Bonds Ease on Producer Prices

U.S. 10-year Treasury bond prices fell slightly today, after producer prices rose more than expected last month, and despite a report that showed homebuilder confidence fell to 16-year lows last month. Bonds normally fall on positive news and rise on negative news, so it was clear that traders focused on the positive aspects of today's reports out of the U.S. After falling to 11-month lows in the middle of June, bonds are now trading within a fairly established range.

The dollar rose against the yen, and was up slightly against the euro, after a government inflationary report came in stronger than expected. Traders were looking for the PPI to gain 0.2%, but the actual number came in at 0.3%. Producers paid higher prices for their products last month, a good sign for economic growth and inflation. Despite an additional report that showed more foreign investments into U.S. assets, the dollar was up only fractionally against the euro today. The euro rose against the yen. The dollar was flat against the Canadian dollar, and continued to fall against the British pound.

Crude oil futures fell slightly today, giving up some gains from the morning, on speculation that tomorrow's energy report will show an increase in gasoline reserves. With U.S. refinery capacity near 100%, traders are expecting for U.S. gas reserves to begin building up, despite increased summertime demand. Crude normally rises during the summer on increased energy use across the country. Natural gas futures fell about 1% on comfortable supply levels.

Gold futures fell fractionally today, as traders continue to speculate that the dollar slide is near complete. Gold usually trades inversely to the dollar and with oil, and it was dollar strength that led to gold selling today. Traders sold gold in favor of the U.S. currency. Copper futures dropped fractionally as strike tensions ease in South America.

Grains fell today. Soybeans dropped 4.3% and corn fell 3.5%.

The Dow ran to an intraday high of 14,021 before pulling back in the afternoon. Positive earnings from major names and tame inflation data helped the major indices to finish with slight gains. Read the rest of the Stock Market Recap here.

John Lee
Associate Editor
johnl@tradingmarkets.com