Bond Yields Hover Near Lows, Dollar Rallies Against Euro

U.S. 10-year bond yields remained near March lows after a
housing report released today showed that new home sales declined considerably
in July. A report yesterday showed a decline in existing home sales, and
the two reports together paint a clear picture of a slowing U.S. economy.
Without the need to curb inflation, the Fed will likely continue to pause the
rate hikes in September, and possibly start to lower rates into 2007. Bond
price has rallied during the last two months as traders pare bets that the Fed
is indeed done raising rates for the time being.

The U.S. dollar gained on the yen and the euro today, as
traders wait for a speech by Bernanke tomorrow. The dollar initially fell
against the euro after a German report showed that business confidence had
fallen less than expected, but reversed the loss to take small gains against the
euro. With the German report showing a stronger-than-anticipated economy,
more investors are betting that the ECB will follow through on its expected rate
hikes. Both the ECB and BoJ are expected to raise rates before the year is
out, which would put pressure on the dollar if the Fed is done raising rates.

Crude oil futures rose 0.8% to close at $72.36 on supply fears
stemming from India and China’s high demand for oil. Iran’s rejection of
the U.N. resolution highlighted the unstable nature of the Middle East, and the
fact that the U.S. has put itself at odds against the producer of 1/5 of the
world’s crude supply. The situation in the Middle East continues to
dominate crude trading, after crude reached all-time highs earlier this summer
above 68$. Natural gas rose fractionally.

The metals fell across the board today as inflationary
concerns were eased on news of a slowing U.S. economy. Gold fell 0.7%,
silver fell 1.6% and copper fell nearly 1%. Demand for safe-haven futures
has declined as investors realize that inflation is not as big of a concern as
once thought; the dollar also performed well today against the euro, helping to
reduce demand for gold.

Softs traded mixed today. Cocoa was down 0.4%, coffee
was down 0.3%, orange juice rose just over 1% and sugar fell nearly 1%.

Grains traded mostly higher today. Corn rose 1.8%, wheat
rose 2.6%, soy fell fractionally and oats were up 0.7%.

Meats traded up fractionally, with cattle up 0.3% and
porkbellies showing little change.


New Home Sales See Notable Decline In July (full

John Patrick Lee