Today's Market Focus

[setravis]

Thursday, March 17, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -3.5 ticks. T-note prices yesterday settled higher on increased safe-haven demand from the Japanese quake crisis and escalation of Middle East violence along with weakness in Feb US housing starts: TYM11 +29, FVM11 +17.5, EDU11 -1.0. The yield on the 10-year T-note tumbled to a 3-1/4 month low of 3.145%.

                Bullish factors included (1) a surge in safe-haven demand for Treasuries after conditions at Japan's crippled nuclear reactor deteriorated and the EU Energy Commissioner warned of a "major disaster," (2) a flight-to-safety into Treasuries as violence escalated in Bahrain, which declared a state of emergency on Tuesday, (3) the weaker-than-expected Feb US housing starts which fell to their lowest level in 1-3/4 years (-22.5% to 479,000 versus expectations of -4.9% to 567,000), and (4) the unexpected plunge in Feb US building permits which fell to their lowest level since records began in 1960 (-8.2% to 51 7,000 versus expectations of +1.2% to 570,000).

                Bearish factors included (1) the larger-than-expected increase in Feb PPI (+1.6% m/m and +5.6% y/y versus expectations of +0.7% m/m and +4.7% y/y), and (2) early weakness in Treasuries on reduced safe-haven demand after the Japanese stock market rallied for the first time in 3 days.



•   The dollar index this morning is weaker and trading at a 4-1/4 month low with the dollar/yen -1.18 yen and the euro/dollar +1.20 cents. The yen soared in overnight trade and posted a new post WWII high of 76.36 per dollar. The dollar index yesterday settled slightly lower as euro weakness from Moody's downgrade of Portugal's credit rating was offset by a rally in the yen to a new post-WWII high: Dollar Index -0.049, USDJPY -1.128, EURUSD -0.00999.

                Bearish factors included (1) strength in the yen which rallied to a new post WWII high against the dollar of 76.36 on speculation that insurers will repatriate dollar and euro assets back to yen to pay for earthquake damages along with strong demand for yen by banks after the yen libor rate rose 38 bp to 0.491%, a 2-year high, and (2) the 2.4% increase in Feb Euro-Zone CPI, a 2-1/4 year high, along with the larger-than-expected rise in Q4 Euro-Zone labour costs, which is euro positive as the data will keep the pressure on th e ECB to raise interest rates.

                Bullish factors included (1) euro weakness after Moody's Investors Service cut Portugal's long-term credit rating 2 levels to A3 from A1 and kept a negative outlook, which implies further downgrades in the future, and (2) the action by the BOJ to add 5 trillion yen into the financial system on top of the 28 trillion yen already injected into the system since Mar 14, which is yen negative.



•   April crude oil prices this morning are trading up +$1.78 a barrel and April gasoline is +4.03 cents per gallon. Crude oil and gasoline prices yesterday recovered from early weakness on concern that escalating violence in Bahrain will spill over into Saudi Arabia: CLJ11 +$0.80, RBJ11 +4.08.

                Bullish factors included (1) concern the escalation of violence in Bahrain will spread to Saudi Arabia, the world's biggest crude-exporting country, after Bahrain declared a 3-month state of emergency as a month of anti-government protests intensified, and (2) the larger-than-expected declines in weekly DOE gasoline and distillate inventories (gasoline -4.17 million bbl versus expectations of -2.0 million bbl and distillates -2.60 million bbl versus expectations of -1.5 million bbl).

                Bearish factors include (1) strength in the dollar, which discourages investment demand in commodities, and (2) comments from the EU Energy Commissioner who said that Japan's crippled nuclear power pla nt risks provoking a "major disaster," which sent the prices of most commodities tumbling.

[setravis]

Friday, March 18, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading down -3.5 ticks. T-note prices yesterday ratcheted lower throughout the day and finished with moderate losses on strong economic data and reduced safe-haven demand: TYM11 -10, FVM11 -6.7, EDU11 +0.5.

                Bearish factors included (1) the larger-than-expected decline in weekly initial US unemployment claims (-16,000 to 385,000 versus expectations of -10,000 to 387,000), (2) the larger-than-expected increase in Feb CPI (+0.5% m/m and +2.1% y/y versus expectations of +0.4% m/m and +2.0% y/y, (3) the unexpected increase in the Mar Philadelphia Fed manufacturing index which expanded at its fastest pace in 27 years (+7.5 to 43.4 versus expectations of -5.9 to 30.0), and (4) reduced safe-haven demand for Treasuries after the stock market rallied.

                Bullish factors included (1) the unexpected decline in Feb industrial production (-0.1 versus expectations of +0.6%), (2) the unexpected drop in Feb capacity utilization (-0.1 to 76.3% versus expectations of +0.4 to 76.5%), and (3) the Fed's action to purchase $6.989 billion of Treasuries as part of its QE 2 asset-purchase program.



•               The dollar index this morning is weaker with the dollar/yen +2.55 yen and the euro/dollar +1.09 cents. The yen plunged in overnight trade after the G-7 central agreed to sell the yen in currency markets in coordinated intervention. The dollar index yesterday sank to a 4-1/4 month low and finished lower as the yen surged on speculation there will be no currency intervention before Friday's G-7 meeting: Dollar Index -0.640, USDJPY -0.694, EURUSD +0.01223.

                Bearish factors included (1) strength in the yen which rallied to a new post WWII high against the dollar of 76.36 as Japan's quake crisis prompted increased safe-haven demand for yen along with speculation that insurers will repatriate dollar and euro assets back to yen to pay for earthquake damages and reconstruction, and (2) reduced safe-haven demand for the dollar as the stock market rallied.

                Bullish factors included (1) the action by the G-7 nations to call for an emergency meeting on Friday, which may lead to some form of coordinated intervention to curb the yen's gains, and (2) stronger-than-expected US economic data on weekly jobless claims and the Mar Philadelphia Fed manufacturing index, which signals economic strength and is positive for the dollar.



•               April crude oil prices this morning are trading up +66 cents a barrel and April gasoline is +1.98 cents per gallon. Crude oil surged over $2.00 a barrel in overnight trade on news the UN had passed a resolution for a no-fly zone over Libya, but prices fell back after China raised banks' reserve requirements. Crude oil and gasoline prices yesterday moved sharply higher on concern the civil unrest in North Africa and the Middle East will spread and reduce crude shipments from the region: CLJ11 +$3.44, RBJ11 +10.69.

