Oil Plummets on U.S. Reserve Data

U.S. 10-year bond prices fell today, after a solid rally from 11-month lows. Bond prices fell from the beginning of May until last Wednesday, when traders began buying to take advantage of the extended low prices. Bonds began falling on a string of turnaround reports and hawkish Fed language, and began to rally on new lows, and also after some weak housing reports were released. More reports are due out this week, which should get bonds moving.

The yen fell to new lows against the euro, and also fell back against the dollar, after a short rally yesterday. Minutes from the last BoJ meeting showed that central bankers in Japan are in no hurry to raise rates any time soon. The minutes prompted a full-scale resumption of the carry trade, in which traders borrow the yen and invest in more profitable assets. The euro was down fractionally on the dollar today. Tomorrow's jobs report and leading indicators number should provide some volatility for traders. The dollar was up slightly on the Canadian dollar.

Crude fell dramatically today, but rallied back to only close down around 1%, after an Energy Department report showed that the U.S. added about 6.9 million barrels of oil to its reserves last month. Crude was trading at 9-month highs until today, on fears of an oil worker strike in Nigeria. High levels of reserve supplies in the U.S. helped to allay those worries. Natural gas futures fell 2.3%, in line with crude's decline.

Gold futures fell about 0.7% today, on a drop in bond prices. High interest rates lead traders away from investing in gold as a safety, as the T-bonds become more and more profitable. Usually gold trades in line with oil and against the dollar, but today's gold trading was dominated by interest rate action. Copper futures rose 1.2% on strike fears.

Grains traded mixed today. Soybeans rose 1.5%, wheat gained 3.5% and corn fell about 0.6%.

John Lee
Associate Editor
johnl@tradingmarkets.com

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