Today's Market Focus

[setravis]

Tuesday, December 21, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +9 ticks on Moody's threat to downgrade Portugal's bond rating. T-note prices yesterday traded higher early on increased safe-haven demand due to heightened tensions on the Korean peninsula but then retreated into the close as the stock market strengthened: TYH11 -5.5, FVH11 +0.5, EDM11 unchanged.

                Bearish factors include (1) reduced safe-haven demand for Treasuries after the S&P 500 Index rallied to a 27-month high, and (2) comments from St. Louis Fed President Bullard who said that US GDP "will be stronger in 2011 than people thought."

                Bullish factors included (1) increased safe-haven demand for Treasuries on geo-political concerns after North Korea threatened retaliation for military exercises by South Korea, and (2) the action by the Fed to purchase $7.79 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading lower with the dollar/yen -0.12 yen and the euro/dollar +0.24 cents. The dollar index yesterday climbed to a 2-week high and finished higher due to increased safe-haven demand on concern Europe's debt crisis may worsen: Dollar Index +0.255, USDJPY -0.107, EURUSD -0.00542.

                Bullish factors for the dollar included (1) the slide in the euro to a 2-week low against the dollar after the ECB said it has "serious concerns" that Ireland's new banking legislation might threaten the central bank's ability to run liquidity operations, (2) increased safe-haven demand for the dollar after the costs to insure French government debt rose to a record, which indicates France may be at risk of losing its top credit rating, (3) the unexpected drop in Dec Euro-Zone consumer confidence which weakened for the first time in the last 6 months, and (4) comments from St. Louis Fed President Bullard who said the European fiscal crisis is "ve ry serious" and that he thinks it will continue for "quite a while."

                Bearish factors included (1) comments from Spanish Finance Minister that Salgado who said that Spain will meet its overall deficit goal of 9.3% of GDP this year, which is euro positive, and (2) euro bullish comments from ECB President Trichet who attempted to jawbone the euro higher when he said the euro remains a credible currency and the idea that some states might withdraw from it is "absurd."



•   February crude oil prices this morning are trading up +3 cents a barrel and February gasoline is +0.54 of a cent per gallon. Crude oil and gasoline prices yesterday finished stronger as optimism over US growth prospects offset a stronger dollar: CLG11 +$0.77, RBG11 +4.95.

                Bullish factors included (1) speculation that fuel demand will improve heading into the Christmas holidays, (2) data from the US Department of Transportation that showed US drivers increased their mileage driven by +0.6% in the first 10 months of this year compared with last year, which signals increased gasoline demand, (3) speculation that the abnormally cold weather in Europe and the US will increase demand for heating fuels, and (4) comments from St. Louis Fed President Bullard who said that recent US economic data "bodes well" for 2011, which could also improve US energy demand.

                Bearish factors included (1) the rally in the dollar index to a 2-week high, which reduces investment demand for commodities, and (2) speculation that the ongoing European debt crisis will reduce economic growth and energy demand.

[setravis]

Wednesday, December 22, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading unchanged. T-note prices yesterday finished higher as safe-haven demand increased on concern the European sovereign-debt crisis may worsen: TYH11 +5, FVH11 -0.5, EDM11 +1.5.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concerns the European debt crisis may worsen after Moody's Investors Service said it may cut Portugal's bond rating "by a notch or two" because of concerns over "sluggish" economic growth and Fitch Ratings put Greece's debt ratings on rating watch negative, and (2) the action by the Fed to purchase $7.79 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors include (1) reduced safe-haven demand for Treasuries as tensions eased on the Korean Peninsula along with the surge in the S&P 500 Index to a 2-1/4 year high, and (2) rising inflation concerns after St. Louis Fed President Bullard said he's "very concerned about fee dbacks to commodity prices" from the Fed's second round of quantitative easing.



•   The dollar index this morning is trading lower with the dollar/yen -0.23 yen and the euro/dollar +0.56 cents. The dollar index yesterday traded mixed most of the day but then rallied to a 2-week high late in the session and closed higher on increased European debt concerns: Dollar Index +0.255, USDJPY -0.107, EURUSD -0.00542.

                Bullish factors included (1) increased safe-haven demand for the dollar as the euro slipped to a 2-week low against the dollar on concern the European sovereign-debt crisis may worsen after the cost to insure Portuguese government debt rose to a 3-week high when Moody's Investors Service said it may cut Portugal's bond rating "by a notch or two" because of concerns over "sluggish" economic growth, along with the action by Fitch Ratings to put Greece's debt ratings on rating watch negative as it reviews the nation's "fiscal sustainability," and (2) a possible increase in international demand for dollars after the Fed e xtended its dollar swap arrangement with the ECB, the BOJ, the BOE, the BOC and the SNB through Aug 1 of 2011.

                Bearish factors for the dollar included (1) reduced safe-haven demand for the dollar after global stock markets rallied and as tensions eased on the Korean Peninsula, and (2) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who attempted to jawbone the euro higher when he said the "euro is not in crisis" and that any such speculation is "unfounded chatter."



