DIA +.16%, SPY +.32%, QQQQ +.49%
10-Year Treasury -1/4 yielding 4.09%
Oil +4% closing at $55.62
Dollar +.2%/Euro and .8%/Yen
The markets rose in the morning, but slowly fell as oil's price spiked upwards by 4%. Bullish expectations about this week's economic numbers caused the advance. However, some traders are still cautious about the economy and are therefore holding a bit back until more numbers come out. Northwest announced it may have to seek bankruptcy protection soon. The possibility of other air carriers following suit is still a possibility.
The 10-Year Treasury fell ¼ to a yield of 4.09%. A fed governor gave a speech over the weekend where he commented inflation was still a concern for the central bank. As a result, the perception that the fed is done with interest rate increases has given way to a feeling of further rate increases for the rest of the year. In addition, the bond market is very overbought from a technical level. This indicates some selling is warranted.
Oil rose 4% today, to close at $55.62. An increase in diesel demand was the primary reason for the increase. Currently, demand for diesel is 6% higher than last year. This increase is raising concerns among traders that refineries will not be able to meet rising diesel demand over the summer months. This is the second oil distillate causing trader's concern over the last two weeks. (Last week the concern was over heating oil supplies). This points to a central problem with the oil industry - a lack of refining capacity. Because of the cost and length of time required to build a refinery, this problem will not go away anytime soon.
The dollar gained .2% versus the Euro and .8% versus the Yen. The problems with European integration are still causing problems for the Euro. In addition, Greenspan's commentary last week has led traders to believe the Fed will continue to increase US interest rates, making the dollar more attractive. Adding to the trans-Atlantic rate differential is increasing talk of the European central bank lowering interest rates. The interest rate differential and higher US growth continue to feed the bullish attitude in the dollar/yen trade.