3SOF

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%.