DIA -1.86%, SPY -1.41%, QQQQ -1.11%
10 Year Treasury, -1/16 yielding 3.95%
Oil +$1.33 to $59.42/bbl
Dollar, + .6% versus Euro and slightly versus Yen
The markets have been in a holding pattern this week, assessing where the next big move would come from. Today’s record oil price provided the stimulus to get traders selling. In addition, the markets have enjoyed a recent increase, so today’s selling is also a natural sell-off from a bull run in the market. There has also been some concern expressed in market reports about third quarter earnings being lower than expected. An increase in energy prices would negatively impact the bottom line of many businesses, leading to lower third quarter earnings.
The 10-year Treasury fell 1/16 to close at 3.95%. The main news in the bond market was the Department of Labor’s release of weekly unemployment claims which stated: “In the week ending June 18, the advance figure for seasonally adjusted initial claims was 314,000, a decrease of 20,000 from the previous week’s revised figure of 334,000. The 4-week moving average was 333,000, a decrease of 2,500 from the previous week’s revised average of 335,500.” Any drop in unemployment claims leads bond traders to speculate the Fed will continued raising rates as opposed to pausing in the near future.
Oil increased $1.33 to close at $59.42/bbl, a record high. This was the main story of the day. Oil touched $60/bbl, but sold-off towards the close. Traders are still focused on the very tight demand situation and are concerned that refineries will not be able to adequately supply distillates during the summer and heating oil during the winter. OPEC is already pumping near capacity, so there is little they can do from the supply end.
The dollar gained .6% versus the Euro and was up slightly versus the Yen. The European situation is the dominant news in this weeks currency trade. There is still speculation the European Central Bank will lower interest rates, following Sweden’s lead. Essentially, the market is very bearish regarding the Euro and traders are looking to dump their euro positions. The euro/dollar trade is again approaching the important 1.20 level. It has tested this level three times before but bounced back. The dollar/yen trade is stagnating between 108 and 110. Traders are comfortable with that level for now as they reposition themselves regarding the Euro.