Bonds Bounce on Weak Data

By John Lee

U.S. 10-year Treasury bonds rallied today, after a U.S. report showed that job creation fell to 2-year lows and wage growth slowed in April. Bonds shot up on the news, which was soft on inflation and growth. Bonds fell during the middle of the week on a string of positive, inflationary reports, but today's report sent bonds shooting higher to levels seen early in the week. Bonds typically fall on positive news, and rise on economic weakness, so traders took today's reports as big negatives for the U.S. economy.

The U.S. dollar fell to within a fraction of record lows against the euro today, and also dropped against the yen. A private report earlier this week forecast weakness, but other government reports through the week came out positive, and the dollar rose accordingly. Today's reports, however, erased some dollar gains from earlier this week. The Canadian dollar has been surging on the dollar for weeks now, regardless of any positive U.S. data. Traders are betting that foreign money is investing in Canadian companies, boosting the country's currency values. After falling slightly against the yen yesterday, the euro is back up against the Japanese currency.

Crude oil futures fell over 2% today, on speculations that U.S. reserve supplies will be able to meet the coming demands for summer gasoline production. Summer is usually a period of high-energy use, especially gasoline, and traders bet today that U.S. supplies will be able to handle the extra load. This marks crude's first major push lower, after spiking higher on Iran/UK tensions late in March. Natural gas futures rose over 1% as traders bet that this summer's energy use will put a strain on gas supplies.

Gold futures rose nearly 1% today on dollar weakness. Gold usually trades inversely to the dollar and with oil, and it was dollar trading that dominated today's gold action. Traders bought gold as a safety against a falling dollar, which was sent lower on weak economic data. Copper futures rose nearly 1% to 11-month highs on weak U.S. growth and supply fears over a mining strike in Peru.

Grains traded mixed today. Soybeans were basically flat, wheat rose about 0.1% and corn gained 0.3%.

Economic News
U.S. job growth fell to lowest levels in 2 years.