               Bullish factors included (1) concern the escalation of violence in Bahrain will spread to Saudi Arabia, the world's biggest crude-exporting country, (2) the plunge in the dollar index to a 4-1/4 month low, which encourages investment demand in commodities, and (3) stronger-than-expected US economic data on weekly jobless claims and the Mar Philadelphia Fed manufacturing index, which signals economic strength that may support increased energy demand and consumption.

               Bearish factors include (1) the unexpected declines in Feb US industrial production and capacity utilization which signals reduced energy consumption, and (2) heightened concern that Japan's quake crisis may push its economy into recession which would slash global economic growth and energy demand.

[setravis]

Monday, March 21, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading down -15.5 ticks on reduced safe-haven demand as global equity markets rally. T-note prices last Friday weakened on reduced safe-haven demand after the G-7 intervened in currency markets to stabilize the yen and after Libya said it was stopping military action against rebel forces: TYM11 -8, FVM11 -5, EDU11 +1.0.

                 Bearish factors included (1) reduced safe-haven demand for Treasuries after G-7 nations agreed to intervene to weaken the yen, which may help keep Japan from falling into recession, and (2) a further reduction in safe-haven demand after Libya said it will halt all of its military operations against rebel forces.

                 Bullish factors included (1) the action by the UN to approve a no-fly zone over Libya, which may lead to military action against Libyan forces and prompt safe-haven buying of Treasuries, and (2) the action by the Fed to buy $1.568 billion of Treasuries as part of its QE 2 asset-purchase program.



•               The dollar index this morning is weaker with the dollar/yen +0.68 yen and the euro/dollar -0.13 cents. The dollar index last Friday tumbled to a 4-1/2 month low and finished lower on reduced safe-haven demand for the dollar after the stock market rallied and as Libya ordered a halt to its military action against rebel forces: Dollar Index -0.238, USDJPY +1.692, EURUSD +0.01606.

                 Bearish factors included (1) reduced safe-haven demand for the dollar after the stock market rallied, (2) reduced safe-haven demand for the dollar after Libya ordered a halt to all military operations against rebel forces, and (3) strength in the euro which climbed to a 4-1/2 month high against the dollar after ECB President Trichet said he doesn't want to change his hawkish stance on "strong vigilance" on inflation that he gave earlier this month, which fuels speculation the ECB still plans to raise interest rates next month.

                Bullish factors included (1) the action by the G-7 nations to announce coordinated currency intervention to weaken the yen, and (2) the plunge in Feb UK nationwide consumer confidence to its lowest level since data began in 2004, which is negative for the British pound.


•               April crude oil prices this morning are trading up $1.88 a barrel and April gasoline is +5.34 cents per gallon as allied air strikes in Libya threaten to prolong a supply outage in Africa's third biggest oil producer. Crude oil and gasoline prices last Friday fluctuated between gains and losses and settled slightly lower when Libya said it will halt all military action against rebel forces after the UN approved a no-fly zone over Libya: CLJ11 -$0.35, RBJ11 -0.12. Apr crude rose to a 1-week high but fell back and closed lower.

                Bearish factors include (1) the action by Libya to announce a halt to all of its military action against rebel forces and that it will start talks with the opposition, and (2) comments from the director of the Bureau of Ocean Energy Management, Regulation and Enforcement who said the Obama administration may cut the duration of US oil leases to accelerate development and production and cut the royalty rate of companies that step up crude production on federal lands, which may increase US oil supplies.

                Bullish factors included (1) the slump in the dollar index to a 4-1/2 month low, which boosts investment demand in commodities, (2) the action by the United Nations Security Council to approve a no-fly zone over Libya, which bolstered speculation of UN air attacks on Libyan forces, and (3) data from the API that showed US Feb fuel demand rose 4.4% y/y to 19.7 million barrels a day, the highest Feb total in 3 years.

[setravis]

Tuesday, March 22, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading down -7.5 ticks. T-note prices yesterday traded weaker the entire day on reduced safe-haven demand as the stock market rallied and after the Treasury announced it will liquidate its MBS holdings: TYM11 -15.5, FVM11 -12.7, EDU11 -1.5.

                Bearish factors included (1) reduced safe-haven demand for Treasuries after the stock market rallied sharply and as Japan's nuclear crisis eased, (2) the announcement by the Treasury that it will wind down its $142 billion portfolio of MBS securities by $10 billion a month starting this month, which indicates a reduction in the Treasury's emergency liquidity measures, and (3) the estimate from the nonpartisan CBO that said President Obama's budget would produce $2.3 trillion more in deficits over the next decade than the administration currently projects, which may lead to increased issuance of government debt by the Treasury.

                Bullish factors included (1) the weaker-than-expected Feb existing home sales (-9.6% to 4.88 million versus expectations of -4.5% to 5.12 million, and (2) increased safe-haven demand for Treasuries on concern the civil unrest in North Africa and he Middle east is spreading after Yemen declared a state of emergency.



•              The dollar index this morning is weaker and trading at a fresh 1-1/4 year low with the dollar/yen -0.10 yen and the euro/dollar +0.15 cents. The dollar index yesterday slumped to a 1-1/4 year low and finished weaker on reduced safe-haven demand for the dollar after the stock market rallied along with hawkish rhetoric from the ECB: Dollar Index -0.317, USDJPY +0.440, EURUSD +0.04400.

                Bearish factors included (1) reduced safe-haven demand for the dollar after the stock market rallied, (2) hawkish comments from ECB Executive Board member Tumpel-Gugerell that lifted the euro to a 4-1/2 month high against the dollar after she reiterated ECB President Trichet's mantra that "strong vigilance" is necessary to keep a lid on inflation, which shows a consensus building among ECB policy makers for an interest rate hike as soon as next month's policy meeting, and (3) the weaker-than-expected Feb US existing home sales, which may prompt the Fed into keeping its overly easy monetary policy in place for the foreseeable future and further weaken the dollar's interest rate differentials.

                Bullish factors included (1) weakness in the yen on fears of further G-7 currency intervention, and (2) the announcement by the Treasury that it will wind down its $142 billion portfolio of MBS securities by $10 billion a month starting this month, which is dollar positive as it shows the Treasury reducing the size of its balance sheet.



•              April crude oil prices this morning are trading down -34 cents a barrel and April gasoline is -1.37 cents per gallon. Crude oil and gasoline prices yesterday climbed after allied forces launched air attacks on Libya along with continued weakness in the dollar: CLJ11 +$1.26, RBJ11 +4.80. Apr gasoline posted a 1-week high.

