weekly inventory figures on Wed. Expectations for Wednesday's weekly DOE inventories are for crude oil to climb +1.0 million bbl, gasoline stockpiles to fall -850,000 bbl, distillate supplies to climb +500,000 bbl and the refinery utilization rate to rise +0.5 to 84.9%.

Thursday, April 14, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +8 ticks at a 2-week high. T-note prices yesterday recovered from early weakness and closed higher after President Obama said he's seeking $4 trillion in deficit reduction in 12 years or less: TYM11 +9.5, FVM11 +5.7, EDU11 +1.0.

                Bullish factors included (1) President Obama's plan to cut $4 trillion in cumulative deficits within 12 years with $3 in spending cuts and interest savings for every $1 in tax increases, (2) the Fed's action to purchase $5.01 billion of Treasuries as part of its QE2 asset-purchase program, and (3) strong demand for the Treasury's $32 billion auction of 3-year T-notes that had a bid-to-cover ratio of 3.25, higher than the 12-auction average of 3.14.

                Bearish factors included (1) relatively strong Mar US retail sales which increased for the 9th consecutive month and signals economic strength (+0.4% and +0.8% less autos versus expectations of +0.5% and +0.7% less autos), (2) comments from Dallas Fed Pre sident Fisher who was quoted in the German newspaper Handelsblatt saying "I see the risk that we won't be able to keep inflation under control," (3) slack demand for the Treasury's $21 billion auction of 10-year T-notes that had a bid-to-cover ratio of 3.13, weaker than the 12-auction average of 3.16, and (4) supply pressures ahead of Thursday's $13 billion auction of 30-year T-bonds.



•   The dollar index this morning is higher with the dollar/yen -0.72 yen and the euro/dollar -0.68 cents. The dollar index yesterday rebounded from early losses and finished higher on President Obama's plan to cut the US budget deficit by nearly $4 trillion in 12 years: Dollar Index +0.127, USDJPY -0.255, EURUSD -0.00341.

                Bullish factors included (1) President Obama's plan to cut the US deficit by $4 trillion in cumulative deficits within 12 years, which is dollar bullish, (2) the increase in Mar US retail sales for the 9th consecutive month, which signals economic strength and is dollar supportive, and (3) increased safe-haven demand for the dollar after the warning from the IMF that Euro-Zone nations face bank and sovereign funding "challenges" and that European banks will probably need government help to increase the quality and quantity of their capital to regain access to funding markets.

                Bearish factors included (1) strength in the euro after Mar German w holesale prices rose at their fastest pace in 29 years while Mar French CPI increased at its strongest pace in 29 months, which stokes speculation the ECB will continue to tighten monetary policy and is euro supportive, and (2) hawkish comments from ECB Council member Coene who said the ECB gave a clear signal that last week's rate increase wasn't a one-off by saying monetary policy remains supportive for economic growth and employment.



•   May crude oil prices this morning are trading down -99 cents a barrel and May gasoline is -3.09 cents per gallon. Crude oil and gasoline prices yesterday moved higher on a weak dollar and a plunge in US gasoline inventories to a 5-month low: CLK11 +$0.86, RBK11 +7.83. May crude posted a 1-1/2 week low but recovered its losses and finished higher.

                Bullish factors included (1) the weaker dollar, which encourages investment demand in commodities, (2) the larger-than-expected drop in weekly gasoline inventories which fell to a 5-month low (-7.0 million bbl to 209.7 million bbl versus expectations of -850,000 bbl), (3) increased demand after US gasoline demand rose +3.7% w/w in the week ended Apr 8 to 9.18 million barrels a day, and (4) the unexpected plunge in the refinery utilization rate to a 2-month low, which indicates reduced output of gasoline and distillate products in the weeks ahead (-3.0 to 81.4% versus an expected increase of +0.5 to 84.9%).

                Bearish factors in cluded (1) the larger-than-expected increase in weekly crude oil inventories which rose for the sixth consecutive week to a 3-1/2 month high of 359.3 million bbl (+1.63 million bbl versus expectations of +1.0 million bbl), and (2) the +26,000 bbl increase in weekly crude inventories in Cushing, OK, delivery point for WTI crude, to 41.9 million bbl, the highest since the DOE began tracking stockpiles at the hub in 2004.

Friday, April 15, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +6.5 ticks. T-note prices yesterday rose to a 3-week high after weekly jobless claims unexpectedly rose and Germany's Finance Minister said Greece may need to restructure its debt but then they gave up all of their gains and closed lower after the stock market rebounded from sharp losses: TYM11 -6, FVM11 -6.5, EDU11 -2.0.

                Bullish factors included (1) increased safe-haven demand for Treasuries after yields on Greek and Portuguese government debt rose to records when German Finance Minister Schaeuble told Germany's Die Welt newspaper Greece may need to restructure its debt, (2) the unexpected jump in weekly initial unemployment claims (+27,000 to 412,000 versus expectations of -2,000 to 380,000), (3) the smaller-than-expected increase in Mar PPI (+0.7% m/m and +5.8% y/y versus expectations of +1.0% m/m and +6.1% y/y), (4) comments from Minneapolis Fed President Kocherlakota who said core inflation "is very low right now&q uot; and he doesn't see "much signs" of price pressures, and (5) strong demand for the Treasury's $13 billion auction of 30-year T-bonds that had a bid-to-cover ratio of 2.83, higher than the 12-auction average of 2.69.

                Bearish factors included (1) the larger-than-expected increase in Mar core PPI (+0.3% m/m versus expectations of +0.2% m/m), and (2) reduced safe-haven demand for Treasuries after equity markets rebounded from 2-week lows.



•   The dollar index this morning is higher with the dollar/yen -0.27 yen and the euro/dollar -0.34 cents. The dollar index yesterday fluctuated on either side of unchanged and finished lower as US jobless claims rose and producer prices advanced at a slower pace, which may encourage the Fed to keep interest rates at record lows: Dollar Index -0.267, USDJPY -0.337, EURUSD +0.00447. The dollar index dropped to a 1-1/3 year low and the Japanese yen climbed to a 2-week high against the dollar.

                Bearish factors included (1) the unexpected increase in weekly US jobless claims along with a smaller-than-expected increase in Mar PPI, which may prompt the Fed to keeping interest rates at record lows, and (2) comments from ECB Council member Kranjec who said the ECB's policy stance is still "very accommodative," even after last week's interest rate increase, which is euro supportive as it bolsters the outlook for additional ECB rate hikes.

                Bullish factors included (1) ear ly weakness in the euro on concern Europe's debt crisis may worsen after yields on Greek and Portuguese government debt rose to records when German Finance Minister Schaeuble told Germany's Die Welt newspaper Greece may need to restructure its debt, and (2) short-covering in the dollar ahead of Friday's G-20 meeting in Washington.



•   May crude oil prices this morning are trading down -2 cents a barrel and May gasoline is +1.20 cents per gallon. Crude oil and gasoline prices yesterday settled mixed as a report that Saudi Arabia cut crude production boosted crude while an unexpected increase in jobless claims undercut gasoline: CLK11 +$1.00, RBK11 -0.77.

                Bullish factors included (1) the report from Banque Saudi Fransi that said Saudi Arabia cut its crude output by 300,000 barrels a day because it couldn't find buyers for the lighter blend of crude it was producing after Libya's crude output was halted, (2) the fall in the dollar index to a 1-1/3 year low, which boots investment demand in commodities, and (3) early strength in gasoline after Sunoco FCC was forced to close a processing unit at its Philadelphia refinery, which may tighten gasoline supplies on the east coast.

                Bearish factors included (1) the unexpected jump in weekly US initial unemployment claims, which signals labor market weakness th at may reduce fuel demand, and (2) the report from the China Securities Journal that said China is likely to raise the reserve requirements for banks in the "near future," which may slow its economy and demand for fuel.

Monday, April 18, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +10 ticks as equity prices slide. T-note prices last Friday climbed to a 3-week high and finished with moderate gains on increased safe-haven demand from the European debt crisis along with a smaller-than-expected increase in Mar core CPI: TYM11 +19.5, FVM11 +15, EDU11 +2.0.

                Bullish factors included (1) increased safe-haven demand for Treasuries on heightened European sovereign-debt concerns after Moody's Investors Service cut Ireland's credit rating two levels to Baa3 with a negative outlook and after credit-default swaps to insure Greece's government debt climbed to a record 1,147 bp, (2) the smaller-than-expected increase in Mar CPI ex food & energy (+0.1% m/m versus expectations of +0.2% m/m), and (3) comments from Chicago Fed President Evans who said low inflation and high unemployment both call for continued easy US monetary policy.

                Bearish factors included (1) the unexpected increase in the Apr Empire manufacturi ng index which expanded at its fastest pace in a year (+4.2 to 21.7 versus expectations of -0.5 to 17.0), (2) the larger-than-expected increase in Mar industrial production (+0.8% m/m versus expectations of +0.6% m/m), and (3) the larger-than-expected increase in Apr US University of Michigan consumer confidence (+2.1 to 69.6 versus expectations of +1.2 to 68.8).



•   The dollar index this morning is stronger and at a 1-week high with the dollar/yen -0.31 yen and the euro/dollar -1.23 cents. The dollar index last Friday strengthened and finished higher after Moody's downgraded Ireland's credit rating and as US consumer confidence and industrial production increased: Dollar Index +0.119, USDJPY -0.379, EURUSD -0.00592.

                Bullish factors included (1) weakness in the euro after Moody's Investors Service cut Ireland's credit rating two levels to Baa3, the lowest investment grade, from Baa1 with a negative outlook, and after credit-default swaps to insure Greece's government debt climbed to a record 1,147 bp, and (2) the stronger-than-expected Apr US University of Michigan consumer confidence and Mar industrial production, which signals economic strength and is dollar supportive.

                Bearish factors included (1) the weaker than expected Feb net long-term TIC flows, which indicates weakened foreign demand for US dollar assets, and (2) the lar ger-than-expected increases in Mar Euro-Zone and Mar China consumer prices, which may lead to additional interest rate hikes from the ECB and PBOC that will further weaken the dollar's interest rate differentials.



•   May crude oil prices this morning are trading down -$1.30 a barrel and May gasoline is -2.07 cents per gallon. Crude oil and gasoline prices last Friday moved higher after US consumer sentiment and industrial output increased more than expected: CLK11 +$1.55, RBK11 +5.45. May gasoline rose to a 2-3/4 year high.

                Bullish factors included (1) the stronger-than-expected Apr US University of Michigan consumer confidence and Mar industrial production, which signals increased energy consumption, and (2) stronger-than-expected Q1 China GDP, which signals higher fuel demand.

                Bearish factors included (1) the stronger dollar, and (2) the larger-than-expected increases in Mar Euro-Zone and Mar China consumer prices, which may lead to additional interest rate hikes from the ECB and PBOC that may slow global economic growth and energy demand.

Tuesday, April 19, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -4.5 ticks. T-note prices yesterday whipsawed higher and lower and finished higher as increased safe-haven demand for Treasuries offset the action by S&P to cut its outlook on the US credit rating: TYM11 +12, FVM11 +11.2, EDU11 -0.5. The 10-year T-note yield fell to a 3-1/2 week low of 3.358%.

                Bullish factors included (1) increased safe-haven demand for Treasuries on heightened European sovereign-debt concerns after credit-default swaps to insure Greek and Portuguese government bonds rose to records on speculation both countries may have to restructure their debts, (2) the unexpected decline in the Apr HAHB housing market index (-1 to 16 versus expectations of unchanged at 17), and (3) comments from Atlanta Fed President Lockhart who said he expects a "soft" Q1 in the US due to rising fuel costs.

                Bearish factors included (1) the action by Standard & Poor's to cut its outlook on the AAA credit rating of the US to negative from stable, citing a "material risk" that government leaders will fail to deal with rising budget deficits and debt, and (2) comments from St. Louis Fed President Bullard who said the economic outlook in 2011 is "reasonably strong" and that the pace of US job creation will accelerate.



•   The dollar index this morning is lower with the dollar/yen -0.20 yen and the euro/dollar +0.39 cents. The dollar index yesterday rallied to a 1-week high and closed higher after St. Louis Fed President Bullard said the economic outlook for 2011 remains positive and as the euro tumbled on European debt concerns: Dollar Index +0.672, USDJPY -0.461, EURUSD -0.01950.

                Bullish factors included (1) the slide in the euro to a 1-1/2 week low against the dollar after credit-default swaps to insure Greek bonds jumped 56 bp to a record 1,211 bp and swaps to insure Portuguese government debt climbed 16 bp to a record 614 bp, (2) dollar supportive comments from St. Louis Fed President Bullard who said "the outlook for the remainder of 2011 remains reasonably strong, and (3) euro negative comments from ECB Council member Bonello who said the ECB mustn't raise interest rates at the expense of growth in debt-strapped Euro-Zone nations because the sovereign debt crisis is not yet b ehind us.

                Bearish factors included (1) strength in the yen which rallied to a 2-week high against the dollar after Standard & Poor's put a negative outlook on the AAA credit rating of the US, and (2) euro supportive comments from ECB Council member Nowotny who said that expectations the ECB's 2-week refinancing rate will be increased by another 50 bp in 2011 are "well-founded" and from fellow ECB Council member Coene who said that monetary "conditions are too accommodative."



•   May crude oil prices this morning are trading dowm -87 cents a barrel and May gasoline is -3.35 cents per gallon. Crude oil and gasoline prices yesterday weakened and finished sharply lower after Saudi Arabia said the global oil market has enough crude and after China raised banks' reserve requirements: CLK11 -$2.54, RBK11 -3.64.

                Bearish factors included (1) the rally in the dollar index to a 1-week high, which undercuts investment demand for commodities, (2) comment from Saudi Arabian Oil Minister Ali al-Naimi who said the global "market is oversupplied" with crude, and (3) the action by China to raise banks' reserve requirements for the fourth time this year, which may slow economic growth and energy demand.

                Bullish factors included (1) ongoing fighting in Libya between rebel forces and troops loyal to Mummar Qadaffi, which may prolong the lack of Libyan crude exports, and (2) the prediction from JPMorgan Chase that oil prices may surge past $130 a barrel if OPEC doesn't increase its crude output by Q3.

Wednesday, April 20, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -13 ticks. T-note prices yesterday rallied as comments from Japan's Finance Minister offset the stronger-than-expected US housing starts and building permits: TYM11 +2, FVM11 unchanged, EDU11 unchanged. The 10-year T-note yield fell to a 3-1/2 week low of 3.344%.

                Bullish factors included (1) comments from Japanese Finance Minister Noda who said that US government debt remains "attractive" even after S&P on Monday lowered its US rating outlook, (2) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis will worsen after the yield on Greece's 2-year government note reached an all-time high of 20.64%, and (3) the action by the Fed to buy $6.678 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) the larger-than-expected increase in Mar US housing starts (+7.2% to 549,000 versus expectations of +8.6% to 520,000), (2) the larger-than-exp ected increase in Mar US building permits (+11.2% to 594,000 versus expectations of +1.1% to 540,000), and (3) rising inflation concerns after the price of gold rallied to record high of $1,500 an ounce.



•   The dollar index this morning is weaker and at a 16-1/2 month low with the dollar/yen +0.18 yen and the euro/dollar +1.95 cents. The dollar index yesterday closed lower as the euro strengthened on an unexpected increase in Apr European manufacturing along with strength in the Canadian dollar after Canadian consumer prices accelerated to a 2-1/2 year high: Dollar Index -0.475, USDJPY -0.071, EURUSD +0.01005.

