Bonds Flat on Rate Cut Expectations

U.S. 10-year Treasury bonds moved higher today, but fell back to close
basically flat. Bonds were flat today, despite underlying pressure, on sentiment
that next week’s Fed rate cut has been priced into the market already. Traders
feel that there isn’t any real room to move higher at this point, given the
overwhelmingly negative sentiment that has sent bond prices to 3-year highs in
the last week. Most traders are waiting for next week’s announcement and
commentary to decide where the Fed stands.

The yen strengthened against the euro and the dollar today, as traders
continue to worry about the effects of U.S. housing and credit weakness. The
equity markets in the U.S. have been under pressure in the past few months, as
negative economic sentiment towards the U.S. continues to grow. The yen has been
reacting positively to uncertainty in the global equity markets. In the
so-called carry trade, traders have been buying yen on equity weakness, and
selling on strength. The carry trade has been the single most influential factor
for yen movement, and is moving the yen higher today.

Crude oil futures fell further today, down over 1%, on general bearish price
sentiments. Since reaching all-time record high prices just off $100 a barrel
last week, crude has fallen over 10%. In a nutshell, traders are worried that
slowing U.S. economic growth will hurt energy demand. Last week’s energy report
showed a smaller decrease in crude supplies than expected, which also helped to
push prices lower. Natural gas futures fell 1% today.

Gold futures rallied nearly 2% on dollar weakness. Gold normally trades
inversely to the dollar and with crude oil. Today, traders focused on a
weakening dollar, and bought gold as a safety. Copper futures fell nearly 2%.

Grains were higher today. Soybeans rallied over 1%, while corn gained just
under 2%.

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