"Just The Facts Ma'am"

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Good Morning,

Milestone values and/or breakouts were recorded overnight as the US dollar went into uncharted territory following yesterday's economic data. Today's testimony by Mr. Bernanke in front of the US congress might feel about as pleasant as waterboarding as he tries to explain the current state of the economy and sell his strategy for fixing it. It appears that measures taken thus far are starting to take on the feel of the 'stay the course' policies used to address other kinds of problems. In quick order, a run-down of values: Oil surged past $102 per barrel, the euro rose to above $1.50, the loonie to $1.02, silver broke out to $19.51, palladium to near $565, and gold reached for a high of near $966 before running into resistance and scaling back a bit. Many an objective has been achieved by the latest meltup/meltdown and players will now likely take stock and decide whether to leave well enough alone or throw more money at red-hot markets.

New York spot bullion opened on a less aggressive tone, but was still in hyperdrive, rising $8.20 at $956.90 per ounce, as participants will first be keen to assess the economic data coming later as well as Bernanke's presentation to legislators. Following that, the party may resume. The greenback was close to 74.40 on the index while crude oil slipped back to just under $101 per barrel. Silver was ahead by 30 cents to $19.01 at the open, while platinum lost $1 at $2148.00 but palladium showed a $21 gain at $555.00 per ounce. Fund money continues to pour into commodities as there are few appetizing investment alternatives to consider at the moment. Euroland is very likely squirming at the potential future economic fallout brought on by its superhero-strong currency.

We were going to stick to only the facts and figures this morning, but decided to pick up the following story as it shed some light on the way the background conditions may be shaping up as we go forward.

If you thought the metals and energy markets were running amok, take a look over at the part of the market that occupies itself with predicting inflation and what may be done about it. Marketwatch's intrepid Laura Mandaro reports that:

"In the futures markets, odds fell to 88% that the Federal Reserve will cut interest rates by 50 basis points to 2.5%, when it meets March 18. The drop followed the Labor Department's report on wholesale inflation, which jumped more than economists had generally anticipated. The rise reflected higher energy, food, drug and car prices, and compounded concerns that slowing U.S. growth isn't cooling inflation.

"It's a combination of inflation numbers and economic data, which while weaker, has been a little mixed," said John Canavan, analyst at economic research firm Stone & McCarthy, about the drop in rate-cut views, which have eased after peaking earlier this month. Surprise bursts of inflation generally dampen forecasts for Fed rate cuts because they are seen curbing the Fed's ability to engineer looser credit conditions. Federal Reserve policy makers frequently note the importance of keeping inflation expectations, in addition to actual inflation, at bay.

After the Conference Board released its mid-morning survey on consumer sentiment, the implied odds for a March 18 rate cut bounced back to 96%, as priced in the April fed funds contract. The report showed consumer confidence drooping to a nearly 15-year low, excluding the start to the 2003 Iraq War. Consumer expectations dropped to a 17-year low.

Further in the future, traders adjusted their views on when the Fed will start raising rates next year. The implied fed funds target rate priced in Eurodollar contracts for March 2009 rose after the inflation report came out and then slipped after the Conference Board reading.

"These contracts indicate the market expects rate hikes next year," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. "That view was fortified after the PPI," he said, but then withered after consumer sentiment results."