                Bearish factors included (1) strength in the euro after the unexpected increase in the Apr Euro-Zone PMI composite index, and (2) the rally in the Canadian dollar to a 1-week high against the US dollar after Mar Canada CPI rose more than expected to a 2-1/2 year high of +3.3% y/y, which may prompt the BOC into additional rate hikes.

                Bullish factors included (1) the larger-than-expected increases in May US housing starts and building permits, which signals economic strength and is supportive for the dollar, and (2) the prediction from Mizuho Corporate Bank that the Japanese yen may slide to 90 per dollar over the next year as Japan struggles to revive its earthquake-hit economy and restrain a widening budget deficit.



•   June crude oil prices this morning are trading up +$1.34 a barrel and June gasoline is +3.19 cents per gallon. Crude oil and gasoline prices yesterday settled mixed as crude oil gained on comments from OPEC's Secretary General while gasoline fell on concern high prices will slow the economy and fuel demand: CLM11 +$0.59, RBM11 -1.91.

                Bullish factors included (1) the weak dollar, which encourages investment demand in commodities, (2) comments from OPEC Secretary General El-Badri who said he expects crude prices to stay above $100 a barrel until at least next year, and (3) the outlook for weekly US gasoline inventories to decline for the ninth consecutive week when the DOE releases its weekly inventory numbers on Wed.

                Bearish factors included (1) heightened concern that fuel prices at 2-3/4 year highs will slow the US economic recovery and fuel demand, and (2) the outlook for US crude inventories to increase for the seventh straight week when the DOE releases its weekly inventory figures on Wed. Expectations for Wednesday's DOE inventories are for crude oil supplies to rise +1.35 million bbl, gasoline stockpiles to fall -1.75 million bbl, distillate inventories to increase +400,000 bbl and the refinery utilization rate to rise +0.9 to 82.3%.

Thursday, April 21, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -3 ticks. T-note prices yesterday closed lower as the stock market rallied and after US exiting home sales rose more than expected: TYM11 -11, FVM11 -8.2, EDU11 unchanged.

                Bearish factors included (1) the larger-than-expected increase in Mar US existing home sales (+3.7% to 5.10 million versus expectations of +2.5% to 5.00 million), (2) reduced safe-haven demand for Treasuries after the stock market rallied sharply, and (3) inflation concerns after gold prices surged to an all-time high.

                Bullish factors included (1) a possible increase in the safe-haven demand for Treasuries on concern the European sovereign-debt crisis may worsen after credit-default swaps to insure Greek and Portuguese government debt climbed to all-time highs, and (2) the action by the Fed to buy $1.5 billion of TIPS as part of its QE2 asset-purchase program.



•   The dollar index this morning is weaker and at a 2-2/3 year low with the dollar/yen -0.53 yen and the euro/dollar +0.82 cents. The dollar index yesterday plummeted to a 16-1/2 month low as commodity currencies rallied and as surging equity markets reduced the dollar's safe-haven demand: Dollar Index -0.661, USDJPY -0.030, EURUSD +0.01886.

                Bearish factors included (1) a rally in commodity currencies as the Australian dollar rose to a record $1.0599 against the US dollar, the strongest since it was freely floated in 1983, and the Canadian dollar climbed to a 3-1/4 year high against the dollar after commodities rallied on expectations for further global economic growth, (2) strength in the euro which climbed to a 15-month high against the dollar as European debt concerns eased when demand for a Spanish auction of government debt strengthened, and (3) reduced safe-haven demand for the dollar after the equity market rallied sharply.

                Bullish factors included (1) the larger- than-expected increase in Mar US existing home sales, which signals economic strength and is supportive for the dollar, and (2) a possible increase in the safe-haven demand for the dollar after ECB Council member Nowotny warned that a restructuring of Greek government debt could lead to a debt spiral as "the fear could spread on financial markets that this may become a precedent."



•   June crude oil prices this morning are trading up +78 cents a barrel and June gasoline is +2.02 cents per gallon. Crude oil and gasoline prices yesterday rallied sharply on a slump in the dollar and the unexpected decline in weekly crude inventories: CLM11 +$3.17, RBM11 +4.91. June crude posted a 1-week high.

                Bullish factors included (1) the slide in the dollar index to a 16-1/2 month low, which encourages investment demand in commodities, (2) the unexpected decline in weekly crude oil inventories (-2.32 million bbl versus expectations of +1.35 million bbl), (3) the -1.58 million bbl decline in weekly gasoline inventories which fell for the ninth consecutive week to a 5-month low of 308.1 million bbl, and (4) the rally in the S&P 500 to a 1-week high, which bolsters confidence in the economic outlook and energy demand.

                Bearish factors included (1) weakened demand for gasoline after US gasoline demand in the week ended Apr 15 fell -1.2% w/w to 9.06 million barrels a day, and (2) the larger-than expected increase in the weekly refinery utilization rate, which bodes well for increased output of gasoline and distillate products in the weeks ahead (+1.1 to 82.5% versus expectations of +0.9 to 82.3%).

Monday, April 25, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +2.5 ticks. T-note prices last Thursday finished higher as weaker-than-expected economic data offset the negative effects of a strong stock market: TYM11 +2.5, FVM11 +0.5, EDU11 +0.5.

                Bullish factors included (1) the smaller-than-expected decrease in weekly initial unemployment claims (-13,000 to 403,000 versus expectations of -22,000 to 390,000), (2) the larger-than-expected decline in the Apr Philadelphia Fed manufacturing index which fell to its lowest level in 5 months (-24.9 to 18.5 versus expectations of -7.0 to 36.4), and (3) the larger-than-expected decline in Feb FHFA home prices along with the downward revision to Jan (Feb -1.6% m/m versus expectations of -0.3% m/m and Jan revised down to -1.0% m/m from the originally reported -0.3% m/m).

                Bearish factors included (1) the larger-than-expected increase in Mar leading indicators which have risen for 9 straight months along with the upward revision to Feb (Mar +0.4% v ersus expectations of +0.3% and Feb revised up to +1.0% from the originally reported increase of +0.8%), and (2) reduced safe-haven demand for Treasuries after the stock market rallied.



•   The dollar index this morning is lower with the dollar/yen +0.06 yen and the euro/dollar +0.58 cents. The dollar index last Thursday dropped to a 2-2/3 year low as weaker-than-expected US economic data fueled speculation the Fed will keep its overly easy monetary policy intact and further weaken the dollar's interest rate differentials: Dollar Index -0.373, USDJPY -0.708, EURUSD +0.00291. The yen climbed to a 3-week high against the dollar and the euro soared to a 16-month high.

                Bearish factors included (1) the smaller-than-expected decline in weekly US jobless claims along with the larger-than-expected decline in the Apr Philadelphia Fed manufacturing index to a 5-month low, which hints at economic weakness and is dollar negative, (2) the rally in the British pound to a 16-month high against the dollar after Mar UK retail sales unexpectedly rose, and (3) supportive interest rate differentials for the euro after the 3-month Euribor rate rose to a 1-3/4 year high of 1. 356%.

                Bullish factors included (1) the surge in yields on Greek, Portuguese and Irish government debt to euro-era records, which may boost the safe-haven demand for the dollar as it suggests a worsening of the European sovereign-debt crisis, and (2) the larger-than-expected decline in the Apr German IFO business climate, which is euro negative.



•   June crude oil prices this morning are trading up +45 cents a barrel and June gasoline is +1.53 cents per gallon. Crude oil and gasoline prices last Thursday fluctuated on either side of unchanged and finished higher as the weak dollar offset the larger-than-expected decline in the Apr Philadelphia Fed manufacturing index: CLM11 +$0.84, RBM11 +2.39. June crude rallied to a 1-1/2 week high and Jun gasoline posted a contract high and nearest-futures May gasoline climbed to a 2-3/4 year high.

                Bullish factors included (1) the plunge in the dollar index to a 2-2/3 year low, which encourages investment demand in commodities, and (2) the rally in the S&P 500 to a 1-1/2 week high, which bolsters confidence in the economic outlook and energy demand.

                Bearish factors included (1) the larger-than-expected decline in the Apr Philadelphia Fed manufacturing index which fell to a 5-month low and suggests weakened energy demand, and (2) the smaller-than-expected drop in weekly US jobless claims, which indicates labor market weakness that may limit fuel demand.

Tuesday, April 26, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +1 tick. T-note prices yesterday finished higher after the stock market erased an early rally and as the Fed bought Treasuries as part of its QE2 asset-purchase program: TYM11 +11, FVM11 +8.2, EDU11 -0.5.

                Bullish factors included (1) increased safe-haven demand for Treasuries after the stock market declined, and (2) the Fed's action to purchase $7.24 billion of Treasuries as part of its QE 2 asset-purchase program.

                Bearish factors included (1) the stronger than expected Mar US new home sales along with the upward revision to Feb (Mar +11.1% to 300,000 versus expectations of +12.0% to 280,000 and Feb revised up to a -13.5% drop to 270,000 from the originally reported -16.9% decline to 250,000), and (2) supply pressures ahead of the Treasury's $35 billion 2-year T-note auction on Tuesday.



•   The dollar index this morning is weaker with the dollar/yen -0.17 yen and the euro/dollar +0.25 cents. The dollar index yesterday weakened on speculation that the FOMC this week will keep interest rates at a record low, which will keep the dollar's interest rate differentials weak: Dollar Index -0.122, USDJPY -0.017, EURUSD +0.00288.

                Bearish factors included (1) an early rally in commodity currencies against the dollar after crude oil rose to a 2-1/2 year high, and (2) speculation that the FOMC this week will keep interest rates at a record low, which may prompt inventors to shy away from dollar assets in favor of higher yielding ones.

                Bullish factors included (1) increased safe-haven demand for the dollar as the stock market declined, and (2) weakness in the yen against the dollar on speculation the BOJ this week will signal an increase in stimulus to help Japan's economy recover from its earthquake crisis.



•   June crude oil prices this morning are trading down -41 cents a barrel and June gasoline is +0.28 of a cent per gallon. Crude oil and gasoline prices yesterday retreated after an early rally faded and prices finished mixed on profit taking: CLM11 -$0.01, RBM11 +0.62. June crude rallied to a 2-1/2 year high but closed lower and Jun gasoline posted a contract high and nearest-futures May gasoline climbed to a 2-3/4 year high.

                Bearish factors included (1) the decline in the equity market which erodes optimism in the economic outlook and energy demand, and (2) technical selling after the energy markets failed to hold its gains to 2+ year highs.

                Bullish factors included (1) the weak dollar which encourages investment demand in commodities, and (2) comments from a Saudi Arabian oil official who said his country's oil output will stay at 12.5 million barrels a day, squashing rumors that the country was considering hiking output to 15 million barrels a day.

Wednesday, April 27, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -6 ticks ahead of the conclusion of the FOMC meeting later today. T-note prices yesterday rallied to a 1-month high and settled higher on speculation the Fed on Wed will announce steps to keep Treasury yields from rising as the June end of the QE2 asset-purchase program approaches: TYM11 +11, FVM11 +7.2, EDU11 +0.5. The 10-year T-note yield slipped to a 1-month low of 3.306%.

                Bullish factors included (1) the as-expected -3.3% y/y decline in the Feb S&P/CaseShiller composite-20 home price index, the biggest y/y decline in 15 months and a sign that the US housing market remains depressed, (2) increased safe-haven demand for Treasuries on concern the European debt crisis may worsen after credit-default swaps to insure Greek and Portuguese government debt jumped to records, (3) the unexpected decline in the Apr Richmond Fed manufacturing index which fell to its lowest level in 5 months (-10 to 10 versus expectations of un changed at 20), (4) strong foreign demand for the Treasuries $35 billion 2-year T-note auction in which indirect bidders bought 37.9% of the notes, stronger than the 33.5% average of the past 10 auctions, and (5) the Fed's action to purchase $1.99 billion of Treasuries as part of its QE 2 asset-purchase program.

                Bearish factors included (1) the stronger-than-expected Apr US consumer confidence (+1.6 to 65.4 versus expectations of +1.4 to 64.8), and (2) supply pressures ahead of the Treasury's $35 billion 5-year T-note auction on Wednesday.



•   The dollar index this morning is weaker and posted a fresh 2-1/2 year low in overnight trade with the dollar/yen +0.69 yen and the euro/dollar +0.29 cents. The dollar index yesterday closed lower on speculation that the FOMC on Wednesday will keep interest rates at a record low along with strength in the euro which rallied to a 16-1/4 month high against the dollar on hawkish comments from ECB President Trichet: Dollar Index -0.149, USDJPY -0.277, EURUSD +0.0630.

                Bearish factors included (1) speculation that the FOMC on Wednesday will keep interest rates at a record low, which may prompt inventors to shy away from the dollar in favor of higher yielding assets, (2) comments from ECB President Trichet who said the ECB must continue "solidly anchoring" inflation expectations, which bolstered speculation for further ECB rate hikes, and (3) reduced safe-haven demand for the dollar after stock prices rallied to 2-3/4 year highs.

                Bullish factors included (1) a possi ble increase in the safe-haven demand for the dollar after credit-default swaps to insure Greek and Portuguese government debt jumped to records, which raises concern the European sovereign-debt crisis will worsen, (2) the stronger-than-expected Apr US consumer confidence, which is dollar supportive, and (3) comments from Treasury Secretary Geithner who reaffirmed the US commitment to a "strong dollar".



•   June crude oil prices this morning are trading up +39 cents a barrel and June gasoline is +1.28 cents per gallon at a contract high. Crude oil and gasoline prices yesterday finished mixed as a weak dollar, strong equities and stronger-than-expected US consumer confidence lifted gasoline while comments from Saudi Arabia's national oil company undercut crude: CLM11 -$0.07, RBM11 +2.87. Jun gasoline posted a contract high and nearest-futures May gasoline climbed to a 2-3/4 year high.

                Bullish factors included (1) the weak dollar which encourages investment demand in commodities, (2) the stronger-than-expected US Apr consumer confidence, which may lead to increased consumer spending and fuel demand, (3) strength in gasoline prices on the outlook for weekly DOE gasoline supplies to fall for the tenth consecutive week when they are reported on Wed, and (4) the rally in the S&P 500 to a 2-3/4 year high, which bolsters confidence in the economic outlook and energy demand.

                Bearish factors included (1) comments from the CEO of Saudi Arabia's state oil company who said it is "not comfortable" with the current price of oil and is concerned about its effect of global economic growth, which fueled speculation of an increase in Saudi Arabian oil production, and (2) the outlook for weekly DOE crude oil stockpiles to increase for the seventh time in eight weeks when they are released on Wed. Expectations for the DOE's weekly inventory report are for crude supplies to gain 1.7 million bbl, gasoline stockpiles to fall -1.0 million bbl, distillate inventories to rise +500,000 bbl and the refinery utilization rate to increase +0.9 to 83.4%.

Thursday, April 28, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +8 ticks. T-note prices yesterday closed lower on supply pressures and after the Fed raised its inflation estimates for this year: TYM11 -8, FVM11 -1, EDU11 unchanged.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after the S&P 500 rose to a 2-3/4 year high, (2) the Fed's action to raise its core inflation estimate for this year to 1.3% to 1.6%, higher than a Jan estimate of 1.0% to 1.3%, and (3) supply pressures ahead of the Treasury's $29 billion 7-year T-note auction on Thursday.

                Bullish factors included (1) the action by the Fed to cut its growth forecast for the US economy this year to 3.1% to 3.3% from a Jan forecast of 3.4% to 3.9%, (2) increased safe-haven demand for Treasuries on concern the European debt crisis may worsen after credit-default swaps to insure the government debts of Greece, Portugal and Ireland all rose to records, and (3) the post-FOMC statement that said the economy is recovering at a "moderate pace" and a pickup in inflation is likely to be temporary.



