Bonds Fall On Fed Expectations
U.S. 10-year Treasury notes slid today, as investors bet that
the Fed would keep rates at 5.25% during Wednesday’s Fed announcement.
Bond prices have soared since June’s meeting, when the Fed initiated a pause in
the rate-tightening cycle. Economic data through the summer pointed to a
slowing U.S. economy, and little need to worry about the Fed. However, the
minutes from the last Fed meeting were released three weeks ago, which showed a
lingering concern over inflation, sparking a sharp decline in the price of
bonds. Interest rate futures show nearly 100% chance that the Fed will
keep rates the same during this meeting. However, bond prices could be on
the move up again later this week, as the government is set to release a number
of reports which could illuminate an economic slowdown.
The dollar advanced versus the yen today, and gained the most
in two weeks against the euro on speculation that the Fed will hold rates this
week on inflation worries. A Fed worried about inflation plays favorably
for the dollar, in a currency market dominated by interest rates and growth
concerns. Just months ago, investors were worried that the Fed would begin
to cut rates, but now investors are betting that the Fed will actually be
raising rates in the next six months. Such a move would illuminate
strength in the dollar and faith that the U.S. economy is still growing.
The housing market’s recent cool-down has been a major concern for investors,
but if the Fed is more worried about inflation than an economic slowdown, the
dollar looks to be in a good position.
Crude oil futures fell 1.3% to close at $58.54, on continued
skepticism that a proposed OPEC output reduction will follow through as planned.
OPEC recently announced plans to cut global production by 1.2 million barrels a
day, but there has been little consensus or sense of action among the individual
members of the committee. OPEC announced the plans in the face of
dramatically falling energy prices, in an effort to curb the price drop.
Oil has fallen nearly 25% from its record July highs. Natural gas fell
4.8% today, after rallying more than 25% last week. Despite a looming
winter expected to drive up demand for the energy, natural gas inventories are
at such high levels that supply issues are not a present worry.
Gold futures fell 1.4% to close at $589.80 an ounce today, as
oil slid and the dollar surged. Gold is seen as a safe-haven against
rising oil and inflationary worries; gold and oil have been trading lockstep all
summer, and today was no different. Copper fell 0.5% today on expectations
that a housing market report set to come out this week will show a substantial
drop in the sales on new and existing homes. Copper is commonly used in
the building of new houses.
Softs rose today. Cocoa was up 2%, coffee rose 4.7%,
orange juice rose 0.4% and sugar closed up nearly 0.8%.
Grains were higher across the board. Corn was up 1.7%,
wheat was up 2.4%, soy rose 1.8% and oats closed up 0.5%.
Meats traded higher, with cattle up 0.25% and porkbellies up
1.8%.
A round of foreign economic reports was released
today.
Check them
here.
John Patrick Lee