•   February crude oil prices this morning are trading up +36 cents a barrel and February gasoline is +1.59 cents per gallon. Crude oil and gasoline prices yesterday moved higher on optimism that the global economic recovery can be sustained: CLG11 +$0.45, RBG11 +1.96. Feb crude posted a 1-week high and nearest-futures (Jan) gasoline jumped to a 7-1/2 month high.

                Bullish factors included (1) the weaker dollar, which encourages demand for commodities, (2) the +15% y/y increase in Nov China oil-product consumption with an overall +11% increase in overall Chinese oil product demand in the first 11 months of this year, and (3) the outlook for weekly US crude inventories to decline for a third week when the DOE releases its inventory figures on Wed.

                Bearish factors included (1) adverse weather in Europe which has forced airport closures and flight cancellations for a fourth day, which signals reduced fuel demand, and (2) the statement from Moody's Investors Service that it ma y cut Portugal's bond rating "by a notch or two" because of concerns over "sluggish" economic growth, which signals the European debt crisis may worsen and reduce economic growth and energy demand. Expectations for Wednesday's weekly inventory report from the DOE are for crude oil supplies to fall -3.5 million bbl, gasoline inventories to increase +1.5 million bbl, distillate stockpiles to decline -500,000 bbl and the refinery capacity rate to remain unchanged at 88.0%.

[setravis]

Thursday, December 23, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -3.5 ticks. T-note prices yesterday finished lower as a rally in stocks reduced the safe-haven demand for Treasuries: TYH11 -7.5, FVH11 -5.2, EDM11 unchanged.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after the S&P 500 climbed to a 2-1/4 year high, and (2) the unexpected increase in the Oct FHFA house price index (+0.7% m/m versus expectations of -0.2% m/m).

                Bullish factors include (1) the unexpected downward revision to the Q3 core PCE deflator to its slowest pace of increase since data began in 1959 (+0.5% q/q versus the previously reported +0.8% q/q), (2) the smaller-than-expected increase in Nov US existing home sales (+5.6% to 4.68 million versus expectations of +7.0% to 4.74 million), and (3) the action by the Fed to purchase $2.07 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading little changed with the dollar/yen -0.53 yen and the euro/dollar -0.10 cents. The dollar index yesterday gyrated on either side of unchanged as weaker-than-expected US economic data offset European debt crisis concerns: Dollar Index +0.009, USDJPY -0.172, EURUSD -0.00015.

                Bearish factors included (1) the weaker than expected upward revision to US Q3 GDP along with the smaller-than-expected increase in Nov US existing home sales, and (2) strength in the euro after Nov German import prices rose a more-than-expected +10.0% y/y, a 10-year high.

                Bullish factors for the dollar included (1) the slump in the British pound to a 3-1/2 month low against the dollar after Q3 UK GDP was unexpectedly revised lower, and (2) increased safe-haven demand for the dollar on concern the European sovereign-debt crisis will worsen after credit-default swaps insuring Greek government debt rose 13 bp to a 1-month high of 983 bp.



•   February crude oil prices this morning are trading up +2 cents a barrel and February gasoline is -0.33 of a cent per gallon. Crude oil and gasoline prices yesterday moved higher after weekly US crude inventories slipped to a 10-month low: CLG11 +$0.66, RBG11 +2.53. Feb crude soared to a 2-year high and nearest-futures (Jan) gasoline climbed to a 7-1/2 month high.

                Bullish factors included (1) the larger-than-expected drawdown of weekly crude inventories to their lowest level since Feb (-5.33 million bbl to 340.7 million bbl versus expectations of -3.5 million bbl), and (2) the upward revision to Q3 US GDP, which indicates stronger fuel consumption.

                Bearish factors included (1) the larger-than-expected increase in weekly gasoline inventories (+2.40 million bbl versus expectations of +1.5 million bbl), (2) reduced demand after US gasoline demand fell -1.5% w/w to 9.21 million bpd, and (3) the action by China to increase its domestic gasoline and diesel prices for the th ird time this year, which may reduce its fuel demand.

[setravis]

Stocks Set for Best December Performance in a Decade
Published: Friday, 24 Dec 2010 | 7:19 AM ET

World stocks clung near two-year peaks while oil rose towards the $92 per barrel mark on Friday after yet another burst of strong economic figures from the United States encouraged some year-end buying.

The latest rally in major European and U.S. stock indices has given investors the biggest December gains in more than a decade.

Expectations of strong U.S. fourth quarter performance was further cemented by latest data which showed demand for  durable goods rising and consumer spending picking up.     

A slew of strong numbers coming out of the world's biggest economy in recent weeks has given global growth bulls another reason to cheer and boosted commodities and stocks.

Reflecting that growing optimism, the Asia Pacific-ex Japan shares for energy shares advanced  slightly while other indexes were broadly flat to slightly lower. 

Trading was thin and prices confined in narrow ranges in Asia, with many centers on holiday in thin year-end markets. U.S markets are also shut along with many European centers.

World stocks as measured by the MSCI extended gains by nearly 6.5 percent so far this month while  the Asia-Pacific version was largely  unchanged.

"In the U.S., fears of a double dip recession have receded considerably with the extension of tax relief agreed in  December and a second round of quantitative easing in  November," Fitch Ratings said. 

"High frequency activity has also turned more positive, reflecting strength in private consumption and corporate profitability."