•   The dollar index this morning is weaker and fell to a fresh 2-3/4 year low in overnight trade with the dollar/yen -0.41 yen and the euro/dollar +0.18 cents. The dollar index yesterday fell to a 2-2/3 year low and closed lower after the Fed lowered its growth forecast for this year and said it will finish its QE2 bond purchase program: Dollar Index -0.318, USDJPY +0.598, EURUSD +0.01437.

                Bearish factors included (1) the action by the Fed to cut its growth forecast for the economy this year to 3.1% to 3.3% from a Jan forecast of 3.4% to 3.9% and to raise its core inflation estimate for this year to 1.3% to 1.6%, higher than a Jan estimate of 1.0% to 1.3%, (2) the action by the Fed to maintain its QE2 asset-purchase program, which further weakens the dollar's interest rate differentials, and (3) reduced safe-haven demand for the dollar after the S&P 500 climbed to a 2-3/4 year high.

                Bullish factors included (1) a possible increase in the safe-haven demand for the dol lar after credit-default swaps to insure the government debts of Greece, Portugal and Ireland all rose to records, which raises concern the European sovereign-debt crisis will worsen, and (2) weakness in the yen after Standard & Poor's cut Japan's sovereign-rating outlook to "negative" from "stable," citing the costs for rebuilding after lest month's earthquake.



•   June crude oil prices this morning are trading down -16 cents a barrel and June gasoline is +0.35 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated after the release of the DOE weekly inventories but finished higher as gasoline supplies plunged to a 1-2/3 year low: CLM11 +$0.55, RBM11 +5.10. Jun gasoline posted a contract high and nearest-futures May gasoline climbed to a 2-3/4 year high.

                Bullish factors included (1) the fall in the dollar index to a 2-2/3 year low, which boosts investment demand in commodities, (2) strength in gasoline prices after weekly DOE gasoline supplies fell more than expected (-2.51 million bbl to a 1-2/3 year low of 205.6 million bbl versus expectations of a -1.0 million bbl decline), (3) the unexpected decline in weekly distillate inventories (-1.80 million bbl versus expectations of a +500,000 bbl increase), (4) the smaller-than-expected increase in the refinery utilization rate, which signals reduced output of gasol ine and distillate products in the weeks ahead (+0.2 to 82.7% versus expectations of +0.9 to 83.4%), and (5) the rally in the S&P 500 to a 2-3/4 year high, which bolsters confidence in the economic outlook and energy demand.

                Bearish factors included (1) the larger-than-expected increase in weekly crude oil supplies (+6.16 million bbl versus expectations of +1.7 million bbl), and (2) the action by the Fed to cut its growth forecast for the US economy this year, which signals reduced energy demand and consumption.

Friday, April 29, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -1 tick. T-note prices yesterday rose to a 1-1/4 month high on weaker than expected US economic data but pared some of their gains late in the session after the Treasury's 7-year T-note auction was met with weak demand: TYM11 +17, FVM11 +12.5, EDU11 +1.5. The 10-year T-note yield fell to a 1-month low of 3.295%.

                Bullish factors included (1) the weaker-than-expected Q1 US GDP (+1.8% annualized versus expectations of +2.0% annualized), (2) the unexpected jump in weekly initial US unemployment claims to a 3-month high (+25,000 to 429,000 versus expectations of -8,000 to 395,000), and (3) the action by the Fed to purchase $6.678 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) the larger-than-expected increase in the Q1 core PCE deflator which rose at the fastest pace in 15 months (+1.5% q/q annualized versus expectations of +1.4% q/q annualized), (2) the larger-than-expected incr ease in Mar US pending home sales (+5.1% m/m versus expectations of +1.5% m/m), (3) weak demand for the Treasury's $29 billion 7-year T-note auction that produced a bid-to-cover ratio of 2.63, weaker than the 12-auction average of 2.88 and the lowest in 5 months, and (4) reduced safe-haven demand for Treasuries after the S&P 500 rose to a 2-3/4 year high.



•   The dollar index this morning is lower with the dollar/yen -0.19 yen and the euro/dollar +0.39 cents. The dollar index yesterday fell to a 2-3/4 year low and closed lower after weak US economic data undercut the dollar while the fall in Apr German unemployment to a 19-year low boosted the euro: Dollar Index -0.398, USDJPY -0.619, EURUSD +0.00345.

                Bearish factors included (1) weaker-than-expected US economic data that included slower-than-expected growth in Q1 US GDP and weekly initial jobless claims that rose to a 3-month high, and (2) strength in the euro which climbed to a 16-1/2 month high against the dollar after Apr German unemployment fell -37,000 to 2.97 million, a 19-year low along with supportive interest rate differentials for the euro as the 3-month Euribor rate rose to a 2-year high of 1.375%.

                Bullish factors included (1) the action by the BOJ to cut its growth estimate for the year ending Mar 2012 to 0.6% from a Jan prediction of 1.6%, which is yen negati ve, and (2) the unexpected decline in Mar French consumer spending, which is euro bearish.



•   June crude oil prices this morning are trading down -23 cents a barrel and June gasoline is -1.21 cents per gallon. Crude oil and gasoline prices yesterday fluctuated between gains and losses and finished higher as the plunge in the dollar offset weaker-than-expected economic data: CLM11 +$0.10, RBM11 +1.14. Jun crude posted a 2-1/2 year high, while Jun gasoline posted a contract high and nearest-futures May gasoline climbed to a 2-3/4 year high.

                Bullish factors included (1) the slide in the dollar index to a 2-3/4 year low, which boosts investment demand in commodities, (2) the decline in Apr German unemployment to a 19-year low, which shows economic strength that my lead to increased fuel demand, and (3) the rally in the S&P 500 to a 2-3/4 year high, which bolsters confidence in the economic outlook and energy demand.

                Bearish factors included (1) the unexpected increase in weekly US jobless claims to a 3-month high, which shows weakness in the US labor market t hat may curtail fuel demand, (2) the weaker than expected Q1 US GDP, which shows slower-than-expected energy consumption, and (3) the action by the BOJ to cut its GDP growth forecast for Japan this year, which signals reduced energy consumption and demand.

Monday, May 2, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -1.5 ticks. T-note prices last Friday rallied after mid-morning and closed higher as weaker than expected consumer confidence and manufacturing data offset stock market strength and stronger-than-expected personal spending: TYM11 +6, FVM11 +3.7, EDU11 -0.5. The 10-year T-note yield fell to a 1-1/4 month low of 3.280%.

                Bullish factors included (1) the weaker-than-expected Apr Chicago purchasing managers index (-3.0 to 67.6 versus expectations of -2.4 to 68.2), (2) the weaker-than-expected Apr US University of Michigan consumer confidence (+0.2 to 69.8 versus expectations of +0.4 to 70.0), and (3) the smaller-than-expected increase in the Mar PCE deflator (+1.8% y/y versus expectations of +1.9% y/y.

                Bearish factors included (1) the larger-than-expected increase in Mar personal spending along with the upward revision to Feb (Mar +0.6% versus expectations of +0.5% and Feb revised up to +0.9% from the originally reported +0.7 %), (2) the larger-than-expected increase in the Q1 employment cost index (+0.6% versus expectations of +0.5%), and (3) reduced safe-haven demand for Treasuries after the S&P 500 rose to a 2-3/4 year high.



•   The dollar index this morning is weaker and fell to a fresh 2-3/4 year low in overnight trade with the dollar/yen +0.19 yen and the euro/dollar +0.36 cents. The dollar index last Friday tumbled to a 2-3/4 year low and settled lower as weaker-than-expected US manufacturing data undercut the dollar while an increase in Euro-Zone inflation boosted the euro to a 16-1/2 month high: Dollar Index -0.188, USDJPY -0.335, EURUSD -0.00142.

                Bearish factors included (1) the weaker-than-expected Apr Chicago purchasing mangers index, which indicates a slowdown in US manufacturing and is dollar negative, (2) early strength in the euro which rallied to a 16-1/2 month high against the dollar after the Apr Euro-Zone CPI estimate rose more than expected to a 2-1/2 year high, which bolsters speculation for additional ECB rate hikes, and (3) reduced safe-haven demand for the dollar after the S&P 500 climbed to a 2-3/4 year high.

                Bullish factors included (1) the unexpected decline in Ma r German retail sales, which is euro negative, and (2) the stronger-than-expected Mar US personal spending, which indicates strength in the US economy and is dollar supportive.



•   June crude oil prices this morning are trading down sharply by -$1.91 a barrel and June gasoline is -5.50 cents per gallon. Crude oil plunged in overnight trade on speculation that the death of Osama Bin Laden may ease the risk of Middle East supply disruptions. Crude oil and gasoline prices last Friday settled higher due to a weak dollar and better-than-expected US consumer spending: CLM11 +$1.07, RBM11 +2.88. Nearest-futures May gasoline posted a 2-3/4 year high.

                Bullish factors included (1) the continued slide in the dollar index to a 2-3/4 year low, which boosts investment demand in commodities, and (2) the larger-than-expected increase in Mar US personal spending, which bodes well for the sustainability of the economic expansion and energy demand.

                Bearish factors included (1) the unexpected decline in Mar German retail sales along with the slower than expected increase in South Korean Mar industrial production, which indicates a slowdown in Asian and European f uel demand, and (2) the weaker-than-expected Apr Chicago purchasing managers index, which signals reduced energy demand.

Tuesday, May 3, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +4.5 ticks. T-note prices yesterday shed early losses and closed higher on concern global growth may slow after China's manufacturing activity unexpectedly slowed in April along with increased safe-haven demand for Treasuries after the stock market erased an early rally: TYM11 +3, FVM11 +0.7, EDU11 +0.5. The 10-year T-note yield fell to a 1-1/2 month low of 3.261%.

                Bullish factors included (1) the unexpected decline in the Apr China PMI manufacturing index, which signals a slowdown in the Chinese economy that may also slow the global economy, (2) Fed data that shows US banks bought $65 billion of Treasuries in the past 7 weeks, the most in 9 months, due to slower-than-expected economic growth and stagnant loan demand, and (3) the Fed's action to purchase $7.24 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) the smaller-than-expected decrease in the Apr ISM manufacturing index ( -0.8 to 60.4 versus expectations of -1.6 to 59.6), (2) inflation concerns after the unexpected increase in the prices paid sub-index of the Apr ISM manufacturing index which climbed to its highest level in 2-3/4 years (+0.5 to 85.5 versus expectations of -2.0 to 83.0), and (3) the larger-than-expected increase in Mar construction spending which rose at its fastest pace in 11 months (+1.4% versus expectations of +0.3%).



•   The dollar index this morning is higher with the dollar/yen -0.38 yen and the euro/dollar -0.39 cents. The dollar index yesterday relinquished an early rally and closed little changed as the dollar's interest rate differentials remain weak on speculation the Fed will keep interest rates at record lows while other central banks raise their rates: Dollar Index -0.188, USDJPY -0.335, EURUSD -0.00142. The dollar index fell to a 2-3/4 year low but erased its losses and closed little changed.

                Bearish factors included (1) strength in the euro which rallied to a 16-3/4 month high against the dollar on speculation the ECB will continue to tighten monetary policy after French and German PMI manufacturing indexes were unexpectedly revised upward, (2) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the euro's current strength is "not worrying" and won't hinder growth in the region, and (3) reduced safe-haven demand for the dollar aft er the S&P 500 climbed to a 2-3/4 year high.

                Bullish factors included (1) early strength in the dollar after news that Osama bin Laden was killed, which fueled speculation that the terror risk will get smaller for the US, and (2) the stronger than expected Apr ISM manufacturing index, which indicates economic strength and is dollar supportive.



•   June crude oil prices this morning are trading down -$1.09 a barrel and June gasoline is -0.52 of a cent per gallon. Crude oil and gasoline prices closed lower but well off of their worst levels as an unexpected decline in Apr Chinese manufacturing activity offset the plunge in the dollar index to a 2-3/4 year low: CLM11 -$0.41, RBM11 -5.05. Jun crude posted a 2-1/2 year high and Jun gasoline rallied to a 2-3/4 year high, but they erased all of their gains and finished lower.

                Bearish factors included (1) the unexpected decline in the Apr China PMI manufacturing index, which indicates a slowdown in the Chinese economy that is negative for energy demand, and (2) the early sell-off in energy markets on speculation that the death of Osama bin Laden may lead to stability in the Middle East.

                Bullish factors included (1) incessant dollar weakness after the dollar index sank to a 2-3/4 year low, which boosts investment demand in commodities, (2) the smaller-than-expected dec rease in the Apr ISM manufacturing index, which is positive for energy demand and consumption, and (3) fears of reprisals by al-Qaeda that may disrupt crude supplies after the US killed Osama Bin Laden.

Wednesday, May 4, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -2.5 ticks. T-note prices yesterday finished higher after the stock market fell and after the Fed bought Treasuries for its asset-purchase program: TYM11 +6.5, FVM11 +3.2, EDU11 +0.5. The 10-year T-note yield fell to a 1-1/2 month low of 3.246%.

                Bullish factors included (1) increased safe-haven demand for Treasuries as the stock market weakened, and (2) the Fed's action to purchase $7.678 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) the larger-than-expected increase in Mar factory orders along with the unexpected upward revision to Feb (Mar +3.0% versus expectations of +2.0% and Feb revised up to +0.7% from the originally reported -0.1%), and (2) hawkish comments from Kansas City Fed President Hoenig who said there is a "pretty high" likelihood that the US economy will keep expanding after growth in Q1 was weaker than expected and that the Fed should begin withdr awing its monetary stimulus as part of efforts to "calm" concerns about inflation in the US.



•   The dollar index this morning is lower with the dollar/yen +0.22 yen and the euro/dollar +0.32 cents. The dollar index yesterday settled slightly higher after Mar US factory orders rose more than expected: Dollar Index +0.189, USDJPY -0.296, EURUSD -0.00044.

                Bullish factors included (1) the larger-than-expected increase in Mar US factory orders and the unexpected upward revision to Feb factory orders, which signals economic strength and is dollar supportive, and (2) comments from Kansas City Fed President Hoenig who said there is a "pretty high" likelihood that the US economy will keep expanding after growth in Q1 was weaker than expected and that the Fed should begin withdrawing its monetary stimulus as part of efforts to "calm" concerns about inflation in the US.

                Bearish factors included (1) strength in the euro after Mar Euro-Zone producer prices accelerated more than expected to their fastest pace in 2-1/2 years, which bolsters the outlook for further ECB interest rate hikes, and (2) the prediction from Credit Suisse Group AG that the dollar will weaken to $1.50 per euro in the next 12 months on interest rate differentials and low volatility.



•   June crude oil prices this morning are trading down -36 cents a barrel and June gasoline is -1.20 cents per gallon. Crude oil and gasoline prices yesterday closed lower on long liquidation due to equity market weakness and expectations of increased supply when the weekly DOE inventory figures are released on Wed: CLM11 -$2.47, RBM11 -1.85.

                Bearish factors included (1) long liquidation prompted by weakness in the stock market which reduces confidence in the economic outlook and energy demand, (2) the slump in UK manufacturing activity in Apr to its lowest level in 7 months, which indicates reduced energy demand and consumption, and (3) the outlook for increased crude supplies when the DOE releases its weekly inventory numbers on Wed.

                Bullish factors included (1) hedge fund buying of crude after the NYMEX reported that open interest in crude oil futures traded on the New York Mercantile Exchange rose to a record 1.63 million contracts on Monday, and (2) the stronger tha n expected Mar US factory orders and the upward revision to Feb factory orders, which signals strength in fuel consumption. Expectations for Wednesday's weekly inventories from the DOE are for crude supplies to rise +1.9 million bbl, gasoline stockpiles to remain unchanged, distillate inventories to gain +500,000 bbl and the refinery utilization rate to rise +0.5 to 83.2%.

