3SOF

Friday, May 20, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +6 ticks. T-note prices yesterday fell to a 1-week low after initial jobless claims fell more than expected, but prices recovered their losses and closed higher after May manufacturing activity on the US East Coast and Apr existing home sales unexpectedly declined: TYM11 +2.5, FVM11 +3.7, EDU11 +1.5.

                Bearish factors included (1) the larger-than-expected drop in weekly initial unemployment claims (-29,000 to 409,000 versus expectations of -14,000 to 420,000), and (2) slack demand for the Treasury's $11 billion auction of 10-year TIPS that has a bid-to-cover ratio of 2.66, weaker than the 12-auction average of 2.72.

                Bullish factors included (1) the unexpected decline in the May Philadelphia Fed manufacturing index which expanded at its slowest pace in 7 months (-14.6 to 3.9 versus expectations of +1.5 to 20.0), (2) the unexpected decline in Apr existing home sales (-0.8% to 5.05 million versus expectations of +2.0% to 5.20 mi llion, (3) the unexpected decline in Apr leading indicators which fell for the first time in 10 months (-0.3% versus expectations of +0.1%), and (4) comments from New York Fed President Dudley who said "We still have a considerable way to go to meet the Fed's dual mandate of full employment and price stability," which suggests he is in no hurry to end the Fed's record stimulus measures.



•   The dollar index this morning is higher with the dollar/yen +0.05 yen and the euro/dollar -0.73 cents. The dollar index yesterday settled lower as a drop in the yen to a 3-week low against the dollar was offset by weaker-than-expected US economic data: Dollar Index -0.352, USDJPY -0.067, EURUSD +0.00616.

                Bearish factors included (1) the unexpected declines in Apr leading indicators, existing US home sales and May Philadelphia Fed manufacturing, which indicates economic weakness that is dollar negative, (2) comments from New York Fed President Dudley who said "We still have a considerable way to go to meet the Fed's dual mandate of full employment and price stability," which suggests he is in no hurry to end the Fed's record stimulus measures, and (3) the action by Goldman Sachs to cut its 3-month dollar forecast to $1.45 per euro from $1.40, saying "With unemployment still high, fiscal consolidation looming and continued weakness in the real estate sector, the gro wth outlook remains less compelling in the US than in may other regions or countries."

                Bullish factors included (1) the slide in the yen to a 3-week low against the dollar on speculation the BOJ will keep stimulus efforts in place after Q1 Japan GDP was revised downward, and (2) the larger-than-expected drop in weekly US initial unemployment claims.



•   June crude oil prices this morning are trading up +13 cents a barrel and June gasoline is -0.80 of a cent per gallon. Crude oil and gasoline prices yesterday settled lower as a weak dollar and a larger-than-expected drop in weekly jobless claims fueled an early rally but, a mid-morning report on weaker-than-expected manufacturing activity sent prices tumbling into the close: CLM11 -$1.66, RBM11 -2.95.

                Bearish factors included (1) the unexpected decline in the May Philadelphia Fed manufacturing index which slid to its lowest level in 7 months and signals weakened energy demand, (2) the larger-than-expected downward revision to Q1 Japan GDP, which indicates decreased fuel demand in the world's third-largest oil consumer, and (3) the prediction from the AAA that the number of Americans driving more than 50 miles over the upcoming Memorial Day holiday weekend will fall by 100,000 to 30.9 million, the first decline in 3 years as high gasoline prices deter Americans from tak ing road trips.

                Bullish factors included (1) the weaker dollar which lift investment demand for commodities, (2) the larger-than-expected decline in weekly US jobless claims, which suggest improvement in the labor market that may benefit fuel demand, and (3) the report from NOAA that said the US may experience an "above normal" Atlantic hurricane season this year with 12 to 18 named storms, which increases the chances of damage to Gulf Coast refiners that may limit US fuel output.

Monday, May 23, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +15 ticks on increased safe-haven demand as global equity markets slump. T-note prices last Friday moved higher on increased safe-haven demand after the stock market tumbled on concern Europe's sovereign-debt crisis is getting worse: TYM11 +6.5, FVM11 +3.7, EDU11 -0.5.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis is getting worse after Fitch Ratings cut Greece's credit rating one notch to B+ from BB+ and said the country could face a further reduction in its creditworthiness, (2) concerns that the global economy may begin to slow after Germany's Bundesbank said in its monthly bulletin that Germany's economy will lose momentum, and (3) comments from Chicago Fed President Evans who said that "slow progress" in the economy justifies "substantial policy accommodation."

                Bearish factors included (1) data from the US Labor Department that showed payrolls grew in 42 states in Apr, while the unemployment rate fell in 39, which signals strength in the labor market, and (2) comments from Dallas Fed President Fisher who said the recovery "is gathering steam" and that "underlying fundamentals" of the US economy are better than recent data may indicate.



•   The dollar index this morning is higher and at a 1-1/2 month high with the dollar/yen +0.09 yen and the euro/dollar -1.41 cents at a 2-month low. The dollar index last Friday closed higher as European sovereign-debt concerns fueled an increase in the safe-haven demand for the dollar: Dollar Index +0.312, USDJPY +0.090, EURUSD -0.01512.

                 Bullish factors included (1) increased safe-haven demand for the dollar after Fitch Ratings cut Greece's credit rating one notch to B+ from BB+ and said the country could face a further reduction in its creditworthiness, (2) comments from ECB Council member Weidmann who said the ECB may not be able to accept Greek sovereign debt as collateral if the bond maturities are extended, and (3) the Bundesbank's monthly bulletin that stated economic growth in Germany "is likely to ease somewhat in the foreseeable future."