                Bullish factors included (1) allied air strikes in Libya that threaten to prolong a supply outage in Africa's third biggest oil producer, (2) the slump in the dollar index to a 1-1/4 year low, which boosts investment demand in commodities, and (3) concern the civil unrest in North Africa and the Middle East is worsening and may spread to other oil producing countries in he region after Yemen declared a state of emergency.

                Bearish factors include (1) estimates from JPMorgan Chase that about half of Japan's refineries remain shut due to its quake crisis, which indicates reduced crude demand, and (2) the weaker-than-expected Feb US existing home sales, which signals the weak housing market may keep pressure on the economy and energy demand.

[setravis]

Wednesday, March 23, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading up +5 ticks. T-note prices yesterday fell to a 1-week low and closed lower on an improvement in Japan's nuclear crisis along with hawkish comments from the Dallas Fed President: TYM11 -5, FVM11 -3.7, EDU11 -1.5.

                Bearish factors included (1) reduced safe-haven demand for Treasuries on speculation that Japan's nuclear crisis is nearer to containment, (2) reduced safe-haven demand after Allied Irish Banks Plc denied a rumor that it will default on a coupon payment after it said it has "no plans" to miss interest payments on is bonds, and (3) hawkish comments from Dallas Fed President Fisher who said there will be "no need for further monetary accommodation" in the US once the Fed's QE2 program ends in June.

                Bullish factors included (1) the larger-than-expected decline in the Jan FHFA US house price index along with the downward revision to Dec (Jan -0.3% m/m versus expectations of -0.2% m/m and Dec revised lower to -1.0% m/m from the originally reported -0.3% m/m), (2) the larger-than-expected decrease in the Mar Richmond Fed manufacturing index (-5 to 20 versus expectations of -1 to 24), (3) the action by the Fed to purchase $7.560 billion in Treasuries as part of its QE2 asset-purchase program, and (4) the prediction from Fukoku Mutual Insurance that Japanese investors will liquidate their Japanese government bond holdings to pay for reconstruction costs instead of selling their US Treasury holdings because Treasuries have a higher yield than their Japanese counterparts.



•               The dollar index this morning is little changed with the dollar/yen -0.20 yen and the euro/dollar -0.33 cents. The dollar index yesterday recovered from a 1-1/4 year low and finished little changed as the euro weakened on concern that European leaders cannot agree on a solution to the region's debt crisis: Dollar Index +0.033, USDJPY -0.060, EURUSD -0.00291.

                Bullish factors included (1) weakness in the euro which fell from a 4-1/2 month high against the dollar on sovereign-debt concerns after the yield on Irish 2-year notes surged to 10.18%, the highest since Bloomberg began collecting the data, as Germany and France demand that Ireland raise its corporation tax rate in return for better terms on loans from the European Financial Stability Facility bailout fund, and (2) dollar friendly comments from Dallas Fed President Fisher who said there will be "no need for further monetary accommodation" in the US once the Fed's QE2 program ends in June.

                Bearish factors included (1) the rally in the British pound to a 14-month high against the dollar on increased speculation the BOE will soon raise interest rates after Feb UK CPI rose at its fastest pace in 2-1/4 years, and (2) strong demand for euros from European banks after the 3-month Euribor rate, the rate at which Euro-Zone banks borrow between each other, rose 6 bp to a 1.185%, its highest level in 1-3/4 years.



•               May crude oil prices this morning are trading up +41 cents a barrel and May gasoline is +1.60 cents per gallon. Crude oil and gasoline prices yesterday finished higher on concern that civil unrest will spread to other oil-producing nations in the Middle East and North Africa: CLK11 +$1.88, RBK11 +0.76.

                Bullish factors included (1) the slump in the dollar index to a 1-1/4 year low, which boosts investment demand in commodities, (2) increased optimism that Japan's nuclear crisis will be contained, and (3) concern that the civil unrest in the Middle East and North Africa will spread to other oil-producing nations in the region.

                Bearish factors include (1) decreased oil demand from Japan, the world's third-largest crude consumer, after JX Nippon Oil & Energy, Japan's biggest refiner, sold 2 million bbl of crude to South Korea because the oil was not needed due to the closure of Nippon's refineries from quake damage, (2) early weakness in gasoline on speculation that US refiners that had been shut for seasonal maintenance were coming back online and producing more gasoline, and (3) the outlook for weekly US crude supplies to increase for a third week when the DOE reports inventories on Wed. Expectations for Wednesday's weekly DOE inventory figures are for crude oil supplies to increase 1.45 million bbl, gasoline stockpiles to fall -2.0 million bbl, distillate inventories to drop -1.5 million bbl and the refinery utilization rate to rise +0.4 to 83.8%.

[setravis]

Thursday, March 24, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading down -5.5 ticks. T-note prices yesterday traded higher until late morning when prices fell after the Fed purchased less debt than average in its asset-purchase program: TYM11 -2.5, FVM11 -0.7, EDU11 -1.0.

                Bearish factors included (1) the Fed's action to purchase 24.6% of the $30.766 billion of securities submitted by primary dealers for the Fed's asset-purchase program, less than the 30.8% the Fed purchased during a similar operation on Mar 14, and (2) hawkish comments from Dallas Fed President Fisher who said he sees "extraordinary speculative activity" in the US after the Fed's quantitative easing program pumped record liquidity into the economy, which signals he favors an immediate end to the Fed's QE 2 program.

                Bullish factors included (1) the unexpected decline in Feb new home sales which fell to their lowest level since records began in 1963 (-16.9% to 250,000 versus expectations of +2.1% to 290,000), and (2) increased safe-haven demand from the ongoing civil unrest in the Middle East along with concern the European sovereign-debt crisis will worsen after the yield on the 10-year Irish note exceeded 10% for the first time since the euro was introduced in 1999 and the yield on Portugal's 5-year bond rose to a record 8.14%.



•               The dollar index this morning is weaker with the dollar/yen +0.10 yen and the euro/dollar +0.35 cents. The dollar index strengthened yesterday and closed higher on concern Europe's sovereign-debt crisis may worsen: Dollar Index +0.360, USDJPY -0.055, EURUSD -0.01096.

