DIA -.02%, SPY -.08%, QQQQ -.11%
10-year Treasury +7/8, yielding 3.94%
Oil -95 cents to close at $59.09/bbl
Dollar +.8% versus Yen and .6% versus Euro

The song “Nowhere Man” has run through my mind all week when watching the markets.  They are up a touch here, down a touch there, but overall no one is willing to commit in either direction.  On the plus side, the underlying economic numbers are strong.  On the negative side, oil is rallying, and there is speculation the Fed is near the end of its rates increase which would signal the economy is getting ready to cool.  There is also little substantive economic news released this week.  On top of all that news, the summer just started – a traditionally slow time for traders.  As a result, the market is best described as non-committal right now.

The 10-year Treasury fell 7/8 to close at 3.94%.  There were two stories in the today’s market.  The first was oil.  Traders are looking at oil’s recent run-up as a possible brake on the economy, leading to slower growth.  If this is accurate, the possibility of inflation decreases, which would increase the overall return on fixed income investments.  Secondly, the possibility of lower European interest rates is a further sign of a slowing global economy which again contributes to lower inflation and higher overall returns on fixed-income investments.

Oil fell 95 cents to close at $58.09/bbl.  The Department of Energy’s weekly report on the oil market stated that although oil inventories decreased 1.6 million barrels last week, distillate inventories increased 1.3 million barrels.  For the last few weeks, traders have focused their attention on the end of the year, concerned that today’s high refinery utilization numbers would prevent refiners from producing enough fuel for the winter.  Today’s numbers helped to alleviate that fear.

The dollar rose .8% versus the Yen and .6% versus the Euro.  The direction of European interest rates was the dominant theme in today’s market.  Although 2 European central bankers denied the central bank would cut rates anytime soon, traders were still looking at the slow European growth figures and speculating a rate cut was inevitable.  Sweden’s recent 50 basis point rate cut added fuel to the fire, as did 2 dissenting members of the Bank of Britain’s recent policy meeting to hold interest rates steady.

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