                Bearish factors included (1) dollar negative comments from Chicago Fed President Evans who said that "slow pro gress" in the economy justifies "substantial policy accommodation," and (2) strength in the yuan after PBOC Governor Xiaochuan said that inflation remains "high" and China needs to strike a balance between economic growth and consumer prices, which fueled speculation of further tightening measures by China.



•   July crude oil prices this morning are trading down -$2.40 a barrel and July gasoline is -4.29 cents per gallon. Crude oil and gasoline prices last Friday fell early on the stronger dollar but then rallied and closed higher after the API reported the US fuel consumption increased in April: CLN11 +$1.17, RBN11 +1.63.

                Bullish factors included (1) data from the US Labor Department that showed payrolls grew in 42 states in Apr, while the unemployment rate fell in 39, which signals broad-based strength in the labor market that may lead to increased economic strength and fuel demand, and (2) data from the API that said US fuel consumption as measured by deliveries of petroleum products, rose in Apr by +5.2% to 19.9 million barrels a day from a year earlier.

                Bearish factors included (1) strength in the dollar, which reduces investment demand in commodities, (2) the statement from Germany's Bundesbank that growth in Germany, Europe's largest economy will probably slow because growth in Q1 was "overstated," and (3) the slump in the equity market which reduces confidence in the economic outlook and energy demand.

Tuesday, May 24, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +0.5 of a tick. T-note prices yesterday surged to a 5-1/2 month high and closed higher on increased safe-haven demand after global stock markets plunged on concern that Europe's debt crisis was worsening: TYM11 +6, FVM11 +1.7, EDU11 -2.0. The 10-year T-note yield matched its 5-1/2 month low of 3.089%.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis is getting worse after the yields on Greek and Irish 10-year government bonds rose to records and Standard & Poor's warned it may downgrade Italy's debt, (2) the weaker-than-expected Apr Chicago Fed National Activity Index which unexpectedly fell below zero to its lowest level in 8 months (-0.77 to -0.45 versus expectations of -0.06 to 0.20), and (3) the Fed's action to purchase $6.9 billion of Treasuries as part of its QE2 asset=purchase program.

                Bearish factors is supply pressures ahead of Tuesday's $35 billion auction of 2-year T-notes.



•   The dollar index this morning is weaker with the dollar/yen -0.19 yen and the euro/dollar +0.33 cents. The dollar index yesterday rallied to a 1-1/2 month high and closed higher on increased safe-haven demand due to concern Europe's sovereign-debt crisis will worsen: Dollar Index +0.721, USDJPY +0.309, EURUSD -0.01117.

                Bullish factors included (1) increased safe-haven demand for the dollar after the yields on Greek and Irish 10-year government bonds rose to records and Standard & Poor's warned it may downgrade Italy's debt, an indication the European debt crisis may worsen, (2) weakness in the euro which tumbled to a 2-month low against the dollar after May German manufacturing PMI fell to its lowest level in 6 months and the May Euro-Zone PMI composite fell more than expected, and (3) increased safe-haven demand for the dollar after the May China HSBC manufacturing PMI fell to its slowest pace of expansion in 10-months, a sign the global economy is slowing.

                Bearish factors included (1) the fall in the 10-year T-note yield to a 5-1/2 month low, which weakens the dollar's interest rate differentials, and (2) the slide in the Apr Chicago Fed National Activity Index to its lowest level in 8 months, which suggests economic weakness and is dollar negative.



•   July crude oil prices this morning are trading up +$1.12 a barrel and July gasoline is +3.64 cents per gallon. Crude oil and gasoline prices yesterday closed lower due to a strong dollar along with concern that global energy demand will weaken from the European sovereign-debt crisis and a slowdown in Chinese and European manufacturing activity: CLN11 -$2.40, RBN11 -1.44.

                Bearish factors included (1) a rally in the dollar index to t 1-1/2 month high, which reduces investment demand in commodities, (2) the drop in the May China HSBC manufacturing PMI to its slowest level in 10 months, which indicates reduced energy consumption, (3) the larger-than-expected decline in the May Euro-Zone PMI composite, and (4) concern that the European debt crisis may worsen and slow energy demand after the yields on Greek and Irish 10-year government bonds rose to records and Standard & Poor's warned it may downgrade Italy's debt.

Wednesday, May 25, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are up +2.5 ticks. T-note prices yesterday traded sideways in negative territory due to stronger-than-expected US new home sales but rallied in the early afternoon and closed higher after stocks faltered and strong demand was seen at the Treasury's $35 billion 2-year T-note auction: TYM11 +2.5, FVM11 +1, EDU11 unchanged.

                Bullish factors included (1) the unexpected decline in the May Richmond Fed manufacturing index which fell to a 2-year low (-16 to -6 versus expectations of unchanged at 10), (2) strong demand for the Treasury's $35 billion auction of 2-year T-notes that had a bid-to-cover ration of 3.46, higher than the 12-auction average of 3.35, (4) weak stock prices which prompted safe-haven demand for Treasuries, and (5) comments from St. Louis Fed President Bullard who said the Fed may keep its policy rate, the size of its balance sheet and policy language on hold to "give the FOMC more time to assess economic conditions ."

                Bearish factors include (1) the unexpected increase in Apr US new home sales (+7.3% to 323,000 versus expectations of unchanged at 300,000), and (2) supply pressures ahead of a $35 billion Treasury auction of 5-year T-notes on Wed.



