Bonds Down, Dollar Up on Jobs Number

By John Lee

U.S. 10-year Treasury bond prices fell today, after a government jobs report showed that initial jobless claims fell more than expected last month. The news led to traders selling bonds, on the premise that the Fed will not be forced to raise rates, and that the U.S. economy is not in as much trouble as once thought. Bonds typically rise on economic weakness and fall on strength, so it was clear that traders took today's economic report as a positive for the U.S. economy. U.S. 2-year bond prices fell to 2-month lows on the news.

The dollar continued its rally against the yen and the euro today, coming close to 3-month highs today against the Japanese currency. The dollar moved higher against the two other major currencies for the second straight day, working to fight off recent lows against the euro. A government jobs report showed that initial jobless claims fell more than expected last month. Traders pared bets that the Fed would be forced to cut rates, which helped the dollar gain some much-needed strength. The Canadian dollar gained against every major currency this morning, after a government report showed that core inflation accelerated to its highest in over four years last month. The Canadian dollar shot up against the dollar, euro and yen, strengthening even more after a spectacular last few months.

Crude oil futures jumped nearly 4% today, on speculation that U.S. gasoline inventories will not be able to handle summer demand. Gasoline stockpiles are 7.5% below the 5-year average, leading traders to bet that summer demand will exceed the U.S. capacity to deliver. Summer is usually a period of high demand and usage for all fuel types, with summer vacation driving and air conditioning helping to significantly increase average usage. Natural gas futures rose just over 2% after the Energy Department released its natural gas inventory numbers, which were lower than expected.

Gold fell about 0.5% today on dollar strength, moving near 2-month lows. Gold usually trades inversely to the dollar and with oil; today's dollar strength led to massive gold selling, despite rising crude prices. Traders sold gold in the face of a strong dollar. Copper fell over 3% on speculation that global demand is not strong enough to merit current surplus inventories.

Grains traded mixed today. Soybeans were flat, corn fell about 0.6% and wheat dropped over 2%.

Economic News
U.S. initial jobless claims fell unexpectedly last month.
Leading indicators index dropped 0.5%, versus expectations of no change.