Bonds Fall as Fed Holds Overnight Rate

U.S. 10-year Treasury bond prices fell slightly today, after the Fed kept
rates at 5.25%, and said that inflationary risks remain the central bank’s
primary concern. Many traders were looking for a cut today, and the bond market
was relatively flat. The Fed announcement comes after weeks of major instability
in the market, which has left investors worried about the future of the U.S.
economy. Subprime mortgages and housing remain the two major concerns for most
investors at this point. Bonds normally rise on weakness and fall on strength,
so it’s safe to say that today’s announcement did not bring any new major news
to the table.

The dollar rose against the euro, but fell on the yen today, after the Fed
kept overnight lending rates at 5.25%, and hinted that inflation pressures
remain in the economy.. Traders bought the dollar against the euro after mixed
economic reports out of the U.S. Despite gaining against the euro, the dollar
slipped on the yen, after an unexpected late-day rally which occurred yesterday.
Most of the action centered around dollar buying against the euro, spurred on by
inflationary comments, and sentiments that housing growth problems will be
contained. The dollar gained on the Canadian dollar, and also against the British pound.

Crude oil futures were basically flat, after plummeting yesterday on concerns
that slowing U.S. growth will curb demand. The Energy Department releases its
crude reserves inventory tomorrow, and traders are betting that the report will
show an 800k barrel gain. Tomorrow should see some action in energy trading, if
the report comes out either unexpectedly large or small. Natural gas futures
rose 0.6% on the summer heat wave currently hitting the Northeast U.S.

Gold futures fell fractionally today, as the dollar rose against the euro,
and the Fed stated that inflation remains the primary concern. Gold normally
trades inversely to the dollar and with oil; today, gold fell on speculation of
dollar strength. Copper futures rose 1% today, on stockpile and demand worries.

Grains rose today. Wheat gained fractionally, soybeans rose 1.5% and corn
gained nearly 3%.

Wall Street faced another volatile session and ended in the green after
the Fed decided to keep rates steady. The Fed noted credit problems and
continuing weakness in housing, but stood firmly by their inflationary policy.

to read the rest of today’s Stock Market Recap.

Economic News

U.S. productivity missed analyst
expectations, while U.S. labor costs rose unexpectedly.

The U.S.
Federal Reserve kept rates at 5.25%.

John Lee

Associate Editor

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