3SOF

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%.