Thursday, May 5, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +4 ticks. T-note prices yesterday rallied to a 1-1/2 month high on weaker-than-expected economic data along with dovish Fed speak: TYM11 +6.5, FVM11 +1.5, EDU11 +1.0. The 10-year T-note yield fell to a 1-1/2 month low of 3.206%.

                Bullish factors included (1) the smaller-than-expected increase in the Apr ADP employment change (+179,000 versus expectations of +195,000), (2) the unexpected decline in the Apr ISM non-manufacturing index which matched its lowest level in 14 months (-4.5 to 52.8 versus expectations of +0.2 to 57.5), and (3) dovish comments from Boston Fed President Rosengren who said "with significant slack in labor markets, stable inflation expectations, and core inflation well below our longer run target, there is currently no reason to slow the economy down with tighter monetary policy."

                Bearish factors included (1) supply pressures ahead of the Treasury's auctions of $72 billion in T-notes and T-bon ds in next week's quarterly refunding, and (2) the prediction from Principal Global Investors that "the economy is on a sustainable recovery" and the yield on the 10-year T-note will climb to 3.75% by year-end.



•   The dollar index this morning is weaker with the dollar/yen -0.80 yen and the euro/dollar +0.04 cents. The dollar index yesterday sank to a 2-3/4 year low on weak US economic data along with strength in the euro which rallied to a 17-month high against the dollar on speculation ECB President Trichet will signal further rate increases when he speaks on Thursday: Dollar Index -0.109, USDJPY -0.311, EURUSD +0.00017.

                Bearish factors included (1) weaker-than-expected US economic data on Apr ISM non-manufacturing and Apr ADP employment, which may prompt the Fed to keep interest rates at record lows and further weaken the dollar's interest rate differentials, (2) speculation that ECB President Trichet will signal further interest rate increases when he speaks at Thursday's monthly press conference, and (3) dollar negative comments from Boston Fed President Rosengren who said he sees "no reason" to raise interest rates amid higher oil prices.

                Bullish factors include d (1) increased safe-haven demand for the dollar after the equity market tumbled, and (2) the weaker-than-expected Mar Euro-Zone retail sales, which is euro negative.



•   June crude oil prices this morning are trading down -$2.40 a barrel at a 2-week low and June gasoline is -6.25 cents per gallon. Crude oil and gasoline prices yesterday retreated after US crude inventories climbed to a 6-month high and weaker-than-expected economic data raised demand concerns: CLM11 -$1.81, RBM11 -0.69. Jun crude fell to a 2-week low and Jun gasoline posted a 1-week low.

                Bearish factors included (1) weaker-than- expected US economic data on Apr ISM non-manufacturing and Apr ADP employment, which raises concern a slowdown in economic growth will also curb energy demand, (2) the larger-than-expected increase in weekly crude inventories which climbed to a 6-month high (+3.42 million bbl to 366.5 million bbl versus expectations of +1.9 million bbl), and (3) weakened fuel demand after US gasoline demand in the week ended Apr 29 fell -2.2% w/w to 8.94 million barrels a day.

                Bullish factors included (1) the fall in the dollar index to a 2-3/4 year low, whic h boosts investment demand in commodities, (2) the larger-than-expected decline in weekly gasoline inventories which fell to a 1-3/4 year low (-1.05 million bbl to 204.5 million bbl versus expectations of -500,000 bbl), and (3) the unexpected decline in weekly distillate inventories (-1.40 million bbl versus expectations of a +500,000 bbl increase).

Friday, May 6, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +3 ticks. T-note prices yesterday moved higher as inflation concerns receded after weekly jobless claims unexpectedly increased and commodity prices tumbled: TYM11 +13.5, FVM11 +7.5, EDU11 +0.5. The 10-year T-note yield fell to a 1-1/2 month low of 3.151%.

                Bullish factors included (1) the unexpected increase in weekly initial unemployment claims to an 8-1/2 month high (+43,000 to 474,000 versus expectations of -19,000 to 410,000), (2) reduced inflation concerns after the larger-than-expected increase in Q1 nonfarm productivity and the upward revision to Q4 (Q1 +1.6% versus expectations of +1.1% and Q4 revised up to +2.9% from the previously reported +2.6%), (3) comments from Atlanta Fed President Lockhart who said "there is virtually no net job creation resulting from new business formation in recent quarters," and (4) comments from San Francisco Fed President Williams who said a period of high inflation is " very unlikely" because rising commodity prices spurred by global demand aren't likely to keep climbing.

                Bearish factors was the comments from Minneapolis Fed President Kocherlakota who said it would be "desirable" to raise interest rates this year and that he would support a 50 bp increase in the Fed funds rate.



•   The dollar index this morning is little changed with the dollar/yen +0.17 yen and the euro/dollar -0.18 cents. The dollar index yesterday rebounded to a 1-week high after the euro tumbled when ECB President Trichet signaled the ECB may wait until after June to raise interest rates again: Dollar Index +1.163, USDJPY -0.443, EURUSD -0.03038.

                Bullish factors included (1) comments from ECB President Trichet, which were less hawkish than the markets were expecting, when he refrained from using the phrase "strong vigilance" against inflation, which signals the ECB may wait until after its June meeting to raise interest rates further, (2) the unexpected drop in Mar German factory orders, which is euro negative, and (3) the drop in the British pound to a 2-week low against the dollar after Apr UK PMI services fell more than expected to a 4-month low.

                Bearish factors included (1) the unexpected increase in weekly US jobless claims to an 8-1/2 month high, which signals economic weakness and may prompt the Fed to maintain its overly easy monetary policy, and (2) strength in the yen which rallied to a 1-1/2 month high against the dollar after Japanese Finance Minister Noda said the recent rally in the yen is due to dollar weakness, which signals the BOJ may refrain from further currency intervention to weaken the yen.



•   June crude oil prices this morning are trading down -$2.00 a barrel at a 2-1/4 month low and June gasoline is -2.38 cents per gallon. Crude oil and gasoline prices yesterday sold-off sharply as the dollar rebounded and an unexpected increase in weekly jobless claims bolstered demand concerns: CLM11 -$9.44, RBM11 -11.71. Jun crude fell to a 1-1/2 month low and Jun gasoline dropped to a 1-month low.

                Bearish factors included (1) the rally in the dollar index to 1-week high, which prompted long liquidation of most commodities, (2) the unexpected increase in weekly US jobless claims to an 8-1/2 month high, which fuels concern that economic growth and fuel demand will decline, and (3) the unexpected drop in Mar German factory orders, which indicates weakened energy consumption.

Monday, May 9, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -3.5 ticks. T-note prices last Friday shook off early weakness from the strong Apr nonfarm payrolls report and moved higher on increased safe-haven demand due to speculation that Greece may leave the European Union: TYM11 +7, FVM11 +5.2, EDU11 -1.0. The 10-year T-note yield fell to a 5-month low of 3.129%.

                Bullish factors included (1) the unexpected increase in the Apr unemployment rate (+0.2 to 9.0% versus expectations of unchanged at 8.8%), (2) increased safe-haven demand for Treasuries after Der Spiegel magazine reported that Greece is considering reintroducing its own currency and may leave the European monetary union, and (3) comments from New York Fed President Dudley who said the US recovery is still a "considerable way" from the Fed's goals, which suggest he favors keeping the Fed's overly easy monetary policy in place.

                Bearish factors included (1) the stronger-than-expected Apr nonfarm payrolls (+244,0 00 versus expectations of +185,000), (2) the larger-than-expected increase in Apr manufacturing payrolls (+29,000 versus expectations of +20,000), and (3) early strength in stocks which sapped the safe-haven demand for Treasuries.



•   The dollar index this morning is weaker with the dollar/yen +0.12 yen and the euro/dollar +0.86 cents. The dollar index last Friday rallied to a 2-1/2 week high on strong Apr US nonfarm payrolls and on a report that Greece was considering leaving the Euro-Zone: Dollar Index +0.647, USDJPY +0.559, EURUSD -0.02249.

                Bullish factors included (1) the stronger-than-expected Apr US nonfarm payrolls which signals economic strength and is dollar supportive, and (2) weakness in the euro which fell to 2-week low against the dollar after Der Spiegel magazine reported that Greece is considering reintroducing its own currency and may stop using the euro.

                Bearish factors included (1) comments from New York Fed President Dudley who said the US recovery is still a "considerable way" from the Fed's goals, which suggest he favors keeping the Fed's overly easy monetary policy in place, and (2) the stronger-than-expected Mar German industrial production, which is euro supportive .



•   June crude oil prices this morning are trading up $3.12 a barrel and June gasoline is +9.66 cents per gallon. Crude oil and gasoline prices last Friday fluctuated on both sides of unchanged and finally settled lower as a rally in the dollar offset the strong Apr nonfarm payrolls report: CLM11 -$2.62, RBM11 -0.53. Jun crude fell to a 2-1/4 month low and Jun gasoline dropped to a 1-1/4 month low.

                Bearish factors included (1) the rally in the dollar index to 2-1/2 week high, which erodes investment demand in commodities, (2) technical selling with the drop in prices to a 2-1/4 month low, and (3) comments from Qatari Oil Minister Saleh Al who said crude supplies are "very healthy."

                Bullish factors included (1) the stronger-than-expected Apr US nonfarm payrolls and Mar German industrial production, which is positive for energy consumption and demand, and (2) the rally in the stock market which bolsters the outlook on the economy and fuel demand.

Tuesday, May 10, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -6.5 ticks. T-note prices yesterday erased early losses and closed higher on increased safe-haven demand after S&P cut Greece's credit rating: TYM11 +6, FVM11 +4.7, EDU11 +1.0.

                Bullish factors included (1) increased safe-haven demand for Treasuries after S&P cut Greece's credit rating 2 levels to B from BB- and said further reductions are possible, (2) concern the European sovereign-debt crisis may worsen, which boosted safe-haven demand for Treasuries after credit-default swaps to insure Greek and Irish government debt rose to records, and (3) the Fed's action to purchase $7.24 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) strength in stocks which reduced the safe-haven demand for Treasuries, and (2) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tuesday.



•   The dollar index this morning is stronger with the dollar/yen +0.29 yen and the euro/dollar -0.27 cents. The dollar index yesterday fell back from a 2-1/2 week high and closed lower on speculation the ECB will continue to raise interest rates despite an escalation in European sovereign-debt concerns: Dollar Index -0.104, USDJPY -0.272, EURUSD +0.00503.

                Bearish factors included (1) strength in Mar German exports which rose more than expected to their highest level since records began in 1950 and is euro supportive, and (2) stock market strength that sapped the safe-haven demand for the dollar.

                Bullish factors included (1) early weakness in the euro after S&P cut Greece's credit rating 2 levels to B from BB- and said further reductions are possible, (2) weakness in the British pound which fell to a 2-1/2 week low against the dollar after the Confederation of British Industry lowered its economic growth estimates for the UK to 1.7% annualized from a Feb forecast of 1.8% annualized, and (3) the larger-than-expected decline in the May Euro-Zone Sentix investor confidence which fell to its lowest level in 4 months and is euro negative.



•   June crude oil prices this morning are trading down -75 cents a barrel and June gasoline is up +9.31 cents per gallon. Jun gasoline climbed to a 1-week high in overnight trade amid concern that flooding of the Mississippi River will disrupt fuel production and distribution. Crude oil and gasoline prices yesterday closed sharply higher on signs the global economic recovery remains intact: CLM11 +$5.37, RBM11 +18.83.

                Bullish factors included (1) the increase in Mar German exports to a record, which signals economic strength and is positive for energy consumption and demand, (2) the warning from Petromatrix Gmbh that US supplies of crude and petroleum products may be curtailed by record high water levels on the Mississippi river that may also force a closure of riverside refineries, (3) comments from Qatar's Oil Minister who said the world economy isn't weak enough to justify a freefall in crude prices, and (4) the action by JPMorgan Chase to raise the WTI crude oil pric e forecast for 2011 to $109.50 a barrel from $99 because OPEC and other producers aren't matching rising demand and consumers will take time to react to higher prices.

                Bearish factors included (1) the early rally in the dollar index to 2-1/2 week high, which eroded investment demand in commodities, and (2) concern the European debt crisis may worsen and start to negatively effect fuel demand after S&P cut Greece's debt rating 2 levels to B on restructuring concerns.

Wednesday, May 11, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -8.5 ticks. T-note prices yesterday traded sideways to lower throughout the day as stock market strength along with strong import prices weakened T-note prices: TYM11 -12, FVM11 -8.5, EDU11 +1.0.

                Bearish factors included (1) the stronger-than-expected Apr import prices (+2.2% m/m and +11.1% y/y versus expectations of +1.8% m/m and +10.4% y/y), (2) a rally in stocks which reduced the safe-haven demand for Treasuries, and (3) supply pressures ahead of the Treasury's $24 billion auction of 10-year T-notes on Wednesday.

                Bullish factors included (1) comments from Richmond Fed President Lacker who said US "home prices are likely to remain under pressure" and that many sectors of the economy remain in the "doldrums," and (2) strong demand for the Treasury's $32 billion auction of 3-year T-notes that had a bid-to-cover ratio of 3.29, stronger than the 3.16 average of the last 12 auctions.



•   The dollar index this morning is slightly higher with the dollar/yen +0.13 yen and the euro/dollar -0.45 cents. The dollar index yesterday fluctuated between small gains and losses throughout the day and finished slightly lower as strong equity prices reduced the safe-haven demand for the dollar while concerns over the solvency of Greece underpinned the dollar: Dollar Index -0.126, USDJPY +0.524, EURUSD +0.00441.

                Bearish factors included (1) reduced safe-haven demand for the dollar as stock prices firmed, and (2) the report from the Greek newspaper Kathimerini that the IMF is arranging a package of as much as 100 billion euros ($144 billion) to replace Greece's existing bailout, which reduced European sovereign-debt concerns.

                Bullish factors included (1) the unexpected declines in Mar French industrial and manufacturing production, which is euro negative, and (2) the view from the chief economist at Citigroup that any further lending to Greece would be futile and amou nt to "Ponzi finance" as it only buys more time until Greece must restructure its debt.



•   June crude oil prices this morning are trading down -72 cents a barrel and June gasoline is -5.39 cents per gallon. Crude oil and gasoline prices yesterday finished higher on strong China exports and from a rally in gasoline after Jun gasoline climbed to a 1-week high amid concern that flooding of the Mississippi River will disrupt fuel production and distribution: CLM11 +$1.33, RBM11 +10.13.

                Bullish factors included (1) the strength in Apr China exports which rose to a record and indicates economic strength that is positive for energy consumption and demand, (2) strength in gasoline on concern that the worst flooding of the Mississippi River in 75 years may shut 11 refiners between New Orleans and Baton Rouge with a combined capacity of 2.5 million barrels a day, or 13% of US output, and (3) the rally in equities, which bolsters optimism in the economic outlook and energy demand.

                Bearish factors included (1) the action by CME Group to raise trading margins on crude o il and energy futures traded on NYMEX, which may lead to liquidation of positions by investors to raise funds, and (2) the outlook for US crude supplies to increase to near a 2-year high when the DOE releases weekly inventory figures on Wed. Expectations for the weekly DOE inventories are crude oil supplies to increase +1.5 million bbl, gasoline stockpiles to fall -500,000 bbl, distillate inventories to remain unchanged and the refinery utilization rate to rise +0.4 to 83.2%.

Thursday, May 12, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +5 ticks. T-note prices yesterday erased early losses and closed higher as the stock market plunged and after decent demand was seen at the Treasury's $24 billion auction of 10-year T-notes: TYM11 +10/5, FVM11 +7.2, EDU11 +0.5.

