Today's Market Focus

[setravis]

Monday, November 8, 2010...

Today's Market Focus

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

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

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

[setravis]

Tuesday, November 9, 2010...

Today's Market Focus

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

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

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

[setravis]

Wednesday, November 10, 2010...

Today's Market Focus

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

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

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

[setravis]

Thursday, November 11, 2010...

Today's Market Focus

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

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

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

[setravis]

Friday, November 12, 2010...

Today's Market Focus

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

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

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

[setravis]

Monday, 15 November 2010...

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

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


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


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

[setravis]

Tuesday, November 16, 2010...

Today's Market Focus

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

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

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

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

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

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

[setravis]

Wednesday, November 17, 2010...

Today's Market Focus

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

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

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

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

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

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


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

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

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

[setravis]

Thursday, November 18, 2010...

Today's Market Focus

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

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

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

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

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

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


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

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

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

[setravis]

Friday, November 19, 2010...

Today's Market Focus

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

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

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

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

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

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

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

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

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

[setravis]

Monday, November 22, 2010...

Today's Market Focus

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

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

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

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

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

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

[setravis]

Tuesday, 23 November 2010...

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

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

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


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

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

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


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

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

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

[setravis]

Wednesday, November 24, 2010...

Today's Market Focus

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

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

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

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

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

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


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

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

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

[setravis]

Friday, November 26, 2010...

Today's Market Focus

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

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

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

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

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

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

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

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

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

[setravis]

Monday, November 29, 2010...

Today's Market Focus

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

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


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

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


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

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