That has made investors more sanguine towards developed markets.

Latest EPFR data showed developed markets equity funds  posted their longest fund inflow streak since the fourth  quarter of 2009 at the expense of emerging markets equity funds. 

Heady Brew
     
Copper prices too stuck near record peaks while  the S&P/Goldman commodities index was set for its best monthly performance since May 2009.

Oil maintained its upward trajectory, having gained nearly 9 percent so far this month raising concerns that more sharp gains could be negative for Asian economies as it would feed  into inflationary expectations. The region is a net importer of oil.

Easy money from the Federal Reserve, a strong global economic recovery, and Chinese policymakers that still seem a little too reluctant to sacrifice growth for necessary reforms  has proved to be a heady brew for raw materials with major commodity indices up by 10 percent since mid-November, Gavekal strategists said. 

The euro held its ground versus majors with the prospect of a significant short squeeze rising as the downside  momentum was fading. A breach of $1.32 could trigger a move  back towards the Dec. 17 high around $1.3360.

"The euro is still a sell-on-rally trade. Anything above $1.32 is worthwhile selling in my view and probably there won't be any buyers until the low $1.30s, where we could see  some Asian central bank interest," a trader at a U.S.  investment bank said.

Concerns on the eurozone's debt crisis kept simmering after Fitch cut Portugal's ratings by a notch to A-minus, pressuring peripheral European countries CDS higher.

Benchmark 10-year U.S. Treasury yields were  steady after rising slightly overnight to 3.40 percent. They are up by nearly 100 bps since the Fed's announcement of its  much awaited second round of quantitative easing last month. 

[setravis]

Monday, December 27, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -13 ticks. T-note prices last Thursday settled lower after US consumer confidence increased and US consumer spending advanced for a fifth month: TYH11 -13, FVH11 -7.7, EDM11 -2.0.

                Bearish factors included (1) the +0.4% m/m increase in Nov personal spending along with the upward revision to Oct (+0.7% from the previously reported +0.4%), a sign that the US economic recovery will continue, and (2) the as-expected increase in the Dec US University of Michigan consumer confidence to a 6-month high (+0.3 to 74.5).

                Bullish factors include (1) the smaller-than-expected increase in the Nov PCE core deflator (+0.8% y/y versus expectations of +0.9% y/y), which matched its smallest gain since records started in 1960, and (2) the weaker-than-expected Nov US new home sales (+5.5% to 290,000 versus expectations of +6.0% to 300,000).



•   The dollar index this morning is trading weaker and at a 1-week low with the dollar/yen -0.09 yen and the euro/dollar +0.39 cents. The dollar index last Thursday finished weaker as reports showed strength in the US economy, which reduced demand for the dollar in favor of riskier higher-yielding assets: Dollar Index -0.231, USDJPY -0.654, EURUSD +0.00145.

                Bearish factors included (1) the increase in Nov US personal spending for a fifth month, which indicates the economic recovery is continuing, and (2) the stronger-than-expected Nov French consumer spending, which is euro positive.

                Bullish factors for the dollar centered on increased safe-haven demand on concern the European sovereign-debt crisis is worsening after (1) Fitch Ratings cut Hungary's long-term credit rating with a negative outlook and also downgraded Portugal's long-term foreign and local currency issuer default ratings with negative outlooks, and (2) credit-default swaps to insure Greek government debt ro se +38 bp to a 1-month high of 1,019 bp.



•   February crude oil prices this morning are trading down -40 cents a barrel and February gasoline is -1.14 cents per gallon. Crude oil and gasoline prices last Thursday moved higher for the fourth consecutive session on a weaker dollar and an increase in US consumer confidence: CLG11 +$1.03, RBG11 +1.93. Feb crude posted a 26-month high and nearest-futures (Jan) gasoline climbed to a 7-1/2 month high.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, and (2) strong US economic data that showed Nov US consumer spending climbing for the fifth straight month and Dec US University of Michigan consumer confidence rising to a 6-month high.

                Bearish factors included (1) concern the ongoing European sovereign-debt crisis will worsen and limit economic growth and energy demand after Fitch Ratings cut Hungary's long-term credit rating, and (2) the weaker than expected Nov US new home sales, which signals the US housing crisis may lin ger and curb economic growth and fuel demand.

[setravis]

Tuesday, December 28, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +6 ticks. T-note prices yesterday slipped to a 1-week low early in the session but recovered their losses mid-afternoon and closed higher after the Treasury's 2-year T-note auction was met with strong demand: TYH11 +11, FVH11 +2.7, EDM11 +2.0.

                Bullish factors included (1) strong demand for the Treasury's $35 billion 2-year T-note auction that had a bid-to-cover ratio of 3.71 compared with the 12-auction average of 3.26, and (2) increased safe-haven demand for Treasuries after the stock market traded weaker much of the day.

                Bearish factors included (1) carry-over weakness from a decline in global bond markets after China raised interest rates for the second time in 2 months, and (2) supply pressures ahead of the Treasury's $35 billion auction of 5-year T-notes on Tue.



