U.N. inspectors and reticent allies on the Security Council appeared to put the brakes on the U.S. drive towards a use of force Friday, while still not exonerating Iraq. Even prior to the inspectors' equivocal reports, the markets appeared to be leaning towards a slightly lower risk profile, prompting profit-taking on Treasuries and some modest demand for stocks and the dollar.
U.S. Secretary of State Powell locked horns with France, China, and Russia on the need for "serious consequences" to be applied on Resolution 1441, but that day of reckoning appeared likely to be postponed over the long weekend at least. Of secondary consideration, with the exception of U. Michigan sentiment, U.S. data was fairly firm. U. Michigan consumer sentiment fell to nine-year lows of 79.2 from 82.4, while business inventories rose 0.6%, industrial production rose 0.7% and capacity use hit 75.7%. The March bond finished over a point lower at 112-11, while the major stock indices gained up to 1%.
Losses were pretty evenly distributed along the curve, though the short-end held up a little better on the U.N. friction and the two-year note and 30-year bond spread widened two basis points to +328 basis points as a consequence. Gold sank $7 to $350 an ounce, though crude oil surged 44 cents to $36.60 a barrel.