                Bullish factors included (1) weakness in the euro after EU finance minister leader Juncker said the EU won't decide to expand the European Financial Stability Facility until June, dousing expectations for a resolution to the expansion of the bailout fund as soon as this weekend's EU summit, (2) weakness in the pound after the minutes of the Mar 10 BOE monetary policy meeting showed policy makers voted 6-3 to keep interest rates on hold along with the cut in Britain's 2011 GDP estimate to 1.7% from a Nov estimate of 2.1% by England's Office for Budget Responsibility, and (3) concern the European debt crisis will worsen after the yield on the 10-year Irish note exceeded 10% for the first time since the euro was introduced in 1999 and the yield on Portugal's 5-year bond rose to a record 8.14%.

                Bearish factors included (1) the unexpected plunge in Feb US new home sales to a record low, which may prompt the Fed to maintain its overly easy monetary policy at the dollar's expense, and (2) hawkish comments from ECB Executive Board member Smaghi who said that interest rates in the Euro-Zone are currently lower than the inflation rate and that keeping them at that level would be "very expansionist," which suggests he favors a rate hike as soon as next month.



•               May crude oil prices this morning are trading up +61 cents a barrel and May gasoline is -0.46 of a cent per gallon. Crude oil and gasoline prices yesterday rallied to 1-1/2 week highs as the US and its allies prepare to attack Libyan leader Qaddafi's ground troops and after protesters clashed with government troops in Syria: CLK11 +$0.78, RBK11 +1.50.

                Bullish factors included (1) concern that Libyan oil output will remain reduced after US Admiral Locklear said that more air strikes will be launched against Libya in the "coming hours and days," (2) the spread of civil unrest to Syria, which bolsters concern that civil unrest may spread to other oil-producing areas in the region and further cut global oil supplies, (3) the larger than expected decline in weekly gasoline inventories which fell to their lowest level this year (-5.32 million bbl to 219.7 million bbl versus expectations of -2.0 million bbl), and (4) increased demand after total US fuel demand for the week ending Mar 18 rose +1% to 19.3 million barrels a day.

                Bearish factors include (1) strength in the dollar, which reduces investment demand in commodities, (2) the larger-than expected increase in weekly crude oil inventories (+2.13 million bbl versus expectations of +1.45 million bbl), and (3) the action by Britain's OBR to cut its 2011 GDP forecast to 1.7% from a Nov estimate of 2.1%, which signals reduced energy demand and consumption.

[setravis]

Friday, March 25, 2011...

Today's Market Focus

•               June 10-year T-notes this morning are trading up +1.5 ticks. T-note prices yesterday fell to a 2-week low and closed lower on reduced safe-haven demand after stock prices moved higher: TYM11 -15, FVM11 -10.5, EDU11 unchanged.

                Bearish factors included (1) the larger-than-expected decline in weekly initial unemployment claims (-5,000 to 382,000 versus expectations of -2,000 to 383,000), and (2) reduced safe-haven demand for Treasuries after the stock market rallied.

                Bullish factors included (1) the unexpected decline in Fed durable goods orders (-0.9% and -0.6% ex transportation versus expectations of +1.2% and +2.0% ex transportation), (2) increased safe-haven demand on concern the European sovereign-debt crisis will worsen after Moody's Investors Service cut the ratings on 30 Spanish banks and European officials said a bailout of Portugal may total as much as 70 billion euros ($99 billion), (3) the Treasury's $11 billion auction of 10-year TIPS that had a bid-to-cover ratio of 2.97, well above the 12-auction average of 2.60 and a sign of strong demand, and (4) the Fed's action to purchase $6.987 billion of Treasuries as part of its QE2 asset-purchase program.



•              The dollar index this morning is slightly higher with the dollar/yen +0.30 yen and the euro/dollar -0.07 cents. The dollar index closed lower yesterday as the euro strengthened on speculation that European leaders will come up with a solution to the region's debt crisis as they begin a 2-day meeting in Brussels: Dollar Index -0.138, USDJPY +0.063, EURUSD +0.00908.

                Bearish factors included (1) strength in the euro on anticipation that EU leaders will come up with a solution to the European debt crisis, and (2) heightened speculation that the ECB will raise interest rates when it meets next on Apr 7, which would further improve the euro's interest rate differentials against the dollar.

                Bullish factors included (1) concern the European sovereign-debt crisis will worsen after European officials speculated that a bailout of Portugal would cost as much as 70 billion euros ($99 billion), (2) the action by Moody's Investors Service to cut the ratings on 30 Spanish banks to reflect Spain's sovereign downgrade, and (3) weakness in the British pound which retreated against the dollar after Feb UK retail sales came in weaker than expected.



•               May crude oil prices this morning are trading up +13 cents barrel and May gasoline is +0.18 of a cent per gallon. Crude oil and gasoline prices yesterday closed mixed as allied air attacks on Libya supported prices while the lingering European debt crisis and an unexpected decline in US durable goods orders limited gains: CLK11 -$0.15, RBK11 +2.22. May crude posted a 2-week high but shed its gains and closed lower.

                Bearish factors include (1) concern the European debt crisis may worsen and slow the global economy and energy demand after European officials said a bailout of Portugal may total as much as 70 billion euros ($99 billion), (2) the unexpected decline in Feb US durable goods orders, which hints at economic weakness that may curtail fuel demand, and (3) the prediction from PFC Energy that OPEC may agree to an increase in production when it meets in Jun because of a "sustained" supply disruption from Libya.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) sustained allied attacks in Libya, which may further reduce Libyan crude output, and (3) an escalation of anti-government protests in Syria and Yemen, which may spread further civil unrest to oil-producing nations in the Middle East and North Africa.

[setravis]

Monday, March 28, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -10 ticks. T-note prices last Friday slid to a 2-week low and closed lower after US Q4 GDP was reported stronger than expected and Fed members urged an end to monetary stimulus: TYM11 -10, FVM11 -9.7, EDU11 -2.5.

                Bearish factors included (1) the larger-than-expected upward revision to US Q4 GDP (+3.1% annualized versus expectations of +3.0% annualized), (2) comments from Philadelphia Fed President Plosser who said the improving economy means the Fed should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates, and (3) comments from Dallas Fed President Fisher who said the Fed was at risk of "doing too much" and should end its quantitative easing program.

                Bullish factors included (1) the unexpected downward revision to the Q4 PCE deflator which shows the smallest increase since data began in 1959 (+0.4% q/q versus the previously reported +0.5% q/q), and (2) t he larger-than-expected drop in Mar U.S. University of Michigan consumer confidence to its lowest level in 16 months (-0.7 to 67.5 versus expectations of -0.2 to 68.0).



