Need To Know News

Treasuries have caught a bid today after a spike in Initial Jobless Claims cemented expectations of yet another 50bp rate cut from the Fed. Alongside the rally in equities, the 30yr, currently yielding 4.357%, is up almost a full handle, while the 10yr is yielding 3.641% and the 5yr is yielding 2.814%.

Money has flowed into the short end as well, with the 4wk bill yield shedding 28bps to yield 1.49%, the 3-month down 23bps to 1.9%, and the 6-month down 16bps to yield 2.06%. Fed Fund futures have fully priced in another 50bp easing at the Fed’s March 18 meeting.

OPEC kicks off its conference in Vienna tomorrow. The odds are against a vote to increase production given global economic uncertainty, the normal second quarter demand drop and the belief, on OPEC’s part, that the market is already well-supplied.

Oil ministers representing 7 of the 11 OPEC member countries have spoken publicly against raising output leading into Friday’s meeting, including the oil ministers of Iran (OPEC’s 2nd-largest producer), UAE (3rd-largest), Venezuela (5th-largest) and Nigeria (6th-largest).  Kuwait, OPEC’s 4th-largest contributor, is in a wait-and-see mode on output decisions.  Oil ministers from Indonesia and Angola have not commented publicly on their opinions on production moves, but they have little sway in OPEC meetings.

The OPEC wild card is Saudi Arabia, who has remained silent thus far.  As the only member with significant surplus production capacity Saudi Arabia wields the largest influence over OPEC decisions. Though the Saudi oil minister has not weighed in on output decisions, OPEC Secretary General el-Badri, a Saudi, remarked recently that an output hike could relieve pressure in global markets. Moreover, given recent President Bush’s recent groveling in the Gulf, Saudi Arabia is under pressure from its weighty ally to ease prices by boosting supply.

USD — a hot topic at previous meetings — likely to stay off the agenda this time, given the lack of airtime it has received even from the likes of dollar-bashers such as Venezuela and Iran.

Most strikingly, comments today from various oil ministers illustrated how preordained their decisions can be — they largely address what the oil cartel will do at its March conference.

The USD is higher vs. most major currencies after selling off yesterday, following the 50bp Fed rate cut. The greenback softened somewhat following the weaker-than-expected Chicago PMI release as EUR/USD bounced off an intra-day low of 1.4804 and has since traded within a narrow 40-pip range.

The ECB is expected to leave rates unchanged at 4%, which would give the ECB a 1% benchmark yield advantage after having had a 25bp disadvantage the beginning of last week. Currently Fed Fund futures show a 70% chance of an additional 50bp cut mid-February.

Analysts are generally expecting a 25bp BOE rate cut next week; 3-month rate futures in the UK show an implied rate of 5.34%, which hold a 64% chance of a 25bp cut. Cable is up 0.1% to 1.9885. GBP/JPY is up 0.25% and EUR/GBP is down 0.2%.

USD/JPY bounced off of early-morning sluggishness as the rally in equities picked up steam. USD/JPY is up 0.15% to 106.48. EUR/JPY is flat. USD/CAD is up 1.06% to 1.0035 after dropping below parity yesterday.

Gold has been mixed, selling off following disappointing economic data and rebounding after MBIA’s conference call. Gold is up 4.00 to 930 at this writing but traded as low as 923.00 earlier.

Silver has broken through the 17 handle is now at a new 27yr high. Platinum jumped to yet another all-time high of 1742 and is currently up almost 3% to trade near 1736.

Copper is better by nearly 2.5%, pulling the industrial metal just beneath its 200-day moving average of 332.42.

The Philly Fed reports Leading Indicators in its districts are mixed with Del. continuing to fall, down 2.8 for Dec. after readings of -2.7 in Nov. and -3.0 in Oct.

The Philly Fed noted that the Del. data suggests contraction in that state will continue through Q3 ‘08, that NJ will enjoy moderate growth through Q3 ‘08, and that Pa. will suffer some contraction through the same period.

OPEC’s exports, ex-Angola and Ecuador, will rise 570k over the next 4 weeks, according to reports.

Energies sold off sharply following weak Jobless Claims data. Crude had tumbled from 91.50 before the release, then went under 90.00, down almost 2.5% on the session.

The drop comes despite news of supply constraints, including OPEC jawboning and the closure of the Houston Shipping Channel. Gasoline is also lower, dropping over 3% to near just above 226. Heating Oil has fallen over 2.75% to trade near 247.75.

EIA Natural Gas Storage fell 274 bcf this week, its largest drop ever. Despite this 10% loss in inventories Natural Gas is lower by over 0.5%.