Bonds Flat, Dollar Up on U.S. Data

By John Lee

U.S. 10-year Treasury bond prices were basically flat on the day, recovering losses from earlier in the day. Bonds initially fell this morning after 2 positive-growth economic reports were released this morning, on bets that the Fed would not be forced to cut rates any time soon. Bonds typically fall on positive economic news and rise on negative news, so traders took the double reports as a good sign for the economy. However, as the day went on, negative sentiment brought prices back up to near yesterday's close, securing a flat day for the bond markets.

The dollar bounced back against the euro today, and rose to nearly 3-month highs against the yen, after positive housing and industrial reports were released in the U.S. today. Both reports beat expectations soundly, which boosted trader confidence in U.S. economic strength, and forced traders to pare bets on any coming rate cuts. The dollar rallied through the day on the positive news. The dollar also surged against the Canadian dollar, which has held the upper hand over the dollar since the beginning of March. The euro gave up gains against the yen, closing lower for the day after hitting new record highs.

Crude oil futures fell about 1% today, after the Energy Department reported an increase in U.S. crude and gasoline supplies. Crude oil inventories rose 1.06 million barrels last week, the highest increase since last June. Crude supplies are growing because refineries across the country are shut down right now, being cleaned and repaired ahead of a high-demand summer. Energy use usually increases during the summer, sending prices higher on more demand. Natural gas futures rose fractionally today.

Gold futures dropped nearly 2% today, as the dollar surged against the euro on strong economic reports. Gold typically trades inversely to the dollar and with oil; today's dollar action dominated gold trading today, as traders bought the dollar and sold gold. Copper futures fell over 3% on Chinese demand worries.

Grains traded mixed today. Soybeans rose nearly 2%, corn jumped about 1.3% and wheat fell around 1%.

Economic News
U.S. housing starts grew unexpectedly in April.
Industrial production rose 0.7%, more than analyst expectations.