                Bullish factors included (1) increased safe-haven demand for Treasuries as the stock market plummeted, and (2) strong demand for the Treasury's $24 billion auction of 10-year T-notes that were auctioned at a yield of 3.21%, below the 3.22% the market was expecting.

                Bearish factors included (1) global inflation concerns after Apr China consumer prices rose more than expected, Apr German CPI was unexpectedly revised up to a 2-1/2 year high and the BOE said in its quarterly inflation report that inflation remains "uncomfortably high," and (3) supply pressures ahead of the Treasury's $16 billion auction of 30-year T-bonds on Thursday.



•   The dollar index this morning is stronger and at a 3-1/2 week high with the dollar/yen -0.13 yen and the euro/dollar -0.46 cents. The dollar index yesterday climbed to a 3-week high on increased safe-haven demand as the stock market fell on concern that European leaders are balking at providing Greece with additional aid: Dollar Index +0.716, USDJPY +0.169, EURUSD -0.02176.

                Bullish factors included (1) weakness in the euro which fell to a 3-week low against the dollar after German Chancellor Merkel said Greece needs to stay the course on its budget-cutting program to deserve an extension of the 110 billion-euro ($158 billion) bailout granted last year, which fuels concern that European leaders are hesitating in granting Greece additional aid, which may force Greece to restructure its debt, and (2) increased safe-haven demand for the dollar as the stock market fell.

                Bearish factors included (1) concern that the ECB may tighten monetary policy further after Apr German c onsumer prices were unexpectedly revised up to a gain of +2.7% y/y, a 2-1/2 year high, and (2) the larger-than-expected Mar US trade deficit which widened to its most in 9 months (-$48.2 billion) and is dollar negative.



•   June crude oil prices this morning are trading down -$2.17 a barrel and June gasoline is -4.68 cents per gallon after the IEA cut its 2011 global oil demand forecast. Crude oil and gasoline prices yesterday tumbled as the dollar strengthened and after US crude supplies rose to a 2-year high: CLM11 -$5.67, RBM11 -25.69.

                Bearish factors included (1) the rally in the dollar index to a 3-week high, which reduces investment demand in commodities, (2) the larger-than-expected increase in weekly DOE crude inventories to their highest level in 2 years (+3.78 million bbl to 370.3 million bbl versus expectations of +1.5 million bbl), (3) the unexpected increase in weekly gasoline supplies which rose for the first time in 12 weeks (+1.27 million bbl versus expectations of -500,000 bbl), (4) slack demand after total US fuel demand slipped -0.9% w/w to 18.2 million barrels a day, the lowest in 23 months, and (5) concern that Chinese fuel demand may slow on speculation it will furth er tighten monetary policy to cool price increases after Apr China consumer prices rose more than expected.

                Bullish factors included (1) the unexpected decrease in weekly distillate inventories (-843,000 bbl versus expectations of no change), and (2) concern that the worst flooding of the Mississippi River in 75 years might limit US gasoline supplies as it may force the closure of 11 refiners between New Orleans and Baton Rouge with a combined capacity of 2.5 million barrels a day, or 13% of US output.

Friday, May 13, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are unchanged. T-note prices yesterday fluctuated between gains and losses until early afternoon when weak demand at the Treasury's 30-year T-bond auction sent prices tumbling into the close: TYM11 -8, FVM11 -4.2, EDU11 +0.5.

                Bearish factors included (1) the larger-than-expected increase in Apr PPI (+0.8% m/m and +6.8% y/y versus expectations of +0.6% m/m and +6.5% y/y) with the +6.8% y/y increase the biggest in 2-1/2 years, (2) the as-expected Apr US retail sales (+0.5% and +0.6% less autos), along with the upward revision to Mar (+0.9% and +1.2% less autos versus the originally reported +0.4% and +0.8% less autos), (3) weak demand for the Treasury's $16 billion auction of 30-year T-bonds that had a bid-to-cover ratio of 2.43, below the 2.83 average of the past 12 auctions, and (4) comments from Philadelphia Fed President Plosser who said the US economic recovery is nearing a point where the Fed may start to tighten in the "n ot-too-distant future."

                Bullish factors included (1) the smaller-than-expected decline in weekly initial unemployment claims (-44,000 to 434,000 versus expectations of a decline to 430,000), and (2) comments from the chairman of CIC International, the Hong-Kong based unit of China's $300 billion sovereign wealth fund, who said US Treasuries are a safe investment, which eases concern that China will stop purchasing US debt because of the weak dollar.



•   The dollar index this morning is weaker with the dollar/yen -0.26 yen and the euro/dollar +0.33 cents. The dollar index yesterday fell back from a 3-1/2 week high and closed lower after commodities and stocks rebounded from early losses, which reduced the safe-haven demand for the dollar: Dollar Index -0.087, USDJPY -0.109, EURUSD +0.00539.

                Bearish factors included (1) a rebound in commodities and stocks which shed early losses and reduced the safe-haven demand for the dollar, and (2) the recovery in the euro which bounced off of a 1-1/4 month low and finished higher on reduced Greek debt concerns after former ECB Vice President and current adviser to the Greek government, Lucas Papademos, said that Greece's exit from the EU was a "non-issue" and that the Greek asset privatization plan could ultimately exceed the announced 50 billion euros ($70.1 billion).

                Bullish factors included (1) comments from ECB Executive Board member Tumpel-Gugerell who said other co untries will be asked to help Greece as the country will need "longer" to be able to refinance itself via the markets, (2) early weakness in the euro which fell to a 1-1/4 month low against the dollar after Mar Euro-Zone industrial production unexpectedly declined.



•   June crude oil prices this morning are trading up +$1.00 a barrel and June gasoline is +2.91 cents per gallon. Crude oil and gasoline prices yesterday fell early after the IEA cut its 2011 global oil demand forecast but recovered theirs losses and finished mixed after the dollar retreated from a 3-1/2 week high: CLM11 +$0.76, RBM11 -5.89.

                Bullish factors included (1) a reversal in the dollar which fell back from a 3-1/2 week high and closed lower, which boosts investment demand in commodities, and (2) concern that the worst flooding of the Mississippi River in 75 years might limit US gasoline supplies as it may force the closure of 11 refiners between New Orleans and Baton Rouge with a combined capacity of 2.5 million barrels a day, or 13% of US output.

                Bearish factors included (1) the action by the IEA to cut its 2011 global oil demand forecast by -190,000 barrels a day saying "high oil prices have finally begun to dent demand," and (2) concern that the act ion by the PBOC to raise banks' reserve requirements for the fifth time this year to a record high 21% will slow the Chinese economy and its energy demand.

Monday, May 16, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +7 ticks. T-note prices last Friday moved higher on reduced inflation concerns along with increased safe-haven demand after the stock market slumped: TYM11 +10.5, FVM11 +5.7, EDU11 -1.5. The 10-yer T-note yield matched its 5-1/4 month low of 3.129%.

                Bullish factors included (1) reduced inflation concerns after the Apr core CPI came in at expectations (+0.2% m/m and +1.3% y/y), (2) increased safe-haven demand for Treasuries as the stock market sold off, and (3) a post refunding rally as bond dealers covered short positions put on during the Treasury's $72 billion May refunding auctions of T-notes and T-bonds.

                Bearish factors included (1) the larger-than-expected increase in May US University of Michigan consumer confidence (+2.6 to 72.4 versus expectations of +0.2 to 70.0), and (2) the +3.2% y/y increase in Apr CPI, stronger than expectations of +3.1% y/y and the biggest year-over-year increase in 2-1/2 years.



•   The dollar index this morning is stronger and at a 1-1/4 month high with the dollar/yen +0.10 yen and the euro/dollar -0.16 cents. The dollar index last Friday recovered from early losses and surged to a 1-1/4 month high and closed higher on increased safe-haven demand for the greenback as stock prices slid: Dollar Index +0.517, USDJPY -0.160, EURUSD -0.01290.

                Bullish factors included (1) increased safe-haven demand for the dollar after stock prices tanked, and (2) the larger-than-expected increase in May US University of Michigan consumer confidence.

                Bearish factors included (1) the stronger-than-expected Q1 Euro-Zone GDP, which is euro supportive, and (2) strength in the yen after Japanese Economy and Fiscal Policy Minister Yosano said the yen's strength was the result of the dollar weakening, not the yen gaining independently, which fueled speculation that the BOJ nor the G-7 will intervene in currency markets to slow the yen's gains.



•   June crude oil prices this morning are trading down -$1.69 a barrel and June gasoline is -4.39 cents per gallon. Crude oil and gasoline prices last Friday settled higher but well off of their best levels as weak equities and a stronger dollar offset strength in demand from robust Q1 European economic growth: CLM11 +$0.68, RBM11 +1.05.

                Bullish factors included (1) the stronger than expected Q1 Euro-Zone GDP, which is positive for energy demand and consumption, (2) the prediction from Goldman Sachs that the oil market is "structurally bullish" and prices are likely to be higher in 12 months, and (3) concern that the worst flooding of the Mississippi River in 75 years may threaten US gasoline production as refiners in the Mississippi Delta region may be forced to close.

                Bearish factors included (1) the rally in the dollar index to a 1-1/4 month high, which reduces investment demand in commodities, and (2) the sell-off in stock prices, which undercuts confidence in the economic outlook and energy demand.

Tuesday, May 17, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -2 ticks. T-note prices yesterday finished higher on weaker-than-expected economic data and on increased safe-haven demand as the stock market fell on concern over Greece's solvency: TYM11 +8, FVM11 +6.7, EDU11 +1.0.

                Bullish factors included (1) comments from Atlanta Fed President Lockhart who said it's too early to consider an exit from record stimulus until the recovery becomes "more clearly sustainable," (2) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis may worsen as European leaders and the IMF met in Brussels to discuss additional aid to Greece, (3) the weaker-than-expected May Empire manufacturing index (-9.8 to 11.9 versus expectations of -1.7 to 20.0), and (4) the unexpected stagnation in the May NAHB housing market index (unchanged at 16 versus expectations of +1 to 17).

                Bearish factors included (1) concern that foreign demand for US Treasuries way wane the lon ger that US legislators play political games with the extension of the US debt ceiling, and (2) the weaker-than-expected Mar net long-term TIC flows, which shows reduced foreign demand for US dollar assets, including Treasuries.



•   The dollar index this morning is lower with the dollar/yen +0.80 yen and the euro/dollar +0.40 cents. The dollar index yesterday retreated from a 1-1/4 month high and closed lower on concern the economy is slowing and after global demand for dollar assets weakened in March: Dollar Index -0.287, USDJPY +0.011, EURUSD +0.00392.

                Bearish factors included (1) the smaller-than-expected increase in the Mar net long-term TIC flows, which rose at the slowest pace in 14 months and signals weakened foreign demand for US dollar assets, (2) weaker-than-expected US economic data on May Empire manufacturing and the May NAHB housing market index, which is dollar negative as it suggest a possible slowdown in the US economy that may prompt the Fed into maintaining its overly easy monetary policy, and (3) the increase in Apr Euro-Zone CPI to +2.8% y/y, its fastest pace in 2-1/2 years, which boosts pressure on the ECB for further interest rate hikes.

                Bullish factors included (1) increase d safe-haven demand for the dollar on concern the European sovereign-debt crisis may worsen as European leaders and the IMF met in Brussels to discuss additional aid to Greece, and (2) a possible increase in safe-haven demand for the dollar after Moody's Investors Service warned that a Greek default would be "highly destabilizing" for banks and undermine global capital markets as it would cause losses that "far exceed" the size of banks' loans and investments there.



•   June crude oil prices this morning are trading down -1 cent a barrel and June gasoline is +1.05 cents per gallon. Crude oil and gasoline prices yesterday closed lower after the opening of a Louisiana spillway reduced concerns that refiners along the Mississippi will be forced to close along with demand concerns after the release of weaker-than-expected US economic data: CLM11 -$2.28, RBM11 -14.33. Jun gasoline fell to a 2-month low.

                Bearish factors included (1) concern the European sovereign-debt crisis may worsen and slow the global economy and energy demand as European leaders and the IMF met in Brussels to discuss additional aid to Greece, (2) weaker-than-expected US economic data on May Empire manufacturing and the May NAHB housing market index, which signals a possible slowdown in the US economy that may curtail fuel demand, (3) reduced concerns that refineries along the Mississippi River delta will be forced to close after flood gates on the Morganza floodway in Louisiana were opened to reduce pressure on the Mississippi River system, and (4) the prediction from the global head of research at Bank of America-Merrill Lynch that oil prices will fall in the second half of this year as current high prices begin to cause "demand destruction."

                Bullish factors included (1) the reversal in the dollar index which retreated from a 1-1/4 month high and closed lower, and (2) concern that the worst flooding of the Mississippi River in 75 years may force refiners located near the Mississippi Delta region to close, which would disrupt US gasoline supplies.

Wednesday, May 18, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +3 ticks. T-note prices yesterday rallied to a 5-1/4 month high after Apr US housing starts unexpectedly fell and industrial output stalled: TYM11 +6, FVM11 +3.5, EDU11 unchanged. The yield on the 10-year T-note fell to a 5-1/4 month low of 3.096%.

                Bullish factors included (1) the unexpected decline in Apr US housing starts and building permits (housing starts -10.6% to 523,000 versus expectations of +3.5% to 568,000 and building permits -4.0% to 551,000 versus expectations of +0.9% to 590,000), (2) the unexpected stalling in Apr industrial production (unchanged versus expectations of +0.4%), (3) the unexpected decline in Apr capacity utilization (-0.1 to 76.9% versus expectations of +0.2 to 77.6%), and (4) the action by the Fed to purchase $6.41 billion in Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) carry-over weakness from a drop in Gilts after Apr UK CPI climbed +4.5% y/y, stronger than expectations of +4.1% y/y and the fastest pace of increase in 2-1/2 years, and (2) reduced safe-haven demand for Treasuries after credit-default swaps to insure European government debt fell to a 5-week low on speculation that European leaders were making headway in solving the region's sovereign-debt crisis.



•   The dollar index this morning is lower with the dollar/yen -0.27 yen and the euro/dollar +0.06 cents. The dollar index yesterday finished slightly lower on weak US economic data and after European sovereign debt concerns eased: Dollar Index -0.071, USDJPY +0.625, EURUSD +0.00809.

                Bearish factors included (1) weaker-than-expected US economic data on Apr US housing starts and industrial production, which indicates economic weakness and is dollar negative, (2) reduced European debt concerns after credit-default swaps to insure European government debt fell to a 5-week low, and (3) euro supportive comments from ECB Executive Board member Tumpel-Gugerell who said interest rates should be consistent with economic activity, which suggests she sees room for further monetary tightening.

                Bullish factors included (1) weakness in the yen which fell to a 2-1/2 week low against the dollar after BOJ Governor Shirakawa said the Japanese economy is in a "very severe" state, which fueled speculation that monetary policy may be eased further, and (2) the weaker-than-expected May German ZEW economic sentiment which fell to its lowest level in 6 months and is euro negative.



•   June crude oil prices this morning are trading up +$1.27 a barrel and June gasoline is +3.08 cents per gallon. Crude oil and gasoline prices yesterday closed lower for a second day after weaker-than-expected economic data stoked demand concerns while the opening of the Morganza floodway reduced concerns about flooding to refineries along the Mississippi River: CLM11 -$0.46, RBM11 -1.18. Jun crude slipped to a 1-1/2 week low and Jun gasoline fell to a 2-month low.

