Treasury markets declined on Wednesday following the Fed’s FOMC meeting. Interest rates have been creeping higher for a month and have recaptured the entire 9 handle rally from March 18 when the Fed announced its asset buy-back plan.

Stock index futures surged to a new high for the month following the FOMC meeting. Trading was firm all day after an early morning U.S. economic report showed that despite a contraction, the U.S. economy has room to grow. The only question that remains is will investors still be willing to buy stocks at such lofty levels when the economy does turn or is a correction in order to attract fresh buying interest?

The U.S. Dollar closed lower against all major currency futures contracts except the Japanese Yen. The strong rally in global equity markets had investors hungry for more risk. Signs that the U.S. economy may be beginning a recovery should keep the pressure on the Dollar.

June Gold managed to hold on to a small gain but the market appears ready to roll over to the downside. News that six out of 19 major banks may have capital problems could not even spike this market higher. The threat of inflation may have provided some support as commodity prices were up and the Dollar weaker, but cash still looks its flowing to the equity markets rather than to hard assets. Maybe a substantial stock market break will send money to gold in an allocation play.

The weakness in industrial metals like July Copper and July Platinum is hard to figure out considering that traders are beginning to believe in a U.S. economy recovery. This just goes to show you that the recent rally was overdone to the upside.

June Crude Oil posted a modest gain on Wednesday mainly driven by the weaker U.S. Dollar and the firm equity markets. Low demand is still keeping a lid on prices. If the U.S. economy is indeed beginning a recovery then it should start to show up in crude inventory numbers but give it a few weeks. OPEC will be interested to see if the economy is recovering because I’m sure they want to cut production again. At its last meeting OPEC refrained from cutting because they didn’t want to interfere with a recovery. This time they may have enough reason to do so.

July Corn and July Soybeans surged to the upside. The reasoning is unclear at this time as traders are being led to believe that the Swine Flu outbreak is going to lead to less demand for pork products and consequently less demand for feed grain. Corn could legitimately rally as spring plantings are being delayed by wet grounds and excessive rain.

July Cocoa and July Coffee could start to rally if the Dollar remains weak and the economy begins to recover. Demand is down because consumers are spending less on chocolate.
July Cotton is trending higher. Firm soybean prices are helping to drag this market up but the real reason for the rally is that fewer acres were planted this year.

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