Bonds Steady Ahead of Tomorrow's Reports

U.S. 10-year Treasury bond prices were flat on the day, giving up some gains from early in the day. Traders anticipate that a number of reports due out from the U.S. will come out inflationary, which would probably drive bond prices lower. Bonds have been falling steadily since the beginning of May on a string of turnaround economic reports. Traders are now anticipating that the Fed will not be able to cut rates any time this year.

The dollar kept pushing higher into 5-year highs today, but stalled for the second straight day against the euro. Positive economic reports from the U.S. helped to bolster the case for the Fed keeping rates steady for the rest of the year. The dollar has been gaining on the euro and yen since May, on a string of turnaround reports and hawkish Fed language. Traders are anticipating strength from multiple U.S. reports due out tomorrow; traders are also looking for Japan to hold rates. The euro also rose on the yen, on an overall resumption of the carry trade. Low rates in Japan allow traders to borrow the Japanese currency to invest in more profitable assets. The U.S. dollar struggled to make some gains over the Canadian dollar.

Crude oil futures rose 2% today, on worries that U.S. refineries are not meeting summertime demand requirements. Summer is typically a period of high energy demand and rising prices, and traders are betting that this year's demand will exceed U.S. refinery capacity to keep up. Natural gas futures rose 2% on weak U.S. reserve figures.

Gold futures gained 0.5% on speculation that the dollar's rally is running dry, and that the euro is about to push back. Gold usually trades inversely to the dollar and with oil; today's gold action was dominated by speculations of dollar weakness. Copper rose over 2% on more strike threats from South America.

Grains traded higher today. Wheat gained 2.7%, corn rose 1.4% and soybeans gained 0.3%.

John Lee
Associate Editor
johnl@tradingmarkets.com