U.S. 10-year Treasury bonds rose to their highest levels in over a month today, on traders' fears that the subprime mortgage fallout will spread to other areas of the economy. Coupled with a staggeringly slow housing market, the subprime fiasco could have the capability to do major damage to the U.S. economy and investor confidence. Bonds fell through much of May and June on positive sentiment and speculations, but recent housing reports and major subprime fund blowouts are keeping traders closely focused on the negative. Bonds typically rise on weakness and fall on strength, so bond traders have a negative outlook right now, with prices over 1-month highs.

The dollar fell to new records against the euro, and also lost on the yen, on rampant speculation that subprime mortgage losses will contribute massive damage to U.S. economic growth and sustainability. The dollar has been falling to new lows against the euro for about two weeks, and there is easy fix in sight. Despite beating the dollar, the euro actually slipped against the yen. Equity weakness has been leading to yen strength lately, as traders buy back borrowed yen to cover riskier assets. The dollar was basically flat against the Canadian dollar, but the dollar kept dropping against the British pound.

Crude futures fell about 0.6% today, after a number of refineries were reopened across the midwest U.S. Traders bet today that with more refineries producing gasoline, that gasoline stockpiles could grew and supply pressures might ease. Crude moved higher this week, after a report on Wednesday showed that U.S. gas stockpiles had dropped by over a million barrels, when traders were looking for a major increase. Oil usually rises during the summer on increased energy use and demand.

Gold futures rose 1% today, as the dollar hit new lows against the euro. Gold normally trades inversely to the dollar and with oil; today's gold action was dominated by dollar weakness, as traders bought gold to hedge against the dollar.

Grains fell today. Soybeans dropped 0.7% and corn dropped just over 1%.

Earnings misses from Google and Caterpillar pulled stocks sharply lower in Friday's session. Google and Caterpillar both finished today's session down 5%. Click here for the rest of today's Stock Market Report.

John Lee
Associate Editor
johnl@tradingmarkets.com

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