•   The dollar index this morning is higher with the dollar/yen +0.08 yen and the euro/dollar -0.38 cents. The dollar index yesterday closed lower as the euro strengthened on stronger than expected German business confidence and reduced European sovereign-debt concerns: Dollar Index -0.269, USDJPY -0.052, EURUSD +0.00518.

                Bearish factors included (1) the stronger-than-expected May German IFO business climate index, (2) the action by the Greek government to endorse an asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid, which reduced European debt concerns, and (3) comments from St. Louis Fed President Bullard who said the Fed may keep its policy rate, the size of its balance sheet and policy language on hold to "give the FOMC more time to assess economic conditions."

                Bullish factors included (1) the unexpected increase in Apr US new home sales, which suggest economic strength and is dollar supportive, and (2) the larger-than-expect ed declines in May French business confidence and in Mar Euro-Zone industrial new orders, which is euro negative.



•   July crude oil prices this morning are trading down -11 cents a barrel and July gasoline is -1.01 cents per gallon. Crude oil and gasoline prices yesterday settled higher due to the weak dollar and after Goldman Sachs said it was turning "more bullish" on commodities: CLN11 +$1.89, RBN11 +5.21.

                Bullish factors included (1) a decline in the dollar which encourages investment demand in commodities, (2) fund buying of crude after the statement from Goldman Sachs that it's turning "more bullish" on commodities and its prediction that "It is only a matter of time until inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supplies," and (3) the outlook for weekly crude supplies to decline when the DOE reports weekly crude oil inventories on Wed.

                Bearish factors included (1) the unexpected decline in May Richmond Fed manufacturing index to a 2-year low , which indicates weakened energy consumption, and (2) the outlook for gasoline supplies to increase on Wednesday's weekly DOE inventory report. Expectations for weekly inventories from the DOE are for crude oil supplies to fall -1.7 million bbl, gasoline stockpiles to rise +500,000 bbl, distillate inventories to increase +50,000 bbl and the refinery utilization rate to rise +0.5 to 83.7% of capacity.

Thursday, May 26, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -4 ticks. T-note prices yesterday traded on both sides of unchanged throughout the day and finished slightly higher as strong demand for the Treasury's $35 billion auction of 5-year T-notes offset hawkish Fed comments: TYM11 +2, FVM11 +4, EDU11 -0.5.

                Bullish factors included (1) the weaker-than-expected Apr US durable goods orders which posted their biggest decline in 6 months (-3.6% and -1.5% ex transportation versus expectations of -2.5% and +0.5% ex transportation), (2) the Fed's action to purchase $4.796 billion of Treasuries as part of its QE2 asset-purchase program, (3) strong demand for the Treasury's $35 billion auction of 5-year T-notes that had a bid-to-cover ratio of 3.20, higher than the 12-auction average of 2.79, and (4) increased safe-haven demand for Treasuries after comments from ECB Council member Draghi who said he sees "serious downside risks" to economic growth from the European debt crisis.

                Bearish factors include (1) reduced safe-haven demand for Treasuries after the stock market shook off early losses and rallied, (2) comments from Minneapolis Fed President Kocherlakota who said that based on his predictions of core PCE inflation rising slowly this year, a "modest" rate hike of 50 bp in the Fed funds rate by the end of the year "would be desirable" and would still leave Fed policy "highly accommodative," and (3) supply pressures ahead of a $29 billion Treasury auction of 7-year T-notes on Thu.



•   The dollar index this morning is lower with the dollar/yen -0.14 yen and the euro/dollar +0.76 cents. The dollar index yesterday finished slightly higher after it shook off early weakness when Apr durable goods orders fell more than expected and rallied on euro negative comments from ECB Council members Draghi and Stark: Dollar Index +0.050, USDJPY +0.011, EURUSD -0.00120.

                Bullish factors included (1) the bigger-than-expected decline in the Jun German GfK consumer confidence survey which fell to its lowest level in 6 months and is euro negative, (2) the action by the OECD to raise its US growth estimates for this year, (3) comments from ECB Executive Board member Stark who said Greece, Ireland and Portugal need a "drastic change" in economic policy, which boosted the safe-haven demand for the dollar on concern the European sovereign-debt crisis will linger, and (4) comments from ECB Council member Draghi who said he sees "serious downside risks" to economic growth from the European debt crisis.

                Bearish factors included (1) the larger-than-expected drop in Apr US durable goods orders which posted their biggest decline in 6 months and hints at economic weakness, and (2) hawkish comments from ECB Executive Board member Stark who said interest rates could go higher "if needed" because Europe's economy is growing more strongly than expected.



•   July crude oil prices this morning are trading down -76 cents a barrel and July gasoline is -0.88 of a cent per gallon. Crude oil and gasoline prices yesterday finished higher after US distillate supplies fell to a 2-year low and the OECD hiked its US growth estimate for this year: CLN11 +$1.73, RBN11 +2.87.

                Bullish factors included (1) the unexpected decline in weekly distillate inventories which fell to a 2-year low (-2.04 million bbl to 141.1 million bbl versus expectations of a +50,000 bbl build), and (2) the action by the OECD to raise its 2011 US GDP estimate to 2.6% from a Nov estimate of 2.2%.

                Bearish factors included (1) the unexpected increase in weekly crude oil supplies (+616,000 bbl versus expectations of -1.7 million bbl), (2) the surge in weekly gasoline supplies by the most in 3 months (+3.79 million bbl versus expectations of +500,000 bbl), and (3) the larger-than-expected increase in the refinery utilization rate to its highest level in 4-1/2 months (+3.2 points to 86.3% versus expectations of +0.5 to 83.7%), which bodes well for further increases in fuel supplies as refiners come out of maintenance programs and boost production.