                Bearish factors included (1) the weaker-than-expected US economic data on Apr US housing starts and industrial production, which indicates the economy and fuel demand may slow, (2) reduced concerns that refineries along the Mississippi River delta will be forced to close after flood gates on the Morganza floodway in Louisiana were opened to reduce pressure on the flooded Mississippi River system, and (3) the outlook for increased supplies when the DOE releases its weekly inventory figures on Wed. Expectation s for Wednesday's weekly DOE inventory report are for crude oil supplies to advance +1.7 million bbl, gasoline stockpiles to rise +1.0 million bbl, distillate inventories to increase +500,000 bbl and the refinery utilization rate to rise +0.4 to 82.1% of capacity.

Thursday, May 19, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -6.5 ticks. T-note prices yesterday trended lower the entire day as the stock market rallied and after hawkish comments from St. Louis Fed President Bullard and the FOMC meeting minutes prompted long liquidation in Treasuries: TYM11 -13, FVM11 -8.5, EDU11 -2.0.

                Bearish factors included (1) reduced safe-haven demand for Treasuries as the stock market rallied, (2) hawkish comments from St. Louis Fed President Bullard who said "I still think is reasonable" to expect Fed tightening by the end of the year, and (3) the Apr 26-27 FOMC meeting minutes in which policy makers discussed a process for withdrawing record stimulus.

                Bullish factors included (1) the action by the Fed to purchase $1.81 billion of Treasuries as part of its QE2 asset-purchase program, and (2) the prediction from Nomura that the 10-year T-note yield may fall to 2.90% in the next few weeks will as equities and commodities decline as the end of QE2 l ooms next month.



•   The dollar index this morning is weaker with the dollar/yen +0.20 yen and the euro/dollar +0.16 cents. The dollar index yesterday rebounded from early losses and finished higher after the Apr-26-27 FOMC meeting minutes revealed that Fed members began to coalesce on a strategy to begin removing record stimulus: Dollar Index +0.076, USDJPY +0.261, EURUSD +0.00125.

                Bullish factors included (1) the Apr-26-27 FOMC meeting minutes in which Fed members discussed exit strategies from record stimulus measures, (2) weakness in the British pound which fell to a 1-1/4 month low against the dollar after minutes from the BOE monetary policy meeting earlier this month showed policy makers voted 6-3 to keep interest rates on hold, (3) dollar supportive comments from St. Louis Fed President Bullard who said "I still think is reasonable" to expect Fed tightening by the end of the year, and (4) the -0.3% decline in Mar Euro-Zone construction output which fell for a second month and is euro negative.

                Bearish factors included (1) the rally in the stock market, which reduced the safe-haven demand for the dollar, and (2) euro supportive comments from EU Economic and Monetary Affairs Commissioner Rehn who said the base of the European economic expansion is "broadening from exports to domestic demand and thus the recovery is becoming more solid and self-sustaining."



•   June crude oil prices this morning are trading up +34 cents a barrel and June gasoline is +0.63 of a cent per gallon. Crude oil and gasoline prices yesterday rallied sharply after an unexpected decline in weekly crude and distillate inventories and an increase in US gasoline demand: CLM11 +$3.19, RBM11 +3.62.

                Bullish factors included (1) the unexpected decline in weekly DOE crude inventories (-15,000 bbl versus expectations of +1.7 million bbl), (2) the unexpected decline in weekly DOE distillate supplies which fell to a 2-year low (-1.16 million bbl to 143.1 million bbl versus expectations of +500,000 bbl), (3) the smaller-than-expected climb in weekly gasoline inventories (+119,000 bbl versus expectations of +1.0 million bbl), (4) the +2.5% increase in weekly US gasoline demand to 9.05 million barrels a day, the first gain in 3 weeks, and (5) the prediction from Oilchem.net that China's fuel supplies may tighten as its largest refineries shut about 7% of their capaci ty in Q3 for scheduled maintenance.

                Bearish factors included (1) the stronger dollar, which reduces investment demand in commodities, and (2) the larger than expected increase in the US refinery utilization rate which climbed to its highest level in 1-1/2 months and bodes well for increased production of gasoline and distillate supplies in the weeks ahead (+1.5 to 83.2% versus expectations of +0.4 to 82.1%).

Friday, May 20, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +6 ticks. T-note prices yesterday fell to a 1-week low after initial jobless claims fell more than expected, but prices recovered their losses and closed higher after May manufacturing activity on the US East Coast and Apr existing home sales unexpectedly declined: TYM11 +2.5, FVM11 +3.7, EDU11 +1.5.

                Bearish factors included (1) the larger-than-expected drop in weekly initial unemployment claims (-29,000 to 409,000 versus expectations of -14,000 to 420,000), and (2) slack demand for the Treasury's $11 billion auction of 10-year TIPS that has a bid-to-cover ratio of 2.66, weaker than the 12-auction average of 2.72.

                Bullish factors included (1) the unexpected decline in the May Philadelphia Fed manufacturing index which expanded at its slowest pace in 7 months (-14.6 to 3.9 versus expectations of +1.5 to 20.0), (2) the unexpected decline in Apr existing home sales (-0.8% to 5.05 million versus expectations of +2.0% to 5.20 mi llion, (3) the unexpected decline in Apr leading indicators which fell for the first time in 10 months (-0.3% versus expectations of +0.1%), and (4) comments from New York Fed President Dudley who said "We still have a considerable way to go to meet the Fed's dual mandate of full employment and price stability," which suggests he is in no hurry to end the Fed's record stimulus measures.



•   The dollar index this morning is higher with the dollar/yen +0.05 yen and the euro/dollar -0.73 cents. The dollar index yesterday settled lower as a drop in the yen to a 3-week low against the dollar was offset by weaker-than-expected US economic data: Dollar Index -0.352, USDJPY -0.067, EURUSD +0.00616.

                Bearish factors included (1) the unexpected declines in Apr leading indicators, existing US home sales and May Philadelphia Fed manufacturing, which indicates economic weakness that is dollar negative, (2) comments from New York Fed President Dudley who said "We still have a considerable way to go to meet the Fed's dual mandate of full employment and price stability," which suggests he is in no hurry to end the Fed's record stimulus measures, and (3) the action by Goldman Sachs to cut its 3-month dollar forecast to $1.45 per euro from $1.40, saying "With unemployment still high, fiscal consolidation looming and continued weakness in the real estate sector, the gro wth outlook remains less compelling in the US than in may other regions or countries."

                Bullish factors included (1) the slide in the yen to a 3-week low against the dollar on speculation the BOJ will keep stimulus efforts in place after Q1 Japan GDP was revised downward, and (2) the larger-than-expected drop in weekly US initial unemployment claims.



•   June crude oil prices this morning are trading up +13 cents a barrel and June gasoline is -0.80 of a cent per gallon. Crude oil and gasoline prices yesterday settled lower as a weak dollar and a larger-than-expected drop in weekly jobless claims fueled an early rally but, a mid-morning report on weaker-than-expected manufacturing activity sent prices tumbling into the close: CLM11 -$1.66, RBM11 -2.95.

                Bearish factors included (1) the unexpected decline in the May Philadelphia Fed manufacturing index which slid to its lowest level in 7 months and signals weakened energy demand, (2) the larger-than-expected downward revision to Q1 Japan GDP, which indicates decreased fuel demand in the world's third-largest oil consumer, and (3) the prediction from the AAA that the number of Americans driving more than 50 miles over the upcoming Memorial Day holiday weekend will fall by 100,000 to 30.9 million, the first decline in 3 years as high gasoline prices deter Americans from tak ing road trips.

                Bullish factors included (1) the weaker dollar which lift investment demand for commodities, (2) the larger-than-expected decline in weekly US jobless claims, which suggest improvement in the labor market that may benefit fuel demand, and (3) the report from NOAA that said the US may experience an "above normal" Atlantic hurricane season this year with 12 to 18 named storms, which increases the chances of damage to Gulf Coast refiners that may limit US fuel output.

Monday, May 23, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +15 ticks on increased safe-haven demand as global equity markets slump. T-note prices last Friday moved higher on increased safe-haven demand after the stock market tumbled on concern Europe's sovereign-debt crisis is getting worse: TYM11 +6.5, FVM11 +3.7, EDU11 -0.5.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis is getting worse after Fitch Ratings cut Greece's credit rating one notch to B+ from BB+ and said the country could face a further reduction in its creditworthiness, (2) concerns that the global economy may begin to slow after Germany's Bundesbank said in its monthly bulletin that Germany's economy will lose momentum, and (3) comments from Chicago Fed President Evans who said that "slow progress" in the economy justifies "substantial policy accommodation."

                Bearish factors included (1) data from the US Labor Department that showed payrolls grew in 42 states in Apr, while the unemployment rate fell in 39, which signals strength in the labor market, and (2) comments from Dallas Fed President Fisher who said the recovery "is gathering steam" and that "underlying fundamentals" of the US economy are better than recent data may indicate.



•   The dollar index this morning is higher and at a 1-1/2 month high with the dollar/yen +0.09 yen and the euro/dollar -1.41 cents at a 2-month low. The dollar index last Friday closed higher as European sovereign-debt concerns fueled an increase in the safe-haven demand for the dollar: Dollar Index +0.312, USDJPY +0.090, EURUSD -0.01512.

                 Bullish factors included (1) increased safe-haven demand for the dollar after Fitch Ratings cut Greece's credit rating one notch to B+ from BB+ and said the country could face a further reduction in its creditworthiness, (2) comments from ECB Council member Weidmann who said the ECB may not be able to accept Greek sovereign debt as collateral if the bond maturities are extended, and (3) the Bundesbank's monthly bulletin that stated economic growth in Germany "is likely to ease somewhat in the foreseeable future."

                Bearish factors included (1) dollar negative comments from Chicago Fed President Evans who said that "slow pro gress" in the economy justifies "substantial policy accommodation," and (2) strength in the yuan after PBOC Governor Xiaochuan said that inflation remains "high" and China needs to strike a balance between economic growth and consumer prices, which fueled speculation of further tightening measures by China.



•   July crude oil prices this morning are trading down -$2.40 a barrel and July gasoline is -4.29 cents per gallon. Crude oil and gasoline prices last Friday fell early on the stronger dollar but then rallied and closed higher after the API reported the US fuel consumption increased in April: CLN11 +$1.17, RBN11 +1.63.

                Bullish factors included (1) data from the US Labor Department that showed payrolls grew in 42 states in Apr, while the unemployment rate fell in 39, which signals broad-based strength in the labor market that may lead to increased economic strength and fuel demand, and (2) data from the API that said US fuel consumption as measured by deliveries of petroleum products, rose in Apr by +5.2% to 19.9 million barrels a day from a year earlier.

                Bearish factors included (1) strength in the dollar, which reduces investment demand in commodities, (2) the statement from Germany's Bundesbank that growth in Germany, Europe's largest economy will probably slow because growth in Q1 was "overstated," and (3) the slump in the equity market which reduces confidence in the economic outlook and energy demand.

Tuesday, May 24, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +0.5 of a tick. T-note prices yesterday surged to a 5-1/2 month high and closed higher on increased safe-haven demand after global stock markets plunged on concern that Europe's debt crisis was worsening: TYM11 +6, FVM11 +1.7, EDU11 -2.0. The 10-year T-note yield matched its 5-1/2 month low of 3.089%.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis is getting worse after the yields on Greek and Irish 10-year government bonds rose to records and Standard & Poor's warned it may downgrade Italy's debt, (2) the weaker-than-expected Apr Chicago Fed National Activity Index which unexpectedly fell below zero to its lowest level in 8 months (-0.77 to -0.45 versus expectations of -0.06 to 0.20), and (3) the Fed's action to purchase $6.9 billion of Treasuries as part of its QE2 asset=purchase program.

                Bearish factors is supply pressures ahead of Tuesday's $35 billion auction of 2-year T-notes.



•   The dollar index this morning is weaker with the dollar/yen -0.19 yen and the euro/dollar +0.33 cents. The dollar index yesterday rallied to a 1-1/2 month high and closed higher on increased safe-haven demand due to concern Europe's sovereign-debt crisis will worsen: Dollar Index +0.721, USDJPY +0.309, EURUSD -0.01117.

                Bullish factors included (1) increased safe-haven demand for the dollar after the yields on Greek and Irish 10-year government bonds rose to records and Standard & Poor's warned it may downgrade Italy's debt, an indication the European debt crisis may worsen, (2) weakness in the euro which tumbled to a 2-month low against the dollar after May German manufacturing PMI fell to its lowest level in 6 months and the May Euro-Zone PMI composite fell more than expected, and (3) increased safe-haven demand for the dollar after the May China HSBC manufacturing PMI fell to its slowest pace of expansion in 10-months, a sign the global economy is slowing.

                Bearish factors included (1) the fall in the 10-year T-note yield to a 5-1/2 month low, which weakens the dollar's interest rate differentials, and (2) the slide in the Apr Chicago Fed National Activity Index to its lowest level in 8 months, which suggests economic weakness and is dollar negative.



•   July crude oil prices this morning are trading up +$1.12 a barrel and July gasoline is +3.64 cents per gallon. Crude oil and gasoline prices yesterday closed lower due to a strong dollar along with concern that global energy demand will weaken from the European sovereign-debt crisis and a slowdown in Chinese and European manufacturing activity: CLN11 -$2.40, RBN11 -1.44.

                Bearish factors included (1) a rally in the dollar index to t 1-1/2 month high, which reduces investment demand in commodities, (2) the drop in the May China HSBC manufacturing PMI to its slowest level in 10 months, which indicates reduced energy consumption, (3) the larger-than-expected decline in the May Euro-Zone PMI composite, and (4) concern that the European debt crisis may worsen and slow energy demand after the yields on Greek and Irish 10-year government bonds rose to records and Standard & Poor's warned it may downgrade Italy's debt.

Wednesday, May 25, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +2.5 ticks. T-note prices yesterday traded sideways in negative territory due to stronger-than-expected US new home sales but rallied in the early afternoon and closed higher after stocks faltered and strong demand was seen at the Treasury's $35 billion 2-year T-note auction: TYM11 +2.5, FVM11 +1, EDU11 unchanged.

                Bullish factors included (1) the unexpected decline in the May Richmond Fed manufacturing index which fell to a 2-year low (-16 to -6 versus expectations of unchanged at 10), (2) strong demand for the Treasury's $35 billion auction of 2-year T-notes that had a bid-to-cover ration of 3.46, higher than the 12-auction average of 3.35, (4) weak stock prices which prompted safe-haven demand for Treasuries, and (5) comments from St. Louis Fed President Bullard who said the Fed may keep its policy rate, the size of its balance sheet and policy language on hold to "give the FOMC more time to assess economic conditions ."

                Bearish factors include (1) the unexpected increase in Apr US new home sales (+7.3% to 323,000 versus expectations of unchanged at 300,000), and (2) supply pressures ahead of a $35 billion Treasury auction of 5-year T-notes on Wed.



•   The dollar index this morning is higher with the dollar/yen +0.08 yen and the euro/dollar -0.38 cents. The dollar index yesterday closed lower as the euro strengthened on stronger than expected German business confidence and reduced European sovereign-debt concerns: Dollar Index -0.269, USDJPY -0.052, EURUSD +0.00518.

                Bearish factors included (1) the stronger-than-expected May German IFO business climate index, (2) the action by the Greek government to endorse an asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid, which reduced European debt concerns, and (3) comments from St. Louis Fed President Bullard who said the Fed may keep its policy rate, the size of its balance sheet and policy language on hold to "give the FOMC more time to assess economic conditions."

                Bullish factors included (1) the unexpected increase in Apr US new home sales, which suggest economic strength and is dollar supportive, and (2) the larger-than-expect ed declines in May French business confidence and in Mar Euro-Zone industrial new orders, which is euro negative.



