Bonds Ease on Rate Cut Expectations

U.S. 10-year bond prices fell today after 2 days of rallying to yearly highs,
as investors speculate on the effects of a Fed rate cut. Interest rate futures
are showing a 100% chance that the Fed will cut rates next week, and today bonds
fell on speculation that the cuts could help a struggling market pick itself up.
Bonds shot higher in August, as the credit crisis unfolded, and more traders
bought bonds to secure some long-term safety. Bonds typically rise on economic
weakness and fall on strength, so recent bond action points to coming weakness
in the economy.

The dollar fell to the euro back near all-time lows, but rose against the
yen, as negative U.S. market sentiment continues to pervade the investing
community. Yesterday, a Fed President warned that credit losses could slow
growth, exacerbating fears that the worst of the credit crisis has yet to come.
Traders are worried that credit market problems can and will spread to other
areas of the economy, and lead to an overall economic recession. The euro was
also up big against the yen. The dollar fell against the Canadian dollar and the British pound today.

Crude oil futures rose about 0.6% today, despite an announcement from OPEC
about plans to increase production by 500,000 barrels a day. Oil fell over 10%
in August, only to recover nearly all of those losses in about 2 weeks. Crude
fell on worries that an economic slowdown would lead to slowing crude demand,
but prices have since picked up. Natural gas was up about 1% after a major rally

Gold futures rose over 1% today to the highest levels in over a year, as the
dollar plummeted against the euro. Gold normally trades inversely to the dollar
and with oil, which is exactly what happened today. Traders bought gold as a
hedge against dollar weakness. Copper futures rose over 4% on positive
speculation for worldwide growth prospects.

Grains were mixed today. Soybeans rose about 0.3%, and corn fell 1.5%.

Stocks surged on Tuesday, shrugging off crude oil prices hitting a record
high. Comments by Ben Bernanke gave little clue as to the Fed’s September 18
decision on interest rates but good news from General Motors and McDonald’s help
raise investor confidence. Click

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Economic News

No major news to report for the U.S.