•   The dollar index this morning is trading lower and at a 1-week low with the dollar/yen -0.94 yen and the euro/dollar +0.100 cents. The dollar index yesterday fell to a 1-week low and closed lower after China raised interest rates: Dollar Index -0.108, USDJPY -0.112, EURUSD +0.00511. The Japanese yen climbed to a 2-1/2 week high against the dollar.

                Bearish factors included (1) the action by China to hike interest rates for the second time in 2 months, which boosted the yen to a 2-1/2 week high against the dollar on increased safe-haven demand, and (2) strength in the euro after the ECB said it boosted its purchases of Euro-Zone government bonds the past week to 1.12 billion euros ($1.45 billion), nearly double the previous week, which may stop or slow the European debt crisis and reduce the safe-haven demand for the dollar.

                Bullish factors for the dollar included (1) comments from ECB Executive Board member Stark who said that while some European economies have shown surprisingly strong recoveries, high debt levels don't only affect individual nations and "we are still in an open crisis," and (2) weakness in the commodity currencies of Australia and Canada on speculation that Chinese commodity demand will weaken after it raised interest rates.



•   February crude oil prices this morning are trading up +34 cents a barrel and February gasoline is +0.22 of a cent per gallon. Crude oil and gasoline prices yesterday finished lower on speculation the action by China to raise interest rates for the second time in 2 months will slow its economic growth and energy demand: CLG11 -$0.51, RBG11 -1.94. Feb crude posted a 26-month high but shed its gains and finished lower.

                Bearish factors included (1) the action by China to raise interest rates, which may slow its economy and fuel consumption, and (2) the statement from Iraq's Oil Minister who said that Iraqi oil production will exceed 2.6 million bpd for the first time in 20 years, which should boost global oil supplies.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, and (2) cold weather and snowstorms along the east coast of the US, which should increase demand for heating fuels.

[setravis]

Wednesday, December 29, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +5.5 ticks. T-note prices yesterday ratcheted lower the entire day on supply pressures and strong US holiday sales: TYH11 -29, FVH11 -14.2, EDM11 -1.0.

                Bearish factors included (1) the report from MasterCard Advisors' SpendingPulse, which measures retail sales by all payment forms, that showed US retailers' 2010 holiday sales jumped 5.5% y/y, the strongest pace of sales in 5 years, (2) the larger-than-expected increase in the Dec Richmond Fed manufacturing index to its best level in 7 months (+16 to 25 versus expectations of +2 to 11), (3) weak demand for the Treasury's $35 billion auction of 5-year T-notes that had a bid-to-cover ratio of 2.61, below the 12-auction average of 2.75 and the lowest demand in 6 months, and (4) supply pressures ahead of the Treasury's $29 billion auction of 7-year T-notes on Wed.

                Bullish factors included (1) the larger-than-expected drop in home prices in the Oct S&P/CaseShiller co mposite-20 home price index (-1.0% m/m and -0.8% y/y versus expectations of -0.6% m/m and -0.2% y/y), (2) the unexpected decline in Dec US consumer confidence (-1.8 to 52.5 versus expectations of +2.3 to 56.4), and (3) the action by the Fed to purchase $6.78 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is trading weaker with the dollar/yen -0.25 yen and the euro/dollar +0.09 cents. The dollar index yesterday fell to a 1-week low but recovered its losses and finished little changed after the ECB failed to neutralize the extra liquidity created by its bond purchases: Dollar Index -0.001, USDJPY -0.419, EURUSD -0.00499. The Japanese yen rallied to a 1-1/2 month high against the dollar.

                Bullish factors for the dollar included (1) the unexpected downward revision to Q3 French GDP, which is euro negative, (2) the action by the ECB to drain only 61.78 billion euros of excess liquidity caused by its recent bond purchases, nearly 13 billion euros less than the 73.5 billion euros it intended to absorb, which is actual quantitative easing and is bearish for the euro, and (3) comments from Japanese Finance Minister Noda who attempted to jawbone the yen lower with hints of currency intervention when he said the yen's recent appreciation has been &qu ot;one-sided" and he warned of "bold" action against the yen's advance if needed.

                Bearish factors included (1) the unexpected decline in Dec US consumer confidence which is dollar negative, and (2) the larger-than-expected decline in the Oct S&P/CaseShiller home price index, which may prompt the Fed into additional easing measures due to the weak housing market.



•   February crude oil prices this morning are trading down -68 cents a barrel and February gasoline is -1.01 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged and finally settled mixed as strength in retail sales offset a drop in consumer confidence: CLG11 +$0.49, RBG11 -0.90.

                Bullish factors included (1) the report from MasterCard Advisors' SpendingPulse, which measures retail sales by all payment forms, that showed US retailers' 2010 holiday sales jumped 5.5% y/y, the strongest pace of sales in 5 years and is bullish for US fuel demand, and (2) the larger-than-expected increase in the Dec Richmond Fed manufacturing index to its best level in 7 months, which signals strength in the US economy that may lead to increased energy demand.

                Bearish factors included (1) the rebound in the dollar which fell to a 1-week low but recovered to close higher, and (2) the unexpected decline in Dec US consumer confidence, which questions th e sustainability of the economic recovery and energy demand. Expectations for Thursday's weekly DOE inventory report (delayed 1 day because of the Christmas holiday) are for crude oil supplies to fall -3.0 million bbl, gasoline stockpiles to increase +1.83 million bbl, distillate inventories to fall -875,000 bbl and the refinery capacity rate to remain unchanged at 87.7%.