•   July crude oil prices this morning are trading down -11 cents a barrel and July gasoline is -1.01 cents per gallon. Crude oil and gasoline prices yesterday settled higher due to the weak dollar and after Goldman Sachs said it was turning "more bullish" on commodities: CLN11 +$1.89, RBN11 +5.21.

                Bullish factors included (1) a decline in the dollar which encourages investment demand in commodities, (2) fund buying of crude after the statement from Goldman Sachs that it's turning "more bullish" on commodities and its prediction that "It is only a matter of time until inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supplies," and (3) the outlook for weekly crude supplies to decline when the DOE reports weekly crude oil inventories on Wed.

                Bearish factors included (1) the unexpected decline in May Richmond Fed manufacturing index to a 2-year low , which indicates weakened energy consumption, and (2) the outlook for gasoline supplies to increase on Wednesday's weekly DOE inventory report. Expectations for weekly inventories from the DOE are for crude oil supplies to fall -1.7 million bbl, gasoline stockpiles to rise +500,000 bbl, distillate inventories to increase +50,000 bbl and the refinery utilization rate to rise +0.5 to 83.7% of capacity.

Thursday, May 26, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -4 ticks. T-note prices yesterday traded on both sides of unchanged throughout the day and finished slightly higher as strong demand for the Treasury's $35 billion auction of 5-year T-notes offset hawkish Fed comments: TYM11 +2, FVM11 +4, EDU11 -0.5.

                Bullish factors included (1) the weaker-than-expected Apr US durable goods orders which posted their biggest decline in 6 months (-3.6% and -1.5% ex transportation versus expectations of -2.5% and +0.5% ex transportation), (2) the Fed's action to purchase $4.796 billion of Treasuries as part of its QE2 asset-purchase program, (3) strong demand for the Treasury's $35 billion auction of 5-year T-notes that had a bid-to-cover ratio of 3.20, higher than the 12-auction average of 2.79, and (4) increased safe-haven demand for Treasuries after comments from ECB Council member Draghi who said he sees "serious downside risks" to economic growth from the European debt crisis.

                Bearish factors include (1) reduced safe-haven demand for Treasuries after the stock market shook off early losses and rallied, (2) comments from Minneapolis Fed President Kocherlakota who said that based on his predictions of core PCE inflation rising slowly this year, a "modest" rate hike of 50 bp in the Fed funds rate by the end of the year "would be desirable" and would still leave Fed policy "highly accommodative," and (3) supply pressures ahead of a $29 billion Treasury auction of 7-year T-notes on Thu.



•   The dollar index this morning is lower with the dollar/yen -0.14 yen and the euro/dollar +0.76 cents. The dollar index yesterday finished slightly higher after it shook off early weakness when Apr durable goods orders fell more than expected and rallied on euro negative comments from ECB Council members Draghi and Stark: Dollar Index +0.050, USDJPY +0.011, EURUSD -0.00120.

                Bullish factors included (1) the bigger-than-expected decline in the Jun German GfK consumer confidence survey which fell to its lowest level in 6 months and is euro negative, (2) the action by the OECD to raise its US growth estimates for this year, (3) comments from ECB Executive Board member Stark who said Greece, Ireland and Portugal need a "drastic change" in economic policy, which boosted the safe-haven demand for the dollar on concern the European sovereign-debt crisis will linger, and (4) comments from ECB Council member Draghi who said he sees "serious downside risks" to economic growth from the European debt crisis.

                Bearish factors included (1) the larger-than-expected drop in Apr US durable goods orders which posted their biggest decline in 6 months and hints at economic weakness, and (2) hawkish comments from ECB Executive Board member Stark who said interest rates could go higher "if needed" because Europe's economy is growing more strongly than expected.



•   July crude oil prices this morning are trading down -76 cents a barrel and July gasoline is -0.88 of a cent per gallon. Crude oil and gasoline prices yesterday finished higher after US distillate supplies fell to a 2-year low and the OECD hiked its US growth estimate for this year: CLN11 +$1.73, RBN11 +2.87.

                Bullish factors included (1) the unexpected decline in weekly distillate inventories which fell to a 2-year low (-2.04 million bbl to 141.1 million bbl versus expectations of a +50,000 bbl build), and (2) the action by the OECD to raise its 2011 US GDP estimate to 2.6% from a Nov estimate of 2.2%.

                Bearish factors included (1) the unexpected increase in weekly crude oil supplies (+616,000 bbl versus expectations of -1.7 million bbl), (2) the surge in weekly gasoline supplies by the most in 3 months (+3.79 million bbl versus expectations of +500,000 bbl), and (3) the larger-than-expected increase in the refinery utilization rate to its highest level in 4-1/2 months (+3.2 points to 86.3% versus expectations of +0.5 to 83.7%), which bodes well for further increases in fuel supplies as refiners come out of maintenance programs and boost production.

Friday, May 27, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -0.5 of a tick. T-note prices yesterday rallied to a 6-month high and finished moderately higher on concern the economic recovery is losing momentum: TYM11 +19.5, FVM11 +12.7, EDU11 +0.5. The 10-year T-note yield slipped to a 5-1/2 month low of 3.056%.

                Bullish factors included (1) the weaker-than-expected Q1 US GDP (unrevised at +1.8% annualized, weaker than expectations for an upward revision to +2.2% annualized), (2) the unexpected increase in weekly US initial unemployment claims (+10,000 to 424,000 versus expectations of -5,000 to 404,000), (3) increased safe-haven demand for Treasuries after the head of the Euro-Zone finance ministers, Jean-Claude Juncker, said the IMF may not release its portion of aid to Greece next month, and (4) strong demand for the Treasury's $29 billion auction of 7-year T-notes that had a bid-to-cover ratio of 3.24, well ahead of the 12-auction average of 2.86.


•   The dollar index this morning is weaker with the dollar/yen -0.17 yen and the euro/dollar +0.94 cents. The dollar index yesterday settled with modest losses as weaker-than-expected US economic data fueled speculation that the US will lag behind other countries in raising interest rates: Dollar Index -0.383, USDJPY -0.678, EURUSD -0.00562.

                Bearish factors included (1) the weaker-than-expected Q1 US GDP along with the unexpected increase in weekly US initial unemployment claims, which bolsters the outlook for the Fed to maintain its overly easy monetary policy, (2) comments from ECB President Trichet who said policy makers are "carefully" monitoring inflation, which bolsters speculation the ECB is prepping the markets for another interest rate hike, and (3) comments from the CEO of the European Financial Stability Facility that Asian investors, including the Chinese government, may compromise a "strong proportion" of Portuguese bailout bond buyers when the EFSF sells the bailout bonds next month, which eases concern that the European debt crisis will spread.

                Bullish factors included (1) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the IMF needs "financing assurances" before it releases its share of aid to Greece next month, which undercut the euro as it raises uncertainty over additional aid for Greece, and (2) the prediction from Fidelity Investments that the dollar is set to strengthen over the next 18 months to 3 years because of competitive advantages in the US.


•   July crude oil prices this morning are trading up +12 cents a barrel and July gasoline is up +0.15 of a cent per gallon. Crude oil and gasoline prices yesterday settled mixed as refinery outages in the Midwest boosted gasoline but weaker-than-expected economic data undercut crude: CLN11 -$1.09, RBN11 +2.07. Jul gasoline rose to a 1-week high and Jul crude climbed to a 2-week high but crude shed its gains and closed lower.

                Bullish factors included (1) the weaker dollar, which boosts investment demand in commodities, and (2) strength in gasoline on speculation that outages at 2 Illinois refineries owned by Marathon Oil and Exxon Mobil will reduce gasoline supplies during the Memorial Day holiday weekend.

                Bearish factors included (1) the weaker-than-expected US Q1 GDP, which signals reduced fuel consumption, and (2) the unexpected increase in weekly US initial jobless claims, which suggests labor market weakness that may lead to reduced fuel demand.

Tuesday, May 31, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -12 ticks as global equity markets strenghten. T-note prices last Friday shook off early losses and moved higher on concern the economy is slowing along with increased safe-haven demand from Europe's debt crisis: TYM11 +2.5, FVM11 +1.2, EDU11 +1.0. Jun T-notes rose to a 5-1/2 month nearest-futures high and the 10-year T-note yield slipped to a 5-1/2 month low of 3.05%.

                Bullish factors included (1) the weaker-than-expected Apr US personal spending (+0.4% versus expectations of +0.5%), (2) the plunge in Apr US pending home sales (-11.6% m/m versus expectations of -1.0% m/m), and (3) increased safe-haven demand for Treasuries on concern that Greece may not receive additional bailout funds and default on its debt after Greek Prime Minister Papandreou failed to secure support from the country's main opposition parties for new austerity measures.

                Bearish factors included (1) the unexpected increase in May US University of Mich igan consumer confidence (+1.9 to 74.3 versus expectations of unchanged at 72.4), and (2) reduced safe-haven demand for Treasuries after the statement from G-8 leaders meeting in France that "the global recovery is gaining strength and is becoming more self-sustained," which will pave the way for reductions in debt.


•   The dollar index this morning is lower and at a 2-1/2 week low with the dollar/yen +0.64 yen and the euro/dollar +1.19 cents. The dollar index last Friday plunged to a 2-week low as weaker-than-expected data on US consumer spending and home sales suggests the Fed will lag behind other central banks in raising interest rates: Dollar Index -0.595, USDJPY -0.490, EURUSD +0.01583.

                Bearish factors included (1) the weaker-than-expected economic data on Apr US personal spending and Apr pending home sales, which may prompt he Fed into maintaining its overly easy monetary policy, and (2) euro strength after ECB Council member Wellink said he's "fully confident" Greece will meet conditions to receive its 3.3 billion-euro ($4.7 billion) aid payment by the IMF next month.

                Bullish factors included (1) the larger-than-expected decline in the May Euro-Zone economic confidence which fell to a 7-month low and is euro negative, and (2) the unexpected increase in the May US Un iversity of Michigan consumer confidence, which is dollar supportive.


•   July crude oil prices this morning are trading up +$1.61 barrel and July gasoline is +2.17 cents per gallon, both at 2-week highs. Crude oil and gasoline prices last Friday finished higher as a weak dollar and a statement from the G-8 saying the global economy is strengthening offset weaker-than-expected US economic data: CLN11 +$0.36, RBN11 +2.39. Jul gasoline rallied to a 2-week high.

                Bullish factors included (1) the fall in the dollar index to a 2-week low, which boosts investment demand in commodities, (2) the statement from the G-8 leaders meeting in France that the global economy is strengthening, which may lift global energy demand, and (3) strength in gasoline after a power blackout shut 3 refineries in Texas City, Texas.

                Bearish factors included (1) the weaker-than-expected Apr US personal spending and Apr pending home sales, which signals economic weakness that may lead to reduced fuel demand, and (2) the prediction from JPMorgan Chase that OPEC will raise oil-output quotas next month as the group seeks to "assuage" pressure on consumer nations to release emergency stockpiles.

Wednesday, June 1, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are down -1 tick. T-note prices yesterday erased an early decline after mid-morning and finished higher on concern the economy is slowing: TYU11 +4.5, FVU11 +4.2, EDZ11 unchanged. Sep T-notes posted a 5-3/4 month nearest-futures high and the 10-year T-note yield fell to a 5-3/4 month low of 3.04%.

                Bullish factors included (1) the larger-than-expected decline in home prices after the Mar S&P/CaseShiller composite-20 home price index fell -3.6% y/y, weaker than expectations of -3.4% y/y and the biggest annual decline in 16 months, (2) the unexpected drop in May US consumer confidence which tumbled to a 6-month low (-5.2 to 60.8 versus expectations of +1.1 to 66.5), and (3) the greater-than-expected drop in the May Chicago purchasing managers index which expanded at its slowest pace in 1-1/2 years (-11.0 to 56.6 versus expectations of -5.3 to 62.3).

                Bearish factors included (1) reduced safe-haven demand for Treasuries after global stock markets rallied when Jean-Claude Juncker, leader of the Euro-Zone finance ministers, said that EU leaders will decide on a new aid package for Greece by the end of June and that EU officials have ruled out a "total restructuring" of Greece's debt, and (2) comments from former Fed Chairman Volcker who said the Fed may raise interest rates "soon" as the US budget deficit and interest rate close to zero will eventually lead to "inflationary problems."


•   The dollar index this morning is little changed with the dollar/yen -0.17 yen and the euro/dollar +0.06 cents. The dollar index yesterday slid to a 2-1/2 week low and settled lower as optimism European officials will approve additional aid for Greece boosted the euro while weaker-than-expected US economic data undercut the dollar: Dollar Index -0.335, USDJPY +1.157, EURUSD +0.00941.

                Bearish factors included (1) the rally in the euro to a 3-week high against the dollar on reduced European debt concerns after Jean-Claude Juncker, leader of the Euro-Zone finance ministers, said that EU leaders will decide on a new aid package for Greece by the end of June and that EU officials have ruled out a "total restructuring" of Greece's debt, and (2) weaker-than-expected US economic data on May consumer confidence, May Chicago purchasing managers, and Mar S&P CaseShiller home prices, which suggests economic weakness and is dollar negative.

                Bullish factors included (1 ) weaker-than-expected European economic data on Apr German retail sales and Apr French consumer spending, which is euro negative, and (2) weakness in the yen against the dollar after Moody's Investors Service put Japan's debt rating on review for a downgrade, citing faltering growth prospects and "a weak policy response" that may hinder government efforts to cut the nation's debt burden.


•   July crude oil prices this morning are trading down -19 cents a barrel and July gasoline is -1.12 cents per gallon. Crude oil and gasoline prices yesterday rallied to 2-week highs and finished sharply higher as the dollar slumped and after TransCanada shut its 591,000 bpd crude pipeline to the US after a leak: CLN11 +$2.11, RBN11 +1.90.

                Bullish factors included (1) the slide in the dollar index to a 2-1/2 week low, which boosts investment demand in commodities, (2) the action by TransCanada to shut its 591,000 bpd Keystone crude pipeline that sends Canadian oil to the US after "an issue with a fitting" caused a leak, and (3) comments from Qatar's oil minister who said there's "no noticeable urgency" for OPEC to raise its oil quotas when it meets next week.

                Bearish factors included (1) the weaker-than-expected US economic data on May Chicago purchasing managers, May US consumer confidence and Mar S&P/CaseShiller composite-20 home prices, which i ndicates economic weakness that is negative for energy demand and consumption, and (2) weaker-than-expected European economic data on Apr French consumer spending and Apr German retail sales, which may limit economic expansion and fuel demand.

Thursday, June 2, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are unchanged. T-note prices yesterday rallied sharply the entire day as weaker-than-expected economic data suggest the economy is slowing: TYU11 +22.5, FVU11 +12, EDZ11 unchanged. Sep T-notes posted a 6-month nearest-futures high and the 10-year T-note yield fell to a 5-3/4 month low of 2.95%.

                Bullish factors included (1) the smaller-than-expected increase in the May ADP employment change which posted its smallest job gain in 8 months (+38,000 versus expectations of +175,000), (2) the action by Goldman Sachs to cut its forecast for Friday's May nonfarm payrolls to +100,000 from +150,000, (3) the sharper-than-expected decline in the May ISM manufacturing index which expanded at its slowest pace in 20-months (-6.9 to 53.5 versus expectations of -2.9 to 57.5), (4) reduced inflation concerns after the larger-than-expected decline in the May ISM prices-paid sub-index (-9.0 to 76.5 versus expectations of -3.7 to 81.8), and (5) tec hnical buying after the yield on the 10-year T-note fell below 3.00%. A bearish factor was comments from Cleveland Fed President Pianalto who said she "expects the economy to continue on a gradual recovery pace over the next few years, with annual growth just above 3% a year."