•   The dollar index this morning is higher and at a 1-week high with the dollar/yen +0.34 yen and the euro/dollar -0.34 cents. The dollar index last Friday settled higher on concern about European government efforts to end the region's debt crisis: Dollar Index +0.561, USDJPY +0.362, EURUSD -0.00891.

                Bullish factors included (1) weakness in the euro on concern European leaders lack the resolve to quell the region's debt crisis after EU leaders caved in to German demands to cut the amount of startup capital for a program for future emergency aid, and (2) dollar supportive comments from Philadelphia Fed President Plosser who said the improving economy means the Fed should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates.

                Bearish factors included (1) the smaller-than-expected decline in Mar IFO business confidence, which is euro positive, (2) supportive interest rate differentials for the euro with the 3-month Euribor rate rising to a 1-3/4 year high of 1.203%, and (3) the plunge in Mar U.S. University of Michigan consumer confidence to a 16-month low, which is dollar negative.



•   May crude oil prices this morning are trading down -58 cents a barrel and May gasoline is -1.90 cents per gallon. Crude oil and gasoline prices last Friday settled slightly lower as European debt concerns offset a stronger US economy: CLK11 -$0.20, RBK11 -0.13. May gasoline posted a 2-week high but shed its gains and closed lower.

                Bearish factors included (1) strength in the dollar, which discourages investment demand for commodities, (2) concern that Japan's rebuilding process may be delayed after a spokesman for Japan's Nuclear and Industrial Safety Agency said one reactor core at the quake-damaged Fukushima Dai-Ichi power plant might be cracked and leaking radiation, (3) concern that the European debt crisis will worsen and slow the economy and energy demand, and (4) the larger-than-expected drop in Mar U.S. University of Michigan consumer confidence which tumbled to a 16-month low and may lead to decreased consumer spending and fuel demand.

                Bullish factors includ e (1) the larger-than-expected upward revision to US Q4 GDP, which indicates stronger-than-expected fuel consumption, and (2) the ongoing civil unrest in North Africa and the Middle East that threatens to spread to major oil-producers in the region.

[setravis]

Tuesday, March 29, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading unchanged. T-note prices yesterday fell to a 2-1/2 week low and closed lower after hawkish Fed comments and slack demand for the Treasury's 2-year T-note auction: TYM11 -3.5, FVM11 -3.7, EDU11 -1.0.

                Bearish factors included (1) the stronger-than-expected Feb personal spending and the unexpected upward revision to Jan (Feb +0.7% versus expectations of +0.6% and Dec revised up to +0.3% from the originally reported +0.2%), (2) the stronger-than-expected Feb pending home sales (+2.1% m/m versus expectations of +0.9% m/m), (3) hawkish comments from St. Louis Fed President Bullard who said that policy makers should review halting the $600 billion QE2 asset-purchase program before its June completion because the economy may not require that much stimulus, (4) weak demand for the Treasury's $35 billion 2-year T-note auction that had a bid-to-cover ratio of 3.16, below the 12-auction average of 3.33, and (5) supply pressures ahe ad of the Treasury's $35 billion auction of 5-year T-notes on Tue.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis may worsen after the yield on Portugal's 10-year bond climbed to a euro-era record of 7.94%, and (2) the Fed's action to purchase $6.753 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is little changed with the dollar/yen +0.43 yen and the euro/dollar -0.10 cents. The dollar index yesterday rallied to a 1-week high but shed its gains and closed slightly lower after hawkish comments from ECB President Trichet boosted the euro: Dollar Index -0.025, USDJPY +0.035, EURUSD -0.00016.

                Bearish factors included (1) euro supportive comments from ECB President Trichet who said "inflation rates are durably above the price stability target," which nearly cements an April interest rate hike from the ECB, and (2) hawkish comments from ECB Council member Quaden who said a "moderate" increase in interest rates won't stifle the economic recovery.

                Bullish factors included (1) comments from St. Louis Fed President Bullard who said that policy makers should review halting the $600 billion QE2 asset-purchase program before its June completion because the economy may not require that much stimulus, and (2) stronger-than-e xpected US economic data on Feb personal spending and Feb pending home sales, which signals economic strength and is dollar supportive.



•   May crude oil prices this morning are trading down -$1.15 a barrel and May gasoline is -1.79 cents per gallon. Crude oil and gasoline prices yesterday closed lower on speculation that recent victories by Libyan rebels may speed up a resolution to the country's armed conflict and put Libyan oil back on the market: CLK11 -$1.42, RBK11 -2.19.

                Bearish factors included (1) the action by Qatar to agree to market crude from east Libyan oil fields that are now controlled by rebel forces, which eases concern that Libyan oil exports will be disrupted for an extended period, and (2) concern that a recovery in Japan will be delayed after Japan's chief government spokesman said a partial meltdown of fuel rods in the No. 2 reactor probably caused a jump in radioactive readings that will further complicate containment of Japan's nuclear crisis.

                Bullish factors include (1) the reversal in the dollar after the dollar index fell back from a 1-week high and closed lower, which boosts in vestment demand for commodities, (2) comments from Algeria's Oil Minister that the oil market is "well supplied" and there is no need to compensate for a decline in Libya's output, and (3) the stronger-than-expected Feb US personal spending, which shows strength in the economy that may bolster fuel demand.

[setravis]

Wednesday, March 30, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading unchanged. T-note prices yesterday fell to a 2-1/2 week low and closed lower due to strong equities and a smaller-than-expected decline in home prices: TYM11 -10, FVM11 -4.7, EDU11 unchanged.

                Bearish factors included (1) the smaller-than-expected decline in home prices in the Jan S&P/CaseShiller composite-20 home price index (-0.2% m/m and -3.1% y/y versus expectations of -0.5% m/m and -3.2% y/y), (2) hawkish comments from St. Louis Fed President Bullard who said the Fed might need to tighten monetary policy before the outlook for the global economy clears up later this year, (3) strength in the equity market, and (4) supply pressures ahead of the Treasury's $29 billion auction of 7-year T-notes on Wed.

                Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis may worsen after Standard & Poor's cut Portugal's and Greece's sovereign-debt ratings, (2) th e larger-than-expected decline in Mar US consumer confidence (-8.6 to 63.4 versus expectations of -5.4 to 65.0), and (3) dovish comments from Boston Fed President Rosengren who said "right now there's an awful lot of slack in the economy" and that "overall, the core rate of inflation is quite low," which means now is not the time to tighten monetary policy.