[setravis]

Thursday, December 30, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading down -5.5 ticks. T-note prices yesterday settled sharply higher after a successful conclusion to this week's Treasury auctions of $99 billion in T-notes: TYH11 +1-7/32, FVH11 +25.2, EDM11 +5.5.

                Bullish factors included (1) the action by the Fed to buy $5.387 billion of Treasuries as part of its QE2 asset-purchase program, (2) strong foreign demand for the Treasury's $29 billion auction of 7-year T-notes in which indirect bidders purchased 64.1% of the notes, compared with the 12-auction average of 48.4%, and (3) a post-auction relief rally as the Treasury concluded with this week's auctions of $99 billion in T-notes.

                Bearish factors was reduced safe-haven demand for Treasuries after the S&P 500 Index and the Dow climbed to 2-1/4 year highs.



•   The dollar index this morning is trading lower and at a 1-1/2 week low with the dollar/yen -0.06 yen and the euro/dollar +0.26 cents. The dollar index yesterday settled lower as the euro strengthened on rising consumer prices in Germany and an increase in private sector lending in the Euro-Zone: Dollar Index -0.569, USDJPY -0.774, EURUSD +0.01103. The yen strengthened to a 1-1/2 month high against the dollar.

                Bearish factors for the dollar included (1) the report from the ECB that Nov European loan growth to the private sector rose +2.0% y/y, the fastest pace of growth since Apr 2009, (2) the +1.9% y/y increase in Dec German CPI (EU harmonized), its largest y/y gain in 2 years, and (3) reduced safe-haven demand for the dollar after the Dow and S&P 500 rallied to 2-1/4 year highs.



•   February crude oil prices this morning are trading down -40 cents a barrel and February gasoline is +0.85 of a cent per gallon. Crude oil and gasoline prices yesterday moved lower on speculation the US economic recovery isn't fast enough to increase energy demand: CLG11 -$0.37, RBG11 -0.93.

                Bearish factors included (1) concern that weakened US consumer confidence and still high unemployment will prevent energy demand from increasing, and (2) speculation that US crude supplies will increase once the new year begins next week as refiners delay crude deliveries until 2011 in order to reduce tax bills.

                Bullish factors included (1) the weaker dollar which encourages investment demand in commodities, and (2) the report from MasterCard that said US gasoline demand rose +4.6% last week to 9.613 million barrels a day from 9.19 million barrels a day the prior week. Expectations for Thursday's weekly DOE inventory report (delayed 1 day because of the Christmas holiday) are for crude oil supplies to fall -2.85 million bbl, gasoline stockpiles to increase +1.5 million bbl, distillate inventories to fall -625,000 bbl and the refinery capacity rate to rise +0.1 to 87.8%.

[setravis]

Friday, December 31, 2010...

Today's Market Focus

•   March 10-year T-notes this morning are trading up +9.5 ticks. T-note prices yesterday weakened on stronger-than-expected US economic data: TYH11 -8.5, FVH11 -6.7, EDM11 +0.5.

                Bearish factors included (1) the larger-than-expected decline in weekly initial US unemployment claims which fell to their lowest level in 2-1/3 years (-34,000 to 388,000 versus expectations of -5,000 to 415,000), (2) the unexpected increase in the Dec Chicago purchasing managers index which expanded at its fastest pace in 22 years (+6.1 to 68.6 versus expectations of -1.5 to 61.0), and (3) the stronger-than-expected increase in Nov pending home sales (+3.5% m/m versus expectations of +0.8% m/m).

                Bullish factors included (1) increased safe-haven demand for Treasuries as stock prices slid, and (2) year-end rebalancing of portfolios by bond-fund managers, which may increase demand for longer-term Treasuries as bond managers seek to extend duration.



•   The dollar index this morning is trading lower and at a 2-1/2 week low with the dollar/yen -0.22 yen and the euro/dollar +0.97 cents. The dollar index yesterday fell to a 2-week low and closed lower after stronger-than-expected US economic data prompted a decline in dollar demand in favor of riskier assets: Dollar Index -0.275, USDJPY -0.089, EURUSD +0.00633. The yen strengthened to a 1-1/2 month high and the euro rose to a 1-1/2 week high against the dollar.

                Bearish factors for the dollar included (1) strength in commodity currencies such as the Australian dollar which rose to its highest level against the dollar since it became free-floating in 1983, and (2) the rally in the yen to a 1-1/2 month high against the dollar as stronger-than-expected US economic data prompted reduced demand for dollars in favor of higher-yielding riskier assets.

                 Bullish factors included (1) comments from ECB Council member Nowotny who said it can't be ruled out "that there will be f urther challenges for some Euro-Zone countries in 2011," and (2) and an increase in Treasury yields which benefits the dollar's interest rate differentials and may help boost foreign demand for dollar assets.



•   February crude oil prices this morning are trading down -28 cents a barrel and February gasoline is -0.08 of a cent per gallon. Crude oil and gasoline prices yesterday fell to 1-week lows after DOE weekly crude supplies fell less than expected: CLG11 -$1.28, RBG11 -0.37.

