Bonds, Gold Move Higher

U.S. 10-year Treasury bonds moved higher today,
on speculation that investors will continue to move towards safety in the face
of global market instability. The Fed beige book also showed slowing
growth in certain areas of the U.S., prompting more fears of a broad economic
slowdown and rate cuts for the U.S. Bond prices shot up last week when
stock markets across the world took a major hit, and investors looked for safety
in the long-term security of government bonds. Bond prices usually rise on
economic weakness and fall on strength, so it could be assumed that a massive
spike in volatility and hefty losses in stock markets across the globe are a
negative for the economy. A government jobs report to come out on Friday
should provide more volatility for bond prices.

The dollar fell against the euro and the yen
after the beige book showed that economic growth was slowing in certain
districts of the U.S. The dollar has weakened significantly in the last
few days against the yen, as investors unwind carry trades with the Japanese
yen, strengthening the yen against most other currencies. The yen has been
under pressure lately, having reached record lows against the euro and yearly
lows against the dollar before snapping back on a global equities meltdown.
The euro remains in strong shape against the major currencies, backed by
positive economic numbers and a vigilant ECB. The international currency
market has favored currencies backed by inflationary, positive-growth economies,
which Europe has proven itself to be.

Crude oil futures rose nearly 2% today, after an
Energy Department report showed that crude supplies and gasoline inventories
fell last week. Crude has been trading near $60 for a little over a week,
after breaking through key resistance at 60 and holding on declining energy
supplies. Crude fell over 30% from July record highs before rebounding
mid-January on winter’s arrival. The U.S. also recently announced plans to
double its strategic reserve over the next decade, which would remove a
significant portion of the world’s supply from the market. Natural gas
futures fell about 1.5% on forecasts for warm weather in the near future.

Gold prices rose about 1% in-line with the
rebounding stock markets, as investors speculated that a bounce in the market
will cause demand for metal investments. Gold usually moves inversely to
the dollar and with oil, but gold action lately has been closely linked to the
large moves in the stock market. As the market slid, investors exited
positions in all asset classes to reduce risk by moving to cash. Gold fell
over 6% last week, but has moved higher for the last 2 trading sessions.
Copper rose over 2% after a large fire halted production at a major copper mine
in Chile.

Grains bounced across the board today.
Soybeans rose 1.4%, corn rose about 0.5% and wheat moved higher nearly 1%.


The Federal “Beige
Book” showed signs of decelerating growth in certain districts of the U.S.

John Lee

Associate Editor