Friday, May 27, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -0.5 of a tick. T-note prices yesterday rallied to a 6-month high and finished moderately higher on concern the economic recovery is losing momentum: TYM11 +19.5, FVM11 +12.7, EDU11 +0.5. The 10-year T-note yield slipped to a 5-1/2 month low of 3.056%.

                Bullish factors included (1) the weaker-than-expected Q1 US GDP (unrevised at +1.8% annualized, weaker than expectations for an upward revision to +2.2% annualized), (2) the unexpected increase in weekly US initial unemployment claims (+10,000 to 424,000 versus expectations of -5,000 to 404,000), (3) increased safe-haven demand for Treasuries after the head of the Euro-Zone finance ministers, Jean-Claude Juncker, said the IMF may not release its portion of aid to Greece next month, and (4) strong demand for the Treasury's $29 billion auction of 7-year T-notes that had a bid-to-cover ratio of 3.24, well ahead of the 12-auction average of 2.86.


•   The dollar index this morning is weaker with the dollar/yen -0.17 yen and the euro/dollar +0.94 cents. The dollar index yesterday settled with modest losses as weaker-than-expected US economic data fueled speculation that the US will lag behind other countries in raising interest rates: Dollar Index -0.383, USDJPY -0.678, EURUSD -0.00562.

                Bearish factors included (1) the weaker-than-expected Q1 US GDP along with the unexpected increase in weekly US initial unemployment claims, which bolsters the outlook for the Fed to maintain its overly easy monetary policy, (2) comments from ECB President Trichet who said policy makers are "carefully" monitoring inflation, which bolsters speculation the ECB is prepping the markets for another interest rate hike, and (3) comments from the CEO of the European Financial Stability Facility that Asian investors, including the Chinese government, may compromise a "strong proportion" of Portuguese bailout bond buyers when the EFSF sells the bailout bonds next month, which eases concern that the European debt crisis will spread.

                Bullish factors included (1) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the IMF needs "financing assurances" before it releases its share of aid to Greece next month, which undercut the euro as it raises uncertainty over additional aid for Greece, and (2) the prediction from Fidelity Investments that the dollar is set to strengthen over the next 18 months to 3 years because of competitive advantages in the US.


•   July crude oil prices this morning are trading up +12 cents a barrel and July gasoline is up +0.15 of a cent per gallon. Crude oil and gasoline prices yesterday settled mixed as refinery outages in the Midwest boosted gasoline but weaker-than-expected economic data undercut crude: CLN11 -$1.09, RBN11 +2.07. Jul gasoline rose to a 1-week high and Jul crude climbed to a 2-week high but crude shed its gains and closed lower.

                Bullish factors included (1) the weaker dollar, which boosts investment demand in commodities, and (2) strength in gasoline on speculation that outages at 2 Illinois refineries owned by Marathon Oil and Exxon Mobil will reduce gasoline supplies during the Memorial Day holiday weekend.

                Bearish factors included (1) the weaker-than-expected US Q1 GDP, which signals reduced fuel consumption, and (2) the unexpected increase in weekly US initial jobless claims, which suggests labor market weakness that may lead to reduced fuel demand.

Tuesday, May 31, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are down -12 ticks as global equity markets strenghten. T-note prices last Friday shook off early losses and moved higher on concern the economy is slowing along with increased safe-haven demand from Europe's debt crisis: TYM11 +2.5, FVM11 +1.2, EDU11 +1.0. Jun T-notes rose to a 5-1/2 month nearest-futures high and the 10-year T-note yield slipped to a 5-1/2 month low of 3.05%.

                Bullish factors included (1) the weaker-than-expected Apr US personal spending (+0.4% versus expectations of +0.5%), (2) the plunge in Apr US pending home sales (-11.6% m/m versus expectations of -1.0% m/m), and (3) increased safe-haven demand for Treasuries on concern that Greece may not receive additional bailout funds and default on its debt after Greek Prime Minister Papandreou failed to secure support from the country's main opposition parties for new austerity measures.

                Bearish factors included (1) the unexpected increase in May US University of Mich igan consumer confidence (+1.9 to 74.3 versus expectations of unchanged at 72.4), and (2) reduced safe-haven demand for Treasuries after the statement from G-8 leaders meeting in France that "the global recovery is gaining strength and is becoming more self-sustained," which will pave the way for reductions in debt.


•   The dollar index this morning is lower and at a 2-1/2 week low with the dollar/yen +0.64 yen and the euro/dollar +1.19 cents. The dollar index last Friday plunged to a 2-week low as weaker-than-expected data on US consumer spending and home sales suggests the Fed will lag behind other central banks in raising interest rates: Dollar Index -0.595, USDJPY -0.490, EURUSD +0.01583.

                Bearish factors included (1) the weaker-than-expected economic data on Apr US personal spending and Apr pending home sales, which may prompt he Fed into maintaining its overly easy monetary policy, and (2) euro strength after ECB Council member Wellink said he's "fully confident" Greece will meet conditions to receive its 3.3 billion-euro ($4.7 billion) aid payment by the IMF next month.

                Bullish factors included (1) the larger-than-expected decline in the May Euro-Zone economic confidence which fell to a 7-month low and is euro negative, and (2) the unexpected increase in the May US Un iversity of Michigan consumer confidence, which is dollar supportive.


