DIA -.08%, SPY, -.03%, QQQQ +.33%
10 -year treasury -3/8, yielding 4.14%
Oil + 1.5% at $59.37/bbl
Dollar +.4% versus Yen and Euro
The markets have little new economic information this week, so traders are left to their own devices. Today’s low leading economic indicator reading of -.5% was a non-event, as traders have started to question the indicator’s veracity. Oil’s rise did not help; as oil sold-off near the end of the session, stocks rallied. Traders are now concerned with second half-earnings. The second quarter is nearly over, implying negative pre-announcements may start over the next few weeks.
The 10-Year Treasury lost 3/8 to yield 4.14%. Today’s sell-off was largely a continuation of last week’s selling trend. Traders are concerned oil’s increase will lead to inflationary pressures. Higher inflation lowers the value of interest payments bond investor’s receive. In addition, Fed governor Stern reiterated the Fed’s plan for a continued “moderate” rate increase policy, which left traders with the impression of rate hikes through most of the year. Despite 2 weeks of selling, the treasury market is still technically overbought.
Oil closed up 1.5% at $59.37. This is a classic problem of demand outstripping supply. In addition, refineries are operating near capacity, making any possible slowdown in production a price-spiking event. Talks of a possible Norwegian oil strike did not help, nor did the news that Iraqi production is down because of water in the oil reserves. The only good news related to oil’s price was the re-opening of the US’ Nigerian embassy which signals possible internal problems have passed away. Technically, there is still upside room in the oil market, although short-term it is nearing overbought conditions.
The dollar rose .4% versus the yen and the euro. The bullish dollar sentiment continues. In addition, there are rumors the EU central bank may lower interest rates. This would signal to the markets that the EU economy needs economic stimulus. It would also make Euro denominated assets less attractive relative to other currency’s assets.