Bonds End 7-Day Win Streak

U.S. 10-year bonds fell today, reversing a 7-day rally brought
on by fears the economy is slowing. A government report released today
showed that labor costs rose and productivity fell last quarter, signs that
investors may have sprung early on bets that the Fed will start to lower rates
before March. The combination of the recent bond rally and inflationary
data led to the selling of bonds. Bonds shot up in June when the Fed
initiated a rate pause, but fell back after minutes were released revealing a
lingering fear of inflation. A jobs report to be released this week is
expected to show a moderate increase in jobs gained, but bond prices are still
expected to remain bullish.

The euro gained against the dollar and yen today, after ECB
President Trichet suggested that the central bank will raise rates next month,
on a pledge of “strong vigilance” against inflation. The hawkish
inflationary comments boosted the euro, which looks to be the best-positioned
currency at the moment, due to the high probability of continued rate hikes.
The currency market has been dominated by rate hike and inflationary
announcements, so the ECB’s hawkish comments brought about an expected run-up
for the euro.

Crude oil futures fell 1.5% to close at $57.86 a barrel today,
on warm weather forecasts and an ambivalent announcement from Kuwait concerning
proposed OPEC production cuts. With a short-term forecast of warm, mild
weather across the U.S. demand for energies decreased today. Kuwait issued
a statement about the proposed production cuts today, pointing out that more
time is necessary to judge the effect of recent cuts before committing to fresh
ones. Kuwait said it plans to cut about 100,000 barrels a day before the
end of November. Natural gas futures rose 1.3% as nuclear reactors around
the country are shut down for maintenance, boosting gas’ demand.

Gold futures rose 1.4% to close at seven-week highs, on
speculation that the dollar’s current weakness will increase demand for the
safety commodity. Gold usually moves inverse to the dollar, as the metal
is used as a hedge against weakness in the U.S. currency. Gold is down
around 20% from its May highs. Copper rose around 1% in trading today, on
fears that current production output and inventories will not be enough to
satisfy the demands of a global expanding economy.

Softs rose across the board. Cocoa was up 1.8%, coffee
rose 1.7%, orange juice rose 1.3% and sugar rose fractionally.

Grains also rose across the board. Corn moved higher
3.3%, wheat rose 0.8%, soy rose 0.5% and oats closed higher by nearly 5%.

Meats traded mixed, with cattle down over 2% and porkbellies
up 0.6%.


ECB President Warns Of Interest Hike In December (full

John Patrick Lee