•   July crude oil prices this morning are trading up +$1.61 barrel and July gasoline is +2.17 cents per gallon, both at 2-week highs. Crude oil and gasoline prices last Friday finished higher as a weak dollar and a statement from the G-8 saying the global economy is strengthening offset weaker-than-expected US economic data: CLN11 +$0.36, RBN11 +2.39. Jul gasoline rallied to a 2-week high.

                Bullish factors included (1) the fall in the dollar index to a 2-week low, which boosts investment demand in commodities, (2) the statement from the G-8 leaders meeting in France that the global economy is strengthening, which may lift global energy demand, and (3) strength in gasoline after a power blackout shut 3 refineries in Texas City, Texas.

                Bearish factors included (1) the weaker-than-expected Apr US personal spending and Apr pending home sales, which signals economic weakness that may lead to reduced fuel demand, and (2) the prediction from JPMorgan Chase that OPEC will raise oil-output quotas next month as the group seeks to "assuage" pressure on consumer nations to release emergency stockpiles.

Wednesday, June 1, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are down -1 tick. T-note prices yesterday erased an early decline after mid-morning and finished higher on concern the economy is slowing: TYU11 +4.5, FVU11 +4.2, EDZ11 unchanged. Sep T-notes posted a 5-3/4 month nearest-futures high and the 10-year T-note yield fell to a 5-3/4 month low of 3.04%.

                Bullish factors included (1) the larger-than-expected decline in home prices after the Mar S&P/CaseShiller composite-20 home price index fell -3.6% y/y, weaker than expectations of -3.4% y/y and the biggest annual decline in 16 months, (2) the unexpected drop in May US consumer confidence which tumbled to a 6-month low (-5.2 to 60.8 versus expectations of +1.1 to 66.5), and (3) the greater-than-expected drop in the May Chicago purchasing managers index which expanded at its slowest pace in 1-1/2 years (-11.0 to 56.6 versus expectations of -5.3 to 62.3).

                Bearish factors included (1) reduced safe-haven demand for Treasuries after global stock markets rallied when Jean-Claude Juncker, leader of the Euro-Zone finance ministers, said that EU leaders will decide on a new aid package for Greece by the end of June and that EU officials have ruled out a "total restructuring" of Greece's debt, and (2) comments from former Fed Chairman Volcker who said the Fed may raise interest rates "soon" as the US budget deficit and interest rate close to zero will eventually lead to "inflationary problems."


•   The dollar index this morning is little changed with the dollar/yen -0.17 yen and the euro/dollar +0.06 cents. The dollar index yesterday slid to a 2-1/2 week low and settled lower as optimism European officials will approve additional aid for Greece boosted the euro while weaker-than-expected US economic data undercut the dollar: Dollar Index -0.335, USDJPY +1.157, EURUSD +0.00941.

                Bearish factors included (1) the rally in the euro to a 3-week high against the dollar on reduced European debt concerns after Jean-Claude Juncker, leader of the Euro-Zone finance ministers, said that EU leaders will decide on a new aid package for Greece by the end of June and that EU officials have ruled out a "total restructuring" of Greece's debt, and (2) weaker-than-expected US economic data on May consumer confidence, May Chicago purchasing managers, and Mar S&P CaseShiller home prices, which suggests economic weakness and is dollar negative.

                Bullish factors included (1 ) weaker-than-expected European economic data on Apr German retail sales and Apr French consumer spending, which is euro negative, and (2) weakness in the yen against the dollar after Moody's Investors Service put Japan's debt rating on review for a downgrade, citing faltering growth prospects and "a weak policy response" that may hinder government efforts to cut the nation's debt burden.


•   July crude oil prices this morning are trading down -19 cents a barrel and July gasoline is -1.12 cents per gallon. Crude oil and gasoline prices yesterday rallied to 2-week highs and finished sharply higher as the dollar slumped and after TransCanada shut its 591,000 bpd crude pipeline to the US after a leak: CLN11 +$2.11, RBN11 +1.90.

                Bullish factors included (1) the slide in the dollar index to a 2-1/2 week low, which boosts investment demand in commodities, (2) the action by TransCanada to shut its 591,000 bpd Keystone crude pipeline that sends Canadian oil to the US after "an issue with a fitting" caused a leak, and (3) comments from Qatar's oil minister who said there's "no noticeable urgency" for OPEC to raise its oil quotas when it meets next week.

                Bearish factors included (1) the weaker-than-expected US economic data on May Chicago purchasing managers, May US consumer confidence and Mar S&P/CaseShiller composite-20 home prices, which i ndicates economic weakness that is negative for energy demand and consumption, and (2) weaker-than-expected European economic data on Apr French consumer spending and Apr German retail sales, which may limit economic expansion and fuel demand.

Thursday, June 2, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are unchanged. T-note prices yesterday rallied sharply the entire day as weaker-than-expected economic data suggest the economy is slowing: TYU11 +22.5, FVU11 +12, EDZ11 unchanged. Sep T-notes posted a 6-month nearest-futures high and the 10-year T-note yield fell to a 5-3/4 month low of 2.95%.

                Bullish factors included (1) the smaller-than-expected increase in the May ADP employment change which posted its smallest job gain in 8 months (+38,000 versus expectations of +175,000), (2) the action by Goldman Sachs to cut its forecast for Friday's May nonfarm payrolls to +100,000 from +150,000, (3) the sharper-than-expected decline in the May ISM manufacturing index which expanded at its slowest pace in 20-months (-6.9 to 53.5 versus expectations of -2.9 to 57.5), (4) reduced inflation concerns after the larger-than-expected decline in the May ISM prices-paid sub-index (-9.0 to 76.5 versus expectations of -3.7 to 81., and (5) tec hnical buying after the yield on the 10-year T-note fell below 3.00%. A bearish factor was comments from Cleveland Fed President Pianalto who said she "expects the economy to continue on a gradual recovery pace over the next few years, with annual growth just above 3% a year."