•   The dollar index this morning is stronger with the dollar/yen +0.64 yen and the euro/dollar -0.21 cents. The dollar index yesterday finished slightly higher as rising European sovereign-debt risks and weakness in the yen outweighed the prospects of an ECB rate hike next week: Dollar Index +0.121, USDJPY +0.781, EURUSD +0.00258. The yen posted a 2-week low against the dollar.

                Bullish factors included (1) the action by Standard & Poor's to cut Portugal's sovereign credit rating to BBB-, the lowest investment grade, and to cut Greece's rating 2 grades to BB-, 3 levels below investment grade, on concern that new EU bailout rules will force both countries to renege on their debt obligations, and (2) comments from St. Louis Fed President Bullard who said the Fed might need to tighten monetary policy before the outlook for the global economy clears up later this year.

                Bearish factors included (1) hawkish comments from ECB Council member Makuch who said it is "highl y probable" that the ECB will raise interest rates next week, which would further strengthen the euro's interest rate differentials, and (2) the weaker-than-expected Mar US consumer confidence, which is dollar negative.



•   May crude oil prices this morning are trading down -40 cents a barrel and May gasoline is -0.76 of a cent per gallon. Crude oil and gasoline prices yesterday recovered from early losses and followed the equity market higher: CLK11 +$0.81, RBK11 +1.60.

                Bullish factors include (1) the rally in the stock market, which boosts confidence in the economic outlook and energy demand, and (2) strength in gasoline on speculation that US gasoline inventories will decline for a sixth straight week when the DOE releases inventory figures on Wed.

                Bearish factors included (1) the stronger dollar, (2) the advance of Libyan rebels against Mummar Qaddafi's troops, which spurs hope the conflict in Africa's third-largest oil producer may end soon and start Libyan crude exports flowing again, and (3) the weaker-than-expected Mar US consumer confidence, which may lead to reduced consumer spending and fuel demand. Expectations for Wednesday's weekly inventory report from the DOE are for cru de oil stockpiles to rise +1.5 million bbl, gasoline supplies to fall -1.8 million bbl, distillate inventories to drop -1.0 million bbl and the refinery capacity rate to increase +0.3 to 84.4%.

[setravis]

Thursday, March 31, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading up +1.5 ticks. T-note prices yesterday recovered from a 3-week low and closed higher after the Mar ADP employment change showed companies added fewer jobs than forecast: TYM11 +11.5, FVM11 +7, EDU11 +1.0.

                Bullish factors included (1) the smaller-than-expected increase in the Mar ADP employment change along with the downward revision to Feb (Mar +201,000 versus expectations of +208,000 and Feb revised down to +208,000 from the originally reported +217,000), and (2) the prediction from High Frequency Economics that demand for Treasuries is poised to increase as investors seek refuge from Europe's debt crisis and Japan's "grisly" economic prospects.

                Bearish factors included (1) the rally in the S&P 500 to a 2-1/2 week high, which reduced the safe-haven demand for Treasuries, (2) comments from Kansas City Fed President Hoenig who said current central bank policies risk undermining world growth and that the Fe d should raise the funds rate toward 1.00% in a "fairly short period," and (3) weak demand for the Treasury's $29 billion auction of 7-year T-notes that had a bid-to-cover ratio of 2.79, below the 2.88 average of the past 12 auctions.



•   The dollar index this morning is lower with the dollar/yen -0.03 yen and the euro/dollar +0.84 cents. The dollar index yesterday finished weaker as a rally in stocks reduced the safe-haven demand for the dollar along with the prospects for the dollar's interest rate differentials to weaken further on the near certainty of an ECB interest rate hike next week: Dollar Index -0.131, USDJPY +0.418, EURUSD +0.00144.

                Bearish factors included (1) market expectations of an Apr 7 interest rate hike by the ECB, which will further strengthen the euro's interest rate differentials against the dollar, and (2) reduced safe-haven demand for the dollar as global stock markets rallied on increased economic optimism.

                Bullish factors included (1) weakness in the yen as Japan's quake crisis may prompt the BOJ to keep an overly easy monetary policy that will further weaken the yen's interest rate differentials against the dollar, and (2) euro negative comments from ECB Council member Bini Smaghi who said the risk of the European sovereign-debt crisis spreading to other EU nations is "not insignificant."



•   May crude oil prices this morning are trading up +$1.10 a barrel and May gasoline is +2.08 cents per gallon. Crude oil and gasoline prices yesterday settled mixed as a larger-than-expected increase in weekly DOE crude supplies undercut crude while a larger-than-expected drop in gasoline inventories lifted gasoline: CLK11 -$0.52, RBK11 +1.37.

                Bearish factors included (1) the stronger dollar, which erodes investment demand for commodities, (2) the larger-than-expected increase in weekly crude inventories (+2.94 million bbl to a 3-1/2 month high of 356 million bbl versus expectations of +1.5 million bbl), and (3) reduced fuel demand after US gasoline demand dropped -2.3% w/w and -2.1% y/y to 8.87 million barrels a day in the week ended Mar 25, as higher prices have cut gasoline demand to lower than it was a year ago.

                Bullish factors include (1) strength in the stock market, which boosts confidence in the economic outlook and energy demand, and (2) strength in gasoline af ter weekly gasoline supplies fell more than expected (-2.68 million bbl to a 3-month low of 217 million bbl versus expectations of -1.8 million bbl).

[setravis]

Friday, April 1, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -12.5 ticks. T-note prices yesterday gyrated on either side of unchanged and closed slightly lower as manufacturing strength in the US Midwest offset a smaller-than expected decline in weekly jobless claims: TYM11 -3, FVM11 -1.5, EDU11 +3.5.

                Bearish factors included (1) the smaller-than-expected decline in the Mar Chicago purchasing managers index (-0.6 to 70.6 versus expectations of -1.6 to 69.6), (2) the action by Goldman Sachs to hike its yield estimate for the US 5-year T-note this year to 2.5% from an earlier estimate of 2.3%, saying the outlook for growth and inflation is becoming less friendly for bonds, and (3) comments from Minneapolis Fed Governor Kocherlakota who said the Fed funds rate may need to rise 75 bp by late 2011.

                Bullish factors included (1) the smaller-than-expected decline in weekly initial unemployment claims (-6,000 to 388,000 versus expectations of -2,000 to 380,000), (2) the unexpected d ecline in Feb factory orders (-0.1% versus expectations of +0.5%), and (3) the Fed's action to purchase $2.1 billion of Treasuries as par of its QE2 asset-purchase program.



