Bonds Extend Rally on Growth Worries
U.S. 10-year Treasury bond kept the rally moving, on speculation that the Fed
will cut the Fed Funds rate before the September meeting. On Friday, the Fed cut
the discount banks, which allowed struggling banks and institutions borrow money
from the government at a cheaper rate. Bonds have been moving sharply higher
since the beginning of July, as the emerging subprime mortgage debt problem
snowballed into a full-blown credit crunch, sending the equity markets lower.
Bonds typically rise on economic weakness and fall on strength, so it seems as
though traders are positioning themselves for more bad news in the coming weeks.
The yen rose across the board, as traders exited carry trades, buying back
yen and covering riskier asset positions. The U.S. dollar sank as traders
speculated that the Fed would be forced to cut the Federal Funds rate by
September when the Fed meets again. Last Friday, the Fed cut the discount rate
for lending, which helped boost the equity markets. However, with equities on
unsure footing and traders expecting more credit problems to surface any time,
it doesn’t look like a rosy road from here. The dollar rose against the Canadian
dollar and the British pound.
Crude oil fell about 2% to close below $70 a barrel for the first time since
early July, after Hurricane Dean missed major oil fields in the Gulf of Mexico.
Oil has also been falling lately on concern that slowing economic growth will
lead to less demand for energy. Crude prices rose steadily through the summer
until July, when prices suddenly plummeted, mostly on growth worries. Natural
gas futures fell nearly 5% to 10-month lows on Hurricane Dean’s energy-safe
path.
Gold futures fell fractionally today, in line with the euro, which was
slightly down against the dollar. Gold normally trades inversely to the dollar
and with oil, which is exactly what happened today. Traders sold gold on
speculations of dollar strength, and on falling energy prices. Copper futures
fell fractionally on perceived housing weakness.
Grains gained today. Soybeans rose about 0.5%, and corn moved higher by just
over 2%.
After experiencing a mid-day rally on fresh news from the Federal Reserve,
the major averages have come under pressure with only the Nasdaq and S&P 500
holding on to their early gains. Click
here to read the rest of today’s
Stock Market Recap.
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