•   The dollar index this morning is weaker and slipped to a 3-1/2 week low in overnight trade with the dollar/yen -0.13 yen and the euro/dollar +1.40 cents. The dollar index yesterday fell to a 3-1/2 week low on weaker-than-expected US economic data but erased its losses and closed higher on increased safe-haven demand after Moody's cut Greece's bond ratings and the stock market tumbled: Dollar Index +0.039, USDJPY -0.578, EURUSD -0.00681.

                Bullish factors included (1) the unexpected downward revision to May Euro-Zone PMI manufacturing, which is euro negative, (2) weakness in the British pound which declined against the dollar after May UK PMI manufacturing fell to its lowest level in 1-1/2 years, (3) increased safe-haven demand for the dollar as the equity market sold off and after Moody's Investors Service cut Greece's local and foreign currency bond ratings to Caa1 from B1 with a negative outlook.

                Bearish factors included (1) the weaker than expected May ADP employment change which showed its smallest job gain in 8 months, (2) the weaker-than-expected May ISM manufacturing index which expanded at its slowest pace in 20-months, and (3) the fall in the 10-year T-note yield to a 5-3/4 month low, which further weakens the dollar's interest rate differentials.


•   July crude oil prices this morning are trading up +8 cents a barrel and July gasoline is +0.96 of a cent per gallon. Crude oil and gasoline prices yesterday closed sharply lower as OPEC increased production in May and after weaker-than-expected global economic data hint at reduced energy demand: CLN11 -$2.41, RBN11 -6.45.

                Bearish factors included (1) weaker-than-expected US economic data that showed the smallest gain in May ADP employment in 8 months and May ISM manufacturing activity expanded at its lowest level in 20-months, (2) the unexpected downward revision to May Euro-Zone PMI manufacturing to a 7-month low, (3) the fall in May China PMI manufacturing activity to a 9-month low, and (4) Bloomberg data that shows OPEC crude production in May rose +0.6% to 28.895 million barrels a day, the highest since Feb.

                Bullish factors included (1) the fall in the dollar index to a 3-1/2 week low, which boosts investment demand in commodities, and (2) the statement from Iran' s OPEC Governor who said that maintaining current OPEC production quotas is the only way to balance the oil market. Expectations for the weekly DOE inventory report (delayed 1 day because of the Memorial Day holiday) are for crude oil supplies to drop -1.6 million bbl, gasoline stockpiles to increase +800,000 bbl, distillate inventories to remain unchanged and the refinery capacity rate to rise +0.5 to 86.8%.

Friday, June 3, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are up +6 ticks. T-note prices yesterday fluctuated on either side of unchanged until late morning as weaker-than-expected economic data supported prices but T-notes headed lower in the afternoon and finished with modest losses after Moody's warned it may put the US government's rating under review: TYU11 -11, FVU11 -6.2, EDZ11 -0.5. Sep T-notes posted a 6-month nearest-futures high but erased their gains and closed lower.

                Bearish factors included (1) long-liquidation and position squaring ahead of Friday's all-important monthly payrolls report, (2) reduced concerns over the European debt crisis which cut the safe-haven demand for Treasuries after German Chancellor Merkel said the European Union remains committed to the euro and the outlook for German growth is "very positive," and (3) the warning from Moody's Investors Service that it will place the US government's rating under review for possible downgrade if ther e is no progress on increasing the statutory debt limit in coming weeks.

                Bullish factors included (1) the smaller-than-expected drop in weekly initial unemployment claims (-6,000 to 422,000 versus expectations -7,000 to 417,000), (2) the larger than expected decline in Apr factory orders which posted their largest monthly drop in 11 months (-1.2% versus expectations of -1.0%), and (3) increased safe-haven demand for Treasuries over debt concerns in the banking sector after Moody's Investors Service placed the deposit, senior debt and senior subordinated debt ratings of Bank of America, Citigroup and Wells Fargo and their subsidiaries on review for possible downgrade.


•   The dollar index this morning is little changed with the dollar/yen -0.33 yen and the euro/dollar +0.02 cents. The dollar index yesterday slid to a 3-1/2 week low and finished modestly lower after comments from German Chancellor Merkel lifted the euro while weaker-than-expected US economic data undercut the dollar: Dollar Index -0.344, USDJPY -0.052, EURUSD +0.01621.

                Bearish factors included (1) comments from German Chancellor Merkel who said the European Union remains committed to the euro and the outlook for German growth is "very positive," (2) weaker-than-expected US economic data on weekly jobless claims and Apr factory orders, which indicate economic weakness and is dollar negative, and (3) the warning from Moody's that it will place the US government's rating under review for possible downgrade if there is no progress on increasing the statutory debt limit in coming weeks.

                Bullish factors included (1) increased safe-haven demand for the dollar after c redit-default swaps to insure Portuguese and Irish government debt rose to records, which indicate the European sovereign-debt crisis may worsen, and (2) the early slide in stock prices which also boosted the safe-haven demand for the dollar.