•   The dollar index this morning is stronger with the dollar/yen +0.56 yen to a 1-1/2 month high and the euro/dollar -0.05 cents. The dollar index yesterday settled lower after the euro strengthened when Mar Euro-Zone inflation unexpectedly accelerated: Dollar Index -0.261, USDJPY +0.241, EURUSD +0.00304.

                Bearish factors included (1) the unexpected jump in the Mar Euro-Zone CPI estimate to +2.6% y/y, a 29-month high which lifted the euro and bolstered the case for an ECB interest rate hike next week, and (2) the larger than expected decline in Mar German unemployment to its lowest level since 1992, which is euro supportive.

                Bullish factors included (1) concern the European sovereign-debt crisis may worsen after credit-default swaps on Portuguese government debt rose 13 bp to a record 579 bp while default swaps on Irish government bonds rose 8 bp to a 2-1/2 month high of 633 bp, and (2) the smaller than expected decline in the Mar Chicago purchasing managers index, which shows economic strength and is dollar supportive.



•   May crude oil prices this morning are trading yp +49 cents a barrel and May gasoline is +1.18 cents per gallon. May crude rose to a 2-1/2 year high of $107.65 a barrel in overnight trade after manufacturing data in China accelerated for the firs time in 4 months. Crude oil and gasoline prices yesterday finished higher as the dollar weakened and after Libyan leader Mummar Qaddafi's troops forced rebels to retreat: CLK11 +$2.45, RBK11 +5.04. May crude rose to a 3-week high and May gasoline climbed to a contract high, while nearest-futures Apr gasoline posted a 2-1/2 year high.

                Bullish factors included (1) the weaker dollar, which bolsters investment demand for commodities, and (2) the action by Mummar Qaddafi's troops to repel the advances of rebel forces, which may prolong the Libyan conflict and further curtail Libyan oil production.

                Bearish factors include (1) the unexpected decline in US Feb factory orders, and (2) the statement from the IEA that crude oil prices are entering a "dangerous zone" for the global economy, which may already be seeing demand destruction due to high prices.

[setravis]

Monday, April 4, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading down -2.5 ticks. T-note prices last Friday fell to a 3-week low after stronger than expected US economic data on employment and manufacturing but prices closed well off of their worst levels after dovish comments from New York Fed President Dudley: TYM11 -2, FVM11 -4.5, EDU11 +0.5.

                Bearish factors included (1) the larger-than-expected increase in Mar nonfarm payrolls (+216,000 versus expectations of +190,000), (2) the unexpected decline in the Mar unemployment rate to a 2-year low (-0.1 to 8.8% versus expectations of unchanged at 8.9%), (3) the smaller-than-expected decline in the Mar ISM manufacturing index (-0.2 to 61.2 versus expectations of -0.4 to 61.0), and (4) the larger-than-expected increase in the Mar ISM prices paid sub-index which expanded at its fastest pace in 2-1/2 years (+3.0 to 85.0 versus expectations of +0.9 to 82.9).

                Bullish factors included (1) a lack of wage pressures after the smaller-than-expect ed increase in Mar avg hourly earnings (unchanged m/m and +1.7% y/y versus expectations of +0.2% and +1.9% y/y), (2) the weaker-than-expected Feb construction spending and the downward revision to Jan (Feb -1.4% versus expectations of -0.2% and Jan revised lower to -1.8% versus the originally reported -0.7%), and (3) comments from New York Fed President Dudley who said the US economy's recovery is "still tenuous" and to not be "overly optimistic about the growth outlook."



•   The dollar index this morning is slightly higher with the dollar/yen +0.10 yen and the euro/dollar -0.22 cents. The dollar index last Friday jumped to a 2-week high after Mar US payrolls were reported stronger than expected but then erased its gains and finished slightly lower after dovish comments from New York Fed President Dudley: Dollar Index -0.024, USDJPY +0.930, EURUSD +0.00770.

                Bearish factors included (1) comments from New York Fed President Dudley who said not to be "overly optimistic about the growth outlook," which signals he is not in favor of tightening Fed policy, and (2) reduced safe-haven demand for the dollar after the S&P 500 rallied to a 1-1/4 month high.

                Bullish factors included (1) strong US economic data on Mar manufacturing and employment which signals a faster pace of economic growth that may prompt the Fed into raising interest rates, (2) concern the European sovereign-debt crisis may worsen after Standard & Poor's cut Irela nd's credit rating after the cost of rescuing Irish banks rose to as much as 100 billion euros ($141.5 billion) and Fitch Ratings cut Portugal's debt ratings and kept a negative outlook on Ireland and Portugal, meaning their ratings may be cut further, and (3) weakness in the yen which tumbled to a 6-month low against the dollar on speculation Japan's economy will be hampered by the aftermath of its earthquake crisis.



•   May crude oil prices this morning are trading up +43 cents a barrel and May gasoline is +0.86 of a cent per gallon, both at fresh 2-1/2 year highs. Crude oil and gasoline prices last Friday rallied to 2-1/2 year highs and settled higher on signs of increased global demand along with intensified fighting in Libya: CLK11 +$1.22, RBK11 +3.84.

                Bullish factors included (1) the increase in Mar China PMI manufacturing for the first time in 4 months, which signals increased energy demand, (2) stronger than expected US economic data on Mar payrolls and Mar ISM manufacturing, which points to economic strength that may boost fuel demand, and (3) the action by Mummar Qaddafi's troops to repel the advances of rebel forces, which may prolong the Libyan conflict and further curtail Libyan oil production.

                Bearish factors include (1) weakness in European economic data after the Mar Euro-Zone PMI manufacturing index was unexpectedly revised down and Mar UK PMI manufacturing fell to a 5 -month low, which indicates decreased energy consumption, and (2) comments from New York Fed President Dudley who said not to be "overly optimistic about the growth outlook."

[setravis]

Tuesday, April 5, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading up +1.5 ticks. T-note prices yesterday erased early losses and finished higher after Atlanta Fed President Lockhart said the US economic recovery faces headwinds: TYM11 =8, FVM11 +8.5, EDU11 +4.0.

                Bullish factors included (1) comments from Atlanta Fed President Lockhart who said the US economic recovery faces headwinds, which reduced speculation the Fed may end its QE2 asset-purchase program before its scheduled completion in June, and (2) the action by the Fed to purchase $8.03 billion of Treasuries as part of its QE2 asset-purchase program.