                Bearish factors included (1) the smaller-than-expected decline in weekly crude oil inventories (-1.26 million bbl versus expectations of -2.85 million bbl), and (2) the unexpected increase in weekly distillate inventories (+243,000 bbl versus expectations of -625,000 bbl).

                Bullish factors included (1) the slump in the dollar index to a 2-week low which boosts investment demand in commodities, (2) the unexpected decline in weekly gasoline inventories (-2.32 million bbl versus expectations of +1.5 million bbl, and (3) strong US economic data after weekly initial unemployment claims fell to 2-1/3 year low and the Dec Chicago purchasing managers index expanded at its fastest level in 22 years, which signa ls strength in the economy and energy consumption.

[setravis]

Monday, January 3, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are trading 16 ticks lower on reduced safe-haven demand with this morning's rally in stocks and with continued optimism about global economic growth. T-note prices last Friday rallied to a 2-week high and settled higher on month-end and year-end position squaring of bond portfolios: TYH11 +14.5, FVH11 +10, EDM11 +2.5.

                Bullish factors included (1) year-end and quarter-end rebalancing of bond-fund portfolios by money managers, which may increase demand for longer-term Treasuries as bond managers seek to extend duration, and (2) speculation that recent snowstorms and cold weather that shut down much of the Northeast US over the past week will slow economic growth.

                Bearish factors is reduced safe-haven demand for Treasuries on speculation that Fed asset purchases and the extension of tax cuts will succeed in reviving the US economy.



•   The dollar index this morning is trading 0.37 points higher with the dollar/yen up 0.31 yen and the euro/dollar down 0.74 cents. The dollar index is higher this morning on some short-covering after last Friday's sharp sell-off. The dollar index last Friday sank to a 5-week low and closed lower for the seventh consecutive session as Euro-Zone officials jawboned the euro higher: Dollar Index -0.493, USDJPY -0.393, EURUSD +0.00963. The yen rallied to a 1-1/2 month high and the euro rose to a 2-1/2 week high against the dollar.

                Bearish factors for the dollar included (1) strength in the British pound after Dec UK nationwide house prices unexpectedly rose for the first time in 7 months, (2) comments from German Chancellor Merkel who vowed to defend the euro as the "foundation" of her nation's economy, and (3) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the euro is the world's "most solid" currency and that " the euro's existence and its essence are not at risk."

                Bullish factors was the prediction from the Chief Executive of the CEBR that the Euro-Zone will have another debt crisis this spring when Italy and Spain have to refinance more than 400 billion euros ($532 billion) of bonds.



•   February crude oil prices this morning are trading +45 cents a barrel and February gasoline is 1.77 cents per gallon on this morning's overseas stock rallies and on expectations for strong US economic data this week. Crude oil and gasoline prices last Friday rebounded from early losses and closed higher as the dollar slumped: CLG11 +$1.54, RBG11 +4.55. Both Feb crude and Feb gasoline posted 26-month highs.

                Bullish factors included (1) the slump in the dollar index to a 5-week low which boosts investment demand in commodities, and (2) a halt to oil tanker travel in the Houston ship channel for a second day due to fog, which may cause supply disruptions to Gulf refiners and lead to gasoline shortages.

                Bearish factors included (1) year-end liquidation by commodity funds, and (2) increased supplies with OPEC crude production climbing +150,000 barrels in Dec to 29.185 million barrels a day, a 4-month high and about 2 million barrels above OPEC quotas.

[setravis]

Tuesday, January 4, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down 2 ticks due to strength in global stocks and reduced safe-haven demand. Interest rate futures prices on Monday closed mostly lower: TYH11 -8.5, FVH11 -2.0, EDM11 unch.

                Bearish factors included (1) additional strong economic data as seen in Monday's US ISM manufacturing index and construction spending reports, (2) anticipation for improved labor market data in Friday's Dec unemployment report, and (3) reduced safe-haven demand with the rally in US and global stocks on Monday.

                Bullish factors yesterday was the Fed's purchase of $7.8 billion of T-notes as part of its ongoing Treasury purchase program.



•   The dollar index this morning is trading slightly lower by 0.17 points, with the dollar/yen up 0.44 yen and the euro/dollar up 0.44 cents. The euro is higher on strong European stocks and an improved view of the European economy. The dollar index on Monday consolidated above last Friday's 6-week low and closed slightly higher: Dollar Index +0.193, USDJPY +0.62, EURUSD -0.0023.

                Bullish factors for the dollar included the strong US economic data and some technical short-covering after last Friday's 6-week low.



•   February crude oil prices this morning are trading +29 cents a barrel and February gasoline is up 1.34 cents per gallon on support from the slightly lower dollar and on general economic optimism. Crude oil and gasoline on Monday closed mixed: CLG11 +$0.17, RBG11 -.030. Both Feb crude and Feb gasoline posted 26-month highs.

                Bullish factors centered on (1) continued strong US and global economic data, (2) bad weather in the Gulf of Mexico that caused Pemex to close its export terminals in the Gulf, and (3) the forecasts for cold weather in the U.S. for the next two weeks, which is bullish for heating oil.

