Bonds Ease, Dollar Up on Data

By John Lee

U.S. 10-year Treasury bond prices fell today, after a positive non-manufacturing ISM report and a decline in initial jobless claims were released today. A surprisingly positive non-manufacturing ISM report was released, which rose to 56, versus analyst forecasts of 53. Bonds are down for the week at this point, driven lower by positive manufacturing and durable goods orders. Bonds typically fall on economic strength and rise on weakness, so traders have taken this week's economic reports from the U.S. as a positive sign for the economy.

The U.S. dollar jumped today against the euro and the yen, moving to 2-month highs against the Japanese currency and to a 1-week high against the euro. Today, a surprisingly positive non-manufacturing ISM report was released. The service industries index rose to 56, versus analyst forecasts of 53. Today marks the 3rd straight day of a dollar move against the euro; positive manufacturing and durable goods orders reports from earlier in the week helped to kick-start this dollar rally. The euro reached new highs against then yen, but fell back during the day to close slightly lower. The euro also fell against the British pound, on speculation that the BoE will raise rates next week.

Crude oil futures fell about 0.7% today, on speculation that U.S. inventories can handle any unexpected spike in demand. Refineries are just now beginning to re-open, and should supply the market with extra gasoline supplies. Crude inventories right now are about 4.8% higher than the 5-year average. Natural gas futures jumped nearly 3% as traders bet that coming hot weather will boost the need for gas for electric generators.

Gold futures rose fractionally today, as traders bet that the dollar's rally will not last. Gold usually traders inversely to the dollar and with oil, and it was dollar speculation that drove gold higher today. Traders bought gold to cover themselves from any imminent dollar weakness. Copper futures rose about 1% on a continued rally from the durable goods orders report that came earlier this week.

Grains traded mixed today. Wheat closed up fractionally, corn rose nearly 2% and soybeans dropped about 0.2%.

Economic News
ISM non-manufacturing index rose to 56, versus expectations of 53.
Worker productivity in the U.S. rose 1.7%, versus expectations of 0.7%.