                Bearish factors included (1) reduced safe-haven demand for Treasuries as global stock markets rallied, and (2) carry-over weakness from a decline in bund prices after Feb Euro-Zone PPI climbed to a 2-1/2 year high.



•   The dollar index this morning is higher with the dollar/yen +0.29 yen and the euro/dollar -0.43 cents. The dollar index yesterday finished slightly higher as the euro retreated from a 5-month high against the dollar on weaker than expected Euro-Zone investor confidence: Dollar Index +0.079, USDJPY -0.001, EURUSD -0.00141.

                Bullish factors included (1) weakness in the euro which fell back from a 5-month high against the dollar on concern a likely interest-rate increase by the ECB on Thursday will hurt the economies of the most indebted nations in the Euro-Zone, which could further exacerbate the European sovereign-debt crisis, and (2) the Apr Euro-Zone Sentix investor confidence fell which fell more than expected to a 3-month low and is euro negative.

                Bearish factors included (1) comments from Atlanta Fed President Lockhart who said the US economic recovery faces headwinds, which bolstered speculation the Fed will keep its overly easy monetary policy in place and keep t he dollar's interest rate differentials weak, and (2) the increase in the Feb Euro-Zone PPI to a 2-1/2 year high of +6.6% y/y, which boosted the euro on speculation the ECB will remain hawkish even after an expected 25 bp rate hike in the 2-week refinancing rate this Thursday.



•   May crude oil prices this morning are trading down -58 cents a barrel and May gasoline is -1.59 cents per gallon. Crude oil and gasoline prices yesterday climbed to 2-1/2 year highs and settled higher on concern that global oil supplies will be hindered as the civil war in Libya is prolonged: CLK11 +$0.53, RBK11 +2.10.

                Bullish factors included (1) increased fighting between rebels and troops loyal to Mummar Qaddafi in Libya, which fuels speculation that a protracted conflict in Libya will curtail global oil supplies, and (2) the rally in global stock markets which bolsters confidence in the economic outlook and energy demand.

                Bearish factors include (1) the stronger dollar, which reduces investment demand in commodities, (2) comments from IEA Director Tanaka that the "burden" that crude at more than $100 a barrel puts on the world economy is "worrisome" and may be as bad as in 2008, and (3) the prediction from the US Climate Prediction Center for a bove-average temperatures for much of the US from Apr 9 to Apr 13, which could reduce demand for heating fuels.

[setravis]

Wednesday, April 6, 2011...

Today's Market Focus

•   June 10-year T-notes this morning are trading unchanged. T-note prices yesterday moved lower after hawkish comments from Fed Chairman Bernanke along with the Mar 15 FOMC meeting minutes in which several Fed members expressed increased inflation concerns: TYM11 -14.5, FVM11 -11.5, EDU11 -2.0.

                Bearish factors included (1) hawkish comments from Fed Chairman Bernanke who said that inflation must be watched "extremely closely," which fueled speculation that the Fed may tighten monetary policy sooner than previously expected, and (2) the minutes of the Mar 15 FOMC meeting in which some Fed members "indicated, in light of recent developments, that the risks to their forecasts of inflation had shifted somewhat to the upside."

                Bullish factors included (1) the larger-than-expected decline in the Mar ISM non-manufacturing index which fell to a 3-month low (-2.4 to 57.3 versus expectations of -0.2 to 59.5), (2) comments from Chicago Fed President Evans who said the Fed's decision to purchase $600 billion in large scale assets is the "right amount," which indicates he would not agree to an early end to the Fed's QE2 asset-purchase program, (3) comments from Treasury Secretary Geithner who said the "housing market in the US is still in crisis," (4) increased safe-haven demand for Treasuries after Moody's Investors Service cut Portugal's long-term government bond rating to Baa1 from A3, its
second downgrade in the last 3 weeks, and (5) the action by the Fed to purchase $7.566 billion of Treasuries as part of its QE2 asset-purchase program.



•   The dollar index this morning is weaker and posted a 1-1/2 week low with the dollar/yen +0.21 yen at a 6-1/4 month high and the euro/dollar +0.81 cents at a 14-1/2 month high. The dollar index yesterday erased an early rally and finished slightly lower after the Mar ISM non-manufacturing index fell more than expected: Dollar Index -0.030, USDJPY +0.806, EURUSD +0.00021. The yen fell to a 6-1/4 month low against the dollar.

                Bearish factors included (1) the larger-than-expected decline in the Mar ISM non-manufacturing index which fell to a 3-month low, and (2) expectations for an ECB rate hike on Thursday that will further improve the euro's interest rate differentials against the dollar.

                Bullish factors included (1) euro negative comments from ECB Council member Bonello who said that risks to the ECB's economic growth projections "are on the downside," (2) the action by Moody's Investors Service cut Portugal's long-term government bond rating to Baa1 from A3 , its second downgrade in the last 3 weeks, saying another downgrade may follow and the winner of Portugal's elections in June will probably tap Europe's bailout fund with "urgency," and (3) comments from Fed Chairman Bernanke who said that inflation must be watched "extremely closely," which fueled speculation that the Fed may tighten monetary policy sooner than previously expected.



•   May crude oil prices this morning are trading down -18 cents a barrel and May gasoline is -1.49 cents per gallon. Crude oil and gasoline prices yesterday settled mixed as crude fell after China raised interest rates and the May ISM non-manufacturing index fell more than expected, while gasoline closed higher on expectations that weekly US gasoline stockpiles fell for the seventh consecutive week: CLK11 -$0.13, RBK11 +3.25. May gasoline posted a 2-1/2 year high.

                Bearish factors include (1) the action by China to raise interest rates, which may slow its economy and energy demand, (2) the weaker-than-expected Mar ISM non-manufacturing index, which signals reduced fuel demand, and (3) the outlook for weekly US crude supplies to increase when the DOE releases its inventory figures on Wed.

                Bullish factors included (1) the statement from Iran's OPEC governor who said OPEC has no plans for an emergency meeting on higher oil prices, which reflect political and social situatio ns rather than supply and demand, and (2) strength in gasoline prices on the outlook for weekly DOE gasoline inventories to fall for a seventh consecutive week on Wed. Expectations for the weekly inventory report from the DOE are for crude oil supplies to climb +2.0 million bbl, gasoline stockpiles to decline -1.9 million bbl, distillate inventories to remain unchanged and the refinery utilization rate to increase +0.5 to 84.6%.