Weak U.S. Numbers Leave Dollar Near Flat

By John Lee

U.S. 10-year Treasury bond prices rose the most in 7-months today, after consumer spending, a benchmark of inflation, was unchanged last month. Traders bought the security of the long-term yield to protect from short-term economic weakness and slow growth. Bonds typically fall on economic strength and rise on weakness, so it was clear that traders took the soft inflationary report as a negative for the economy, sending bonds higher. Despite the soft report, there is still only about a 10% chance that the Fed will cut rates by August.

The euro fought off losses today to push towards new records against the dollar and the yen today. A German retail sales report came in weaker than expected, but the euro recovered, and rallied through the day. Traders were looking for March retail sales to have increased 0.8%, but sales actually decreased -0.7% in March. Weak data out of the U.S. pushed the dollar lower against the euro and the yen, but the dollar managed to get back some losses against the yen to close only slight lower. Personal spending rose less than expected in March, 0.3% vs expectations of 0.5% spending growth. In addition, the Chicago PMI, which measures business activity, fell to 52.9, versus expectations of a reading of 54.0. The weak personal spending numbers and slowing business growth both helped to weaken the dollar today.

Crude oil futures fell a little more than 1% today, after a sharp jump on Friday. Oil reportedly fell today on concerns that shut-down refineries in the U.S. are indicative of high supplies and low demand for energy. Summer is usually a period of high energy use in the U.S., and despite this seasonal bias, a number of U.S. refineries shut down over the weekend, prompting investors to worry if demand is not up to its usual levels. Crude has been trading in about a 7 point range just above $60 a barrel, after settling down from the Iran/UK hostage scare. Natural gas futures rose about 0.4% as traders prepared for more energy usage during the summer.

Gold futures rose about 0.3%, on concerns for dollar weakness. Gold moves inversely to the dollar and with gold; today, dollar weakness against the euro led to gold buying, as traders sought safety in the precious metal. Copper futures gained about 0.7% on concerns of a broad-based Peru copper mine strike.

Grains traded mixed today. Soybeans rose about 0.7%, wheat fell around 3.5% and corn dropped over 2%.

Economic News
U.S. Personal Spending rose 0.3%, versus expectation of 0.5% in march.
Chicago manufacturing PMI fell more than expected in April.