•   July crude oil prices this morning are trading down -87 cents a barrel and July gasoline -1.50 cents per gallon. Crude oil and gasoline prices yesterday fell to 1-week lows and finished mixed as an increase in fuel demand and a weak dollar offset weaker-than-expected economic data and an unexpected increase in weekly crude inventories: CLN11 +$0.11, RBN11 -0.73.

                Bearish factors included (1) weaker-than-expected US economic data that showed a smaller-than-expected decline in weekly US jobless claims along with the biggest monthly decline in Apr factory orders in 11 months, which suggests economic weakness that may curtail energy demand, (2) the unexpected increase in weekly DOE crude oil inventories for a second week (+2.88 million bbl versus expectations of -1.6 million bbl), and (3) the larger-than-expected rise in weekly DOE gasoline supplies (+2.55 million bbl versus expectations of +800,000 bbl).

                Bullish factors included (1) the drop in the dollar index to a 3-1/2 week low, which boosts investment demand in commodities, and (2) increased demand after US gasoline demand in the week ended May 27 rose +4.5% w/w to 9.43 million barrels a day, the highest in 9 months.

Monday, June 6, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are up +3.5 ticks. T-note prices last Friday surged to a 6-month high early after the weaker-than-expected May US nonfarm payrolls but then fell back from their best levels and closed only modestly higher on reduced safe-haven demand on speculation Greece will receive another bailout: TYU11 +11.5, FVU11 +7.5, EDZ11 +1.0. The yield on the 10-year T-note fell to a 5-3/4 month low of 2.95%.

                Bullish factors included (1) the smaller-than-expected increase in May nonfarm payrolls which posted their smallest gain in 8 months (+54,000 versus expectations of +170,000), (2) the unexpected drop in May manufacturing payrolls which posted their first decline in 7 months (-5,000 versus expectations of +10,000), and (3) the unexpected increase in the May unemployment rate (+0.1 to 9.1% versus expectations of -0.1 to 8.9%).

                Bearish factors included (1) the larger-than-expected increase in the May ISM non-manufacturing index (+1.8 to 54.6 ve rsus expectations of +1.2 to 54.0), and (2) reduced safe-haven demand for Treasuries after Jean-Claude Juncker, head of the Euro-Zone finance ministers, said the EU will approve additional financing to Greece.


•   The dollar index this morning is slightly higher as its rebounds from a 1-month low with the dollar/yen -0.25 yen and the euro/dollar -0.26 cents. The dollar index last Friday slumped to a 1-month low after May US nonfarm payrolls grew at the slowest pace in 8 months along with strength in the euro after Greece was approved for a revised bailout plan: Dollar Index -0.550, USDJPY -0.616, EURUSD +0.01439.

                Bearish factors included (1) the weaker-than-expected May US nonfarm payrolls report which may prompt the Fed into maintaining its overly easy monetary policy and further weaken the dollar's interest rate differentials, (2) the statement from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the EU will approve additional financing to Greece, which lifted the euro to a 1-month high against the dollar and reduces European debt concerns, and (3) the unexpected upward revisions to May German PMI services and to the May Euro-Zone PMI composite, which is euro supportive.

                Bullish factors included (1) increased safe-haven demand for the dollar after the stock market tumbled, and (2) the stronger-than-expected May ISM non-manufacturing index, which is dollar supportive.


•   July crude oil prices this morning are trading down -96 cents barrel and July gasoline -2.01 cents per gallon. Crude oil and gasoline prices last Friday slipped to 1-week lows and settled mixed as the weaker-than-expected US May payrolls report bolstered concern that a slower economic recovery will curb oil demand while a weaker dollar boosted gasoline: CLN11 -$0.18, RBN11 +2.54.

                Bearish factors included (1) the smaller-than-expected increase in May US nonfarm payrolls along with the unexpected increase in the May US unemployment rate, which suggests an economic slowdown that would be negative for energy demand, and (2) comments from Saudi Arabian Oil Minister Ali Al-Naimi who said that his country has 3 million to 3.5 million barrels a day of spare capacity and that OPEC "will respond" at its Jun 8 meeting if there is demand for more oil production.

                Bullish factors included (1) the decline in the dollar index to a 1-month low, which boosts investment demand in commodities, and (2) the stronger-than-expected May ISM non-manufacturing index, which signals economic expansion and is positive for energy demand and consumption.

Tuesday, June 7, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are down -5 ticks. T-note prices yesterday closed mixed as an increase in safe-haven demand offset supply concerns and hawkish comments from Philadelphia Fed President Plosser: TYU11 +0.5, FVU11 +2.0, EDZ11 unchanged.

                Bullish factors included (1) the Fed's action to purchase $6.397 billion of Treasuries as part of its QE2 asset purchase program, and (2) increased safe-haven demand for Treasuries after the S&P 500 slumped to a 2-1/4 month low.

                Bearish factors included (1) comments from Philadelphia Fed President Plosser who said an exit from stimulus measures should start "long before" a recovery in the US jobs market is assured, and (2) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tue.



•   The dollar index this morning is weaker and at a 1-month low with the dollar/yen +0.10 yen and the euro/dollar +0.88 cents at a 1-month high. The dollar index yesterday sank to a 1-month low on speculation the Fed will lag behind other central banks in raising interest rates but recovered its losses and closed higher after the euro weakened on increased European sovereign-debt concerns: Dollar Index +0.169, USDJPY -0.174, EURUSD -0.00586.

                Bullish factors included (1) the larger-than-expected decrease in Jun Euro-Zone Sentix investor confidence which fell to an 11-month low and is euro negative, and (2) increased safe-haven demand for the dollar on concern a Greek default would devastate European banks after data from the BIS showed that at the end of 2010, Greek government bonds held by banks in countries reporting to the BIS totaled $54.2 billion, of which 96% was owned by European lenders.

