DIA +.85%, SPY +.78%, QQQQ +.59%
10-Year Treasury +1/16 yielding 4.12%
The markets opened down on news that Producer Prices increased .6%, faster than the .4% consensus estimate. A faster increase would possible lead to the Fed increasing the rate of its rate increases. However, the market rallied on the Treasury report about China's currency valuation, which stopped short of calling for an immediate revaluation of the Yuan. Treasury Secretary Snow stated, "We are not calling for an immediate full float (of the yuan) with fully liberalized capital markets. This would be a mistake at this time -- China's banking sector is not prepared." This relieved traders concern of a possible trade war with China. In addition, Home Depot, JC Penney and Staples all beat analysts earnings expectations.
The 10-Year Treasury gained 1/16 to yield 4.12%. The Treasury market opened lower on the higher than expected PPI number. However, traders turned their attention to the decline in industrial production (down .2%, consensus .2% increase) as a sign the economy was in fact entering a soft-patch. In addition, there is still a flight to safety into Treasuries as some investors are still expressing concern about a possible hedge fund fall out. The daily and weekly chart for the 10-year are still overbought, indicating the need for a technical correction. However, the flight to safety appears to supercede traders need to take profits.
Oil closed up 36 cents to close at $48.97/bbl. Part of today's move was simply technical. The market is looking for new median price in light of increased supply and lower projections of demand growth. In addition, a Saudi minister stated Saudi Arabia would not lower its production and would attempt to increase its production if needed. However, some traders are focusing on the summer months and expressed concern about possible supply problems caused by limited refinery capability. US Refineries are already operating near capacity, and there are no new refineries being built. As a result, there is concern about a supply bottleneck over the summer.
The dollar rose .3% versus the Euro and .7% versus the Yen. Forex traders were relieved the US Treasury report did not start an all-out trade war with China. However, they were pleased with the apparent increased strength of the US position regarding the Yuan's valuation. In addition, the higher than expected PPI number led traders to believe the Fed may increase the pace of its rate increases.
