Today's Market Focus

[setravis]

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

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

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

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

[setravis]

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

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

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

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

[setravis]

Today's Market Focus...

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

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

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

[setravis]

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

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

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

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

[setravis]

Today's Market Focus...

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

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

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

[setravis]

Today's Market Focus...

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

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

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

[setravis]

Today's Market Focus...

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

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

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

[setravis]

Today's Market Focus...

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

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

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

[setravis]

Today's Market Focus...

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

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

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

[setravis]

Today's Market Focus...

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

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

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

[setravis]

Today's Market Focus...

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

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

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

[setravis]

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


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

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

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

[setravis]

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

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

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

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

[setravis]

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

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

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

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

[setravis]

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

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

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

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