DIA +.36%, SPY +.37%, QQQQ -.08%
10-Year Bond -1/32 yielding 4.09%
Oil + $1.89, $58.47/bbl
Dollar -1.4% versus Euro, -.2% versus Yen
The markets rose today on the good news about consumer sentiment – which came in higher than expected. In addition, this week’s good news on inflation, manufacturing and housing had a cumulative effect of extending the week’s rally. There appears to be a move towards a more bullish outlook on the markets. However, in today’s spike in oil prices continues, it could damper the rally. The Dow and S&P are slowing moving up, but don’t have a technically strong position. The NASDAQ appears to be consolidating it’s recent rally.
The 10-Year Treasury fell 1/32 to close at 4.07%. The unexpected jump in consumer sentiment to 94 – which was 8 points higher than consensus estimates – led traders to believe the period of rate hikes may continue. In addition, the bond market is still technically overbought, giving traders a further excuse to sell positions.
Oil closed at a record price, rising $1.89 to $58.97. It is up 9% for the week. The US closed its Nigerian embassy today for unspecified reasons. Nigeria is the 11th largest oil exporter and has had civil unrest on and off for the last few years. Because of the tight supply and demand situation in the oil market, any possible disruption in supply makes traders very nervous. Adding to the buying frenzy is the International Energy Agencies second half demand projection of demand being 3% higher than supply. In addition, there was a possible mechanical problem at a Baytown refinery.
The dollar fell .2% versus the yen and 1.4% versus the Euro. The record trade deficit of 195 billion or 6.4% of GDP was the primary reason for the dollar’s drop. The US imbalances were the primary reason for the dollar’s losses versus the euro and yen in the second half of last year. Since the beginning of 2005, forex traders have focused instead on the growth differences between the US and other countries. As a result, they have bid-up the dollar. However, this week’s weak international payments number and record deficit may once again shift currency trader’s focus to the twin deficits. In addition, technical factors weighed on the dollar which was very overbought going into today’s sessions. For traders looking to take a profit from the recent dollar run-up, the trade deficit provided amply fodder.