                Bearish factor for oil prices was the mild rally in the dollar index.

[setravis]

Wednesday, January 5, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are up +9 ticks at a fresh 2-week high on increased safe-haven demand as global stocks slide. T-note prices on Tuesday closed slightly higher: TYH11 +4.5, FVH11 +1, EDM11 -2.

                Bullish factors included (1) the FOMC minutes indicating that FOMC members believe the economic outlook has not improved by enough to warrant any roll-back of the QE2 program, (2) heavy long liquidation pressure in the commodity markets and the mixed close in stocks, which caused a little safe-haven demand, and (3) some short-covering with the new 2-week high in 10-year T-note prices. The main bearish factor was the stronger-than-expected US factory orders and vehicle sales reports.



•   The dollar index this morning is trading stronger, with the dollar/yen +0.14 yen and the euro/dollar -0.75 cents. The dollar on Tuesday closed mildly higher: Dollar Index +0.292, USDJPY +0.30, EURUSD -0.0053.

                Bullish factors included the stronger-than-expected US economic data and some short-covering after last week's sell-off.

                Bearish factors included the pound-positive news of the 16-year high in the UK PMI index to 58.3 and the euro-positive news of a rise in the Eurozone CPI to 2.2% y/y from +1.9% in November, which was above the ECB's inflation ceiling.



•   February crude oil prices this morning are trading down -86 cents a barrel and February gasoline is -3.30 cents per gallon. Crude oil and gasoline prices on Tuesday sold off sharply: CLG11 -2.17, RBG11 -1.33.

               Bearish factors included the mild rally in the dollar and heavy long liquidation pressure after the sharp rally seen in December. The market is also expecting a rise in petroleum inventories in January after the drawdown seen in December in an effort to minimize taxes. The market consensus for today's weekly DOE report is for a 2 million decline in crude oil inventories, a 500,00 bbl rise in gasoline inventories, a 750,000 rise in distillate inventories, and an unchanged refinery operating rate of 87.8% of capacity.

[setravis]

Friday, January 7, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are down -4.5 ticks. T-note prices on Thursday moved higher and finished with moderate gains: TYH11 +18.5, FVH11 +10.2, EDM11 -1.5.

                Bullish factors included (1) the Fed's action to purchase $6.78 billion of Treasuries as part of its QE2 asset-purchase program, and (2) short-covering and position squaring ahead of Friday's all-important Dec payrolls report.

                Bearish factors included (1) a sign that the US labor market is improving after the US Labor Department reported that the 4-week average of applications for US jobless benefits slipped to 410,750, a nearly 2-1/2 year low, and (2) supply pressures as dealers set up for $66 billion of T-note auctions next week.



•   The dollar index this morning is higher and at a 1-month high with the dollar/yen +0.24 yen and the euro/dollar -0.25 cents. The dollar on Thursday strengthened throughout the day and settled higher: Dollar Index +0.533, USDJPY +0.088, EURUSD -0.01464. The dollar index climbed to a 1-month high and the euro tumbled to a 1-month low against the dollar.

                Bullish factors included (1) euro weakness after Nov Euro-Zone retail sales unexpectedly declined along with concern that the European debt crisis is worsening after KBC Groep NV, Belgium's largest bank, said it will take additional provisions of as much as 330 million euros ($434 million), partly related to its Irish loan book, and (2) increased demand for dollars on speculation that Friday's Dec payrolls report will show strength in the economy with employers adding jobs for a third month.

                Bearish factors included (1) the biggest monthly increase in Nov German factory orders in the last 10 months, and (2) the larger- than-expected increase in the Dec Euro-Zone business climate indicator to its best level in 3-1/2 years, which is euro positive.



•   February crude oil prices this morning are trading up +65 cents a barrel and February gasoline is +0.33 of a cent per gallon. Crude oil and gasoline prices on Thursday sold off sharply and finished with large losses: CLG11 -1.92, RBG11 -0.21. Feb crude slid to a 2-week low and Feb gasoline rallied to a 27-month high but relinquished its gains and settled lower.

                Bearish factors included (1) the rally in the dollar index to a 1-month high, which reduces investment demand in commodities, and (2) concern that a slower recovery in some European nations will prolong the region's debt crisis and reduce its energy demand.

                Bullish factors included (2) early strength in gasoline which climbed to a 27-month high on optimism about the economic recovery and the potential for increased fuel demand, and (2) comments from the Kuwaiti Oil Minister who said a price of $75 a barrel for crude oil "is over now" and a higher price range of $80 to $100 a barrel is acceptable.

[setravis]

Monday, January 10, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are up +1 tick. T-note prices last Friday shot higher after the release of the Dec payrolls report and then continued even higher the rest of the day: TYH11 +27.5, FVH11 +21, EDM11 +2.0.

                Bullish factors included (1) the smaller-than-expected increase in Dec nonfarm payrolls (+103,000 versus expectations of +150,000), (2) comments from Fed Chairman Bernanke who said the US job market may take 5 years to "normalize," (3) the Fed's action to purchase $7.199 billion of Treasuries as part of its QE2 asset-purchase program, (4) increased safe-haven demand for Treasuries as the stock market fell, and (5) comments from former Fed Governor Kroszner who said "we're not getting consistent job growth" and that "it's going to be a long march to get to back to low unemployment levels seen 4 to 5 years ago."