•   The dollar index this morning is weaker and slipped to a 3-1/2 week low in overnight trade with the dollar/yen -0.13 yen and the euro/dollar +1.40 cents. The dollar index yesterday fell to a 3-1/2 week low on weaker-than-expected US economic data but erased its losses and closed higher on increased safe-haven demand after Moody's cut Greece's bond ratings and the stock market tumbled: Dollar Index +0.039, USDJPY -0.578, EURUSD -0.00681.

                Bullish factors included (1) the unexpected downward revision to May Euro-Zone PMI manufacturing, which is euro negative, (2) weakness in the British pound which declined against the dollar after May UK PMI manufacturing fell to its lowest level in 1-1/2 years, (3) increased safe-haven demand for the dollar as the equity market sold off and after Moody's Investors Service cut Greece's local and foreign currency bond ratings to Caa1 from B1 with a negative outlook.

                Bearish factors included (1) the weaker than expected May ADP employment change which showed its smallest job gain in 8 months, (2) the weaker-than-expected May ISM manufacturing index which expanded at its slowest pace in 20-months, and (3) the fall in the 10-year T-note yield to a 5-3/4 month low, which further weakens the dollar's interest rate differentials.


•   July crude oil prices this morning are trading up +8 cents a barrel and July gasoline is +0.96 of a cent per gallon. Crude oil and gasoline prices yesterday closed sharply lower as OPEC increased production in May and after weaker-than-expected global economic data hint at reduced energy demand: CLN11 -$2.41, RBN11 -6.45.

                Bearish factors included (1) weaker-than-expected US economic data that showed the smallest gain in May ADP employment in 8 months and May ISM manufacturing activity expanded at its lowest level in 20-months, (2) the unexpected downward revision to May Euro-Zone PMI manufacturing to a 7-month low, (3) the fall in May China PMI manufacturing activity to a 9-month low, and (4) Bloomberg data that shows OPEC crude production in May rose +0.6% to 28.895 million barrels a day, the highest since Feb.

                Bullish factors included (1) the fall in the dollar index to a 3-1/2 week low, which boosts investment demand in commodities, and (2) the statement from Iran' s OPEC Governor who said that maintaining current OPEC production quotas is the only way to balance the oil market. Expectations for the weekly DOE inventory report (delayed 1 day because of the Memorial Day holiday) are for crude oil supplies to drop -1.6 million bbl, gasoline stockpiles to increase +800,000 bbl, distillate inventories to remain unchanged and the refinery capacity rate to rise +0.5 to 86.8%.

Friday, June 3, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are up +6 ticks. T-note prices yesterday fluctuated on either side of unchanged until late morning as weaker-than-expected economic data supported prices but T-notes headed lower in the afternoon and finished with modest losses after Moody's warned it may put the US government's rating under review: TYU11 -11, FVU11 -6.2, EDZ11 -0.5. Sep T-notes posted a 6-month nearest-futures high but erased their gains and closed lower.

                Bearish factors included (1) long-liquidation and position squaring ahead of Friday's all-important monthly payrolls report, (2) reduced concerns over the European debt crisis which cut the safe-haven demand for Treasuries after German Chancellor Merkel said the European Union remains committed to the euro and the outlook for German growth is "very positive," and (3) the warning from Moody's Investors Service that it will place the US government's rating under review for possible downgrade if ther e is no progress on increasing the statutory debt limit in coming weeks.

                Bullish factors included (1) the smaller-than-expected drop in weekly initial unemployment claims (-6,000 to 422,000 versus expectations -7,000 to 417,000), (2) the larger than expected decline in Apr factory orders which posted their largest monthly drop in 11 months (-1.2% versus expectations of -1.0%), and (3) increased safe-haven demand for Treasuries over debt concerns in the banking sector after Moody's Investors Service placed the deposit, senior debt and senior subordinated debt ratings of Bank of America, Citigroup and Wells Fargo and their subsidiaries on review for possible downgrade.


•   The dollar index this morning is little changed with the dollar/yen -0.33 yen and the euro/dollar +0.02 cents. The dollar index yesterday slid to a 3-1/2 week low and finished modestly lower after comments from German Chancellor Merkel lifted the euro while weaker-than-expected US economic data undercut the dollar: Dollar Index -0.344, USDJPY -0.052, EURUSD +0.01621.

                Bearish factors included (1) comments from German Chancellor Merkel who said the European Union remains committed to the euro and the outlook for German growth is "very positive," (2) weaker-than-expected US economic data on weekly jobless claims and Apr factory orders, which indicate economic weakness and is dollar negative, and (3) the warning from Moody's that it will place the US government's rating under review for possible downgrade if there is no progress on increasing the statutory debt limit in coming weeks.

                Bullish factors included (1) increased safe-haven demand for the dollar after c redit-default swaps to insure Portuguese and Irish government debt rose to records, which indicate the European sovereign-debt crisis may worsen, and (2) the early slide in stock prices which also boosted the safe-haven demand for the dollar.


•   July crude oil prices this morning are trading down -87 cents a barrel and July gasoline -1.50 cents per gallon. Crude oil and gasoline prices yesterday fell to 1-week lows and finished mixed as an increase in fuel demand and a weak dollar offset weaker-than-expected economic data and an unexpected increase in weekly crude inventories: CLN11 +$0.11, RBN11 -0.73.

                Bearish factors included (1) weaker-than-expected US economic data that showed a smaller-than-expected decline in weekly US jobless claims along with the biggest monthly decline in Apr factory orders in 11 months, which suggests economic weakness that may curtail energy demand, (2) the unexpected increase in weekly DOE crude oil inventories for a second week (+2.88 million bbl versus expectations of -1.6 million bbl), and (3) the larger-than-expected rise in weekly DOE gasoline supplies (+2.55 million bbl versus expectations of +800,000 bbl).

                Bullish factors included (1) the drop in the dollar index to a 3-1/2 week low, which boosts investment demand in commodities, and (2) increased demand after US gasoline demand in the week ended May 27 rose +4.5% w/w to 9.43 million barrels a day, the highest in 9 months.

Monday, June 6, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are up +3.5 ticks. T-note prices last Friday surged to a 6-month high early after the weaker-than-expected May US nonfarm payrolls but then fell back from their best levels and closed only modestly higher on reduced safe-haven demand on speculation Greece will receive another bailout: TYU11 +11.5, FVU11 +7.5, EDZ11 +1.0. The yield on the 10-year T-note fell to a 5-3/4 month low of 2.95%.

                Bullish factors included (1) the smaller-than-expected increase in May nonfarm payrolls which posted their smallest gain in 8 months (+54,000 versus expectations of +170,000), (2) the unexpected drop in May manufacturing payrolls which posted their first decline in 7 months (-5,000 versus expectations of +10,000), and (3) the unexpected increase in the May unemployment rate (+0.1 to 9.1% versus expectations of -0.1 to 8.9%).

                Bearish factors included (1) the larger-than-expected increase in the May ISM non-manufacturing index (+1.8 to 54.6 ve rsus expectations of +1.2 to 54.0), and (2) reduced safe-haven demand for Treasuries after Jean-Claude Juncker, head of the Euro-Zone finance ministers, said the EU will approve additional financing to Greece.


•   The dollar index this morning is slightly higher as its rebounds from a 1-month low with the dollar/yen -0.25 yen and the euro/dollar -0.26 cents. The dollar index last Friday slumped to a 1-month low after May US nonfarm payrolls grew at the slowest pace in 8 months along with strength in the euro after Greece was approved for a revised bailout plan: Dollar Index -0.550, USDJPY -0.616, EURUSD +0.01439.

                Bearish factors included (1) the weaker-than-expected May US nonfarm payrolls report which may prompt the Fed into maintaining its overly easy monetary policy and further weaken the dollar's interest rate differentials, (2) the statement from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the EU will approve additional financing to Greece, which lifted the euro to a 1-month high against the dollar and reduces European debt concerns, and (3) the unexpected upward revisions to May German PMI services and to the May Euro-Zone PMI composite, which is euro supportive.

                Bullish factors included (1) increased safe-haven demand for the dollar after the stock market tumbled, and (2) the stronger-than-expected May ISM non-manufacturing index, which is dollar supportive.


•   July crude oil prices this morning are trading down -96 cents barrel and July gasoline -2.01 cents per gallon. Crude oil and gasoline prices last Friday slipped to 1-week lows and settled mixed as the weaker-than-expected US May payrolls report bolstered concern that a slower economic recovery will curb oil demand while a weaker dollar boosted gasoline: CLN11 -$0.18, RBN11 +2.54.

                Bearish factors included (1) the smaller-than-expected increase in May US nonfarm payrolls along with the unexpected increase in the May US unemployment rate, which suggests an economic slowdown that would be negative for energy demand, and (2) comments from Saudi Arabian Oil Minister Ali Al-Naimi who said that his country has 3 million to 3.5 million barrels a day of spare capacity and that OPEC "will respond" at its Jun 8 meeting if there is demand for more oil production.

                Bullish factors included (1) the decline in the dollar index to a 1-month low, which boosts investment demand in commodities, and (2) the stronger-than-expected May ISM non-manufacturing index, which signals economic expansion and is positive for energy demand and consumption.

Tuesday, June 7, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are down -5 ticks. T-note prices yesterday closed mixed as an increase in safe-haven demand offset supply concerns and hawkish comments from Philadelphia Fed President Plosser: TYU11 +0.5, FVU11 +2.0, EDZ11 unchanged.

                Bullish factors included (1) the Fed's action to purchase $6.397 billion of Treasuries as part of its QE2 asset purchase program, and (2) increased safe-haven demand for Treasuries after the S&P 500 slumped to a 2-1/4 month low.

                Bearish factors included (1) comments from Philadelphia Fed President Plosser who said an exit from stimulus measures should start "long before" a recovery in the US jobs market is assured, and (2) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tue.



•   The dollar index this morning is weaker and at a 1-month low with the dollar/yen +0.10 yen and the euro/dollar +0.88 cents at a 1-month high. The dollar index yesterday sank to a 1-month low on speculation the Fed will lag behind other central banks in raising interest rates but recovered its losses and closed higher after the euro weakened on increased European sovereign-debt concerns: Dollar Index +0.169, USDJPY -0.174, EURUSD -0.00586.

                Bullish factors included (1) the larger-than-expected decrease in Jun Euro-Zone Sentix investor confidence which fell to an 11-month low and is euro negative, and (2) increased safe-haven demand for the dollar on concern a Greek default would devastate European banks after data from the BIS showed that at the end of 2010, Greek government bonds held by banks in countries reporting to the BIS totaled $54.2 billion, of which 96% was owned by European lenders.

                Bearish factors included (1) speculation the Fed will lag behind other global central banks in raising interest rates, which will further weaken the dollar's interest rate differentials, and (2) strength in the yen which rose to a 1-month high against the dollar on increased safe-haven demand as global equity markets fell on concern over the sustainability of the economic recovery.



•   July crude oil prices this morning are trading down -36 cents a barrel and July gasoline -0.23 of a cent per gallon. Crude prices were undercut in overnight trade after an OPEC delegate said the cartel will raise production quotas. Crude oil and gasoline prices yesterday weakened and closed lower on speculation the global economic recovery and fuel demand are starting to falter: CLN11 -$1.21, RBN11 -4.32.

                Bearish factors included (1) the larger-than-expected drop in Jun Euro-Zone Sentix investor confidence to an 11-month low, which may portend a slowdown in European economic growth and energy demand, and (2) overall commodity weakness on concern s global economic slowdown will lead to reduced demand for commodities, including crude.

                Bullish factors included (1) the early drop in the dollar index to a 1-month low, which boosted investment demand in commodities, and (2) the statement from Venezuela's Oil Minister who said OPEC is unlikely to raise output quotas at this week's cartel meeting and that "We believe at the moment we're in balance."

Wednesday, June 8, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are up +8 ticks. T-note prices yesterday weakened on supply concerns along with reduced safe-haven demand from Europe's debt crisis after ECB President Trichet indicated his willingness to sanction bond rollovers in Greece: TYU11 -2.5, FVU11 +2.0, EDZ11 unchanged.

                Bearish factors included (1) reduced safe-haven demand for Treasuries from Europe's debt crisis after comments from ECB President Trichet who indicated his willingness to sanction bond rollovers in Greece, (2) comments from Dallas Fed President Fisher who said that despite signs the economy may be slowing, the so-called "doves" of the FOMC will not be pushing for another round of monetary stimulus for the US economy, and (3) supply pressures ahead of the Treasury's $21 billion auction of 10-year T-notes on Wed.

                Bullish factors included (1) the Fed's action to purchase $1.44 billion of TIPS as part of its QE2 asset purchase program, (2) decent demand for th e Treasury's $32 billion auction of 3-year T-notes that had a bid-to-cover ratio of 3.28, higher than the 12-auction average of 3.16, (3) comments from Fed Chairman Bernanke who said the Fed should maintain record monetary stimulus to boost an "uneven" economic recovery, and (4) comments from Atlanta Fed President Lockhart who said the time to begin unwinding the Fed's record monetary stimulus has not yet arrived as "I'm troubled by what you might describe as a lack of conviction in this economy."



•   The dollar index this morning is higher with the dollar/yen -0.24 yen and the euro/dollar -0.63 cents. The dollar index yesterday fell to a 1-month low and closed lower after the euro rallied to 1-month high against the dollar on stronger-than-expected Euro-Zone economic data along with ECB President Trichet's approval of Greek bond rollovers: Dollar Index -0.424, USDJPY -0.009, EURUSD +0.01152.

                Bearish factors included (1) reduced European debt concerns which undercut the safe-haven demand for the dollar after ECB President Trichet said a rollover of Greek debt as an alternative means of easing Greece's funding squeeze "is not a default, and is something the ECB would consider appropriate," and (2) stronger-than-expected European economic data on Apr Euro-Zone retail sales and Apr German factory orders, which signals economic strength and is euro supportive.

                Bullish factors included (1) weakness in the yen after Japanese Finance Minister Noda said "I w ill closely monitor developments in the markets," which indicates he may favor additional currency intervention if the yen strengthens further, and (2) dollar supportive comments from Dallas Fed President Fisher who said that despite signs the economy may be slowing, the so-called "doves" of the FOMC will not be pushing for another round of monetary stimulus for the US economy.



•   July crude oil prices this morning are trading down -94 cents a barrel and July gasoline -2.38 cents per gallon. Crude oil and gasoline prices yesterday slumped after an OPEC delegate said the cartel will raise production quotas, but recovered their losses and finished higher due to a weak dollar and strength in gasoline after Valero Energy's 310,000 bpd refinery in Port Arthur, Texas had a power disruption that curbed production: CLN11 +$0.08, RBN11 +4.20. Jul crude fell to a 2-week low but recovered its losses and closed higher.

                Bullish factors included (1) the slump in the dollar index to a 1-month low, which boosts investment demand in commodities, (2) strength in gasoline prices due to a disruption in production at Valero Energy's 310,000 bpd refinery in Port Arthur, Texas because of a power disruption, and (3) stronger than expected European economic data on Apr Euro-Zone retail sales and Apr German factory orders, which signals economic strength and is benefici al for energy demand and consumption.

                Bearish factors included (1) the statement from a Gulf delegate that OPEC will increase output targets to help replace missing supplies from Libya and meet demand growth later this year, (2) the prediction from Societe Generale SA and Morgan Stanley that OPEC is likely to raise output quotas by 1.5 million barrels a day, and (3) the outlook for increased gasoline supplies when the DOE reports weekly inventories on Wed. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil supplies to fall -1.38 million bbl, gasoline stockpiles to increase +1.05 million bbl, distillate inventories to gain +125,000 bbl and the refinery capacity rate to remain unchanged at 86%.