                Bearish factors included (1) speculation the Fed will lag behind other global central banks in raising interest rates, which will further weaken the dollar's interest rate differentials, and (2) strength in the yen which rose to a 1-month high against the dollar on increased safe-haven demand as global equity markets fell on concern over the sustainability of the economic recovery.



•   July crude oil prices this morning are trading down -36 cents a barrel and July gasoline -0.23 of a cent per gallon. Crude prices were undercut in overnight trade after an OPEC delegate said the cartel will raise production quotas. Crude oil and gasoline prices yesterday weakened and closed lower on speculation the global economic recovery and fuel demand are starting to falter: CLN11 -$1.21, RBN11 -4.32.

                Bearish factors included (1) the larger-than-expected drop in Jun Euro-Zone Sentix investor confidence to an 11-month low, which may portend a slowdown in European economic growth and energy demand, and (2) overall commodity weakness on concern s global economic slowdown will lead to reduced demand for commodities, including crude.

                Bullish factors included (1) the early drop in the dollar index to a 1-month low, which boosted investment demand in commodities, and (2) the statement from Venezuela's Oil Minister who said OPEC is unlikely to raise output quotas at this week's cartel meeting and that "We believe at the moment we're in balance."

Wednesday, June 8, 2011...

Today's Market Focus

•   September 10-year T-notes this morning are up +8 ticks. T-note prices yesterday weakened on supply concerns along with reduced safe-haven demand from Europe's debt crisis after ECB President Trichet indicated his willingness to sanction bond rollovers in Greece: TYU11 -2.5, FVU11 +2.0, EDZ11 unchanged.

                Bearish factors included (1) reduced safe-haven demand for Treasuries from Europe's debt crisis after comments from ECB President Trichet who indicated his willingness to sanction bond rollovers in Greece, (2) comments from Dallas Fed President Fisher who said that despite signs the economy may be slowing, the so-called "doves" of the FOMC will not be pushing for another round of monetary stimulus for the US economy, and (3) supply pressures ahead of the Treasury's $21 billion auction of 10-year T-notes on Wed.

                Bullish factors included (1) the Fed's action to purchase $1.44 billion of TIPS as part of its QE2 asset purchase program, (2) decent demand for th e Treasury's $32 billion auction of 3-year T-notes that had a bid-to-cover ratio of 3.28, higher than the 12-auction average of 3.16, (3) comments from Fed Chairman Bernanke who said the Fed should maintain record monetary stimulus to boost an "uneven" economic recovery, and (4) comments from Atlanta Fed President Lockhart who said the time to begin unwinding the Fed's record monetary stimulus has not yet arrived as "I'm troubled by what you might describe as a lack of conviction in this economy."



•   The dollar index this morning is higher with the dollar/yen -0.24 yen and the euro/dollar -0.63 cents. The dollar index yesterday fell to a 1-month low and closed lower after the euro rallied to 1-month high against the dollar on stronger-than-expected Euro-Zone economic data along with ECB President Trichet's approval of Greek bond rollovers: Dollar Index -0.424, USDJPY -0.009, EURUSD +0.01152.

                Bearish factors included (1) reduced European debt concerns which undercut the safe-haven demand for the dollar after ECB President Trichet said a rollover of Greek debt as an alternative means of easing Greece's funding squeeze "is not a default, and is something the ECB would consider appropriate," and (2) stronger-than-expected European economic data on Apr Euro-Zone retail sales and Apr German factory orders, which signals economic strength and is euro supportive.

                Bullish factors included (1) weakness in the yen after Japanese Finance Minister Noda said "I w ill closely monitor developments in the markets," which indicates he may favor additional currency intervention if the yen strengthens further, and (2) dollar supportive comments from Dallas Fed President Fisher who said that despite signs the economy may be slowing, the so-called "doves" of the FOMC will not be pushing for another round of monetary stimulus for the US economy.



•   July crude oil prices this morning are trading down -94 cents a barrel and July gasoline -2.38 cents per gallon. Crude oil and gasoline prices yesterday slumped after an OPEC delegate said the cartel will raise production quotas, but recovered their losses and finished higher due to a weak dollar and strength in gasoline after Valero Energy's 310,000 bpd refinery in Port Arthur, Texas had a power disruption that curbed production: CLN11 +$0.08, RBN11 +4.20. Jul crude fell to a 2-week low but recovered its losses and closed higher.

                Bullish factors included (1) the slump in the dollar index to a 1-month low, which boosts investment demand in commodities, (2) strength in gasoline prices due to a disruption in production at Valero Energy's 310,000 bpd refinery in Port Arthur, Texas because of a power disruption, and (3) stronger than expected European economic data on Apr Euro-Zone retail sales and Apr German factory orders, which signals economic strength and is benefici al for energy demand and consumption.

                Bearish factors included (1) the statement from a Gulf delegate that OPEC will increase output targets to help replace missing supplies from Libya and meet demand growth later this year, (2) the prediction from Societe Generale SA and Morgan Stanley that OPEC is likely to raise output quotas by 1.5 million barrels a day, and (3) the outlook for increased gasoline supplies when the DOE reports weekly inventories on Wed. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil supplies to fall -1.38 million bbl, gasoline stockpiles to increase +1.05 million bbl, distillate inventories to gain +125,000 bbl and the refinery capacity rate to remain unchanged at 86%.