                Bearish factors included (1) the larger-than-expected decline in the Dec unemployment rate (-0.4 to a 19-mo nth low of 9.4% versus expectations of -0.1 to 9.7%), and (2) the upward revision to Nov nonfarm payrolls (+71,000 versus the originally reported +39,000).



•   The dollar index this morning is stronger and trading at a 1-1/4 month high with the dollar/yen +0.06 yen and the euro/dollar -0.04 cents. The dollar last Friday gyrated between gains and losses and finally finished slightly higher: Dollar Index +0.148, USDJPY -0.291, EURUSD -0.00935. The dollar index climbed to a 1-1/4 month high and the euro slumped to a 3-1/2 month low against the dollar.

                Bullish factors included (1) euro weakness on increased sovereign-debt risks after the Markit iTraxx SovX Western Europe Index of credit-default swaps on the debts of 15 European governments rose to a record high 214, (2) the unexpected decline in Nov German retail sales by -2.4% m/m, its biggest fall in 2-1/2 years, and (3) comments from ECB President Trichet who said governments shouldn't rely on the ECB to get Europe out of its debt crisis as he urged for more fiscal tightening, which may slow the Euro-Zone economy and weaken the euro.

                Bearish factors included (1) the smaller -than-expected increase in Dec US nonfarm payrolls, which may prompt the Fed to further increase its quantitative easing measures, and (2) comments from Fed Chairman Bernanke who said the US economy is in a "weak" and "fragile" condition and that "it could take 4 to 5 more years for the job market to normalize fully."



•   February crude oil prices this morning are trading up +69 cents a barrel and February gasoline is +0.96 of a cent per gallon. Crude prices rallied in overnight trading after an Alaskan pipeline carrying about 15% of US crude output was shut on Saturday following a leak. Crude oil and gasoline prices last Friday erased early rallies and finished lower: CLG11 -0.35, RBG11 -2.99. Feb crude fell to a 3-week low.

                Bearish factors included (1) the rally in the dollar index to a 1-1/4 month high, which discourages investment demand in commodities, (2) the smaller-than-expected increase in Dec US nonfarm payrolls, which signals a struggling labor market that may crimp fuel demand, and (3) the slide in stock prices which decreases confidence in the economic outlook and energy demand.

               Bullish factors included (1) the larger-than-expected drop in the Dec US unemployment rate to a 19-month low of 9.4%, and (2) the action by Canadian Natural Resources to shut its 100,000 bpd Hori zon oil-sands project because of a fire, which may curtail crude supplies to the US.

[setravis]

Tuesday, January 11, 2011...

Today's Market Focus

•   March 10-year T-notes this morning are up +3.5 ticks. T-note prices yesterday traded firm most of the day and settled higher: TYH11 +6.5, FVH11 +4, EDM11 +1.0.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern Portugal will follow Greece and Ireland in seeking a bailout from the European Union, (2) comments from Atlanta Fed President Lockhart who said he sees further "headwinds" to the recovery even as the US economy improves in 2011, and (3) the action by the Fed in purchasing $7.79 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) Fed data that showed primary-dealer holdings of US Treasuries tumbled to an 11-month low of $2.34 billion on Dec 29 from $81.3 billion on Nov 24, the biggest decline since Jun 2009, and (2) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tue.



•   The dollar index this morning is weaker with the dollar/yen +0.27 yen and the euro/dollar +0.23 cents. The dollar index yesterday fell back from a 1-1/4 month high and settled lower: Dollar Index -0.131, USDJPY -0.339, EURUSD +0.00417.

                Bearish factors included (1) a recovery in the euro which rebounded from a 3-3/4 month low against the dollar and settled higher after ECB President Trichet said that recent European economic indicators "were better than forecast," and (2) the stronger than expected Nov French industrial and manufacturing production, which is euro positive.

                Bullish factors included (1) the early slump in the euro to a 3-3/4 month low against the dollar on concern the European sovereign-debt crisis may worsen after the Markit iTraxx SovX Western Europe Index of credit-default swaps on the debts of 15 European governments rose to a record high 223, and (2) the prediction from BlueGold Capital Management that Germany, France and other European to p-rated nations risk having their credit ratings downgraded in the event that European policy makers expand bailout funds.



•   February crude oil prices this morning are trading up +43 cents a barrel and February gasoline is -0.55 of a cent per gallon. Crude oil and gasoline prices yesterday finished moderately higher: CLG11 +1.22, RBG11 +4.12.

                Bullish factors included (1) a reversal in the dollar after the dollar index closed lower after it had climbed to a 1-1/4 month high, (2) the closure of the Trans Alaska Pipeline System, which carries 15% of US crude output, after an oil leak in the pipeline prompted its closure over the weekend, and (3) the prediction from Morgan Stanley that crude will remain "high" this year and breach $100 a barrel "as OPEC spare capacity falls from elevated levels to 4.1 million barrels a day by year end."

                Bearish factors included (1) equity market weakness, which reduces optimism in the economic outlook and energy demand, and (2) concern that Europe's sovereign debt crisis may spread and slow the global economy and fuel demand.