Bonds Halt Rally, Oil Continues To Slide
U.S. 10-year Treasury notes reversed last week’s rally,
closing down on the day as investors locked in gains, and speculated that the
Fed might not be ready to commit to rate cuts next year. Bonds soared in
June when the Fed initiated a rate-pause, and continued to rise as the Fed
continued to hold. However, recent minutes from the Fed’s meetings,
combined with mixed economic reports, have left speculation wide-open on the
prospects of a future cut or hike. Interest rate futures show basically no
chance of a rate change this year.
The dollar rose against the yen and euro the most in a week
today, after comments Friday from the Governor of the Bank of China, who said
that their new diversification policy would not focus on selling the dollar.
After initial comments from China suggested that the country would be selling
dollars, the dollar slid against the euro. The clarification lends support
to the dollar, which has been hurt by weak economic reports, strength in foreign
economies and a new rate policy from the Fed. The currency market has been
dominated by interest rate and inflationary news, with the ECB and BoJ both set
on raising rates before the year is out.
Crude oil dropped 1.7% to close at $58.59 a barrel on Monday,
as warm weather in the U.S. reduced fuel consumption on all levels, reducing the
demand for energy. Crude is down nearly 25% from its record July highs,
and OPEC has even called for global output reductions to stem the rapidly
falling prices. However, the oil organization has not been able to produce
a unified front or plan for the cuts, so investors have not taken them very
seriously. Inventories in the U.S. have been well above their 5-year
average, which has helped to quell supply fears. Natural gas rose 1.8%
after falling early in the session on warm weather forecasts. Investors
stepped in to take advantage of the extremely low price.
Gold fell 0.7% to close at $625.80 an ounce as a decline in
most commodity prices reduced the demand for the safe-haven futures contract.
Gold rises in line with most commodities, as investors hedge against the rising
price of energies. Oil has slid 23% in the last four months, but is still
up over 20% on the year, as oil prices and inflationary fears have driven the
metal higher. Copper prices fell 0.4% as inventories released showed that
supply exceeds global demand, which is causing some investor demand worries.
Grains and softs mostly fell today. Wheat was down 0.4%,
orange juice fell 0.1% and soy beans fell 0.7%
Cattle rose fractionally today, up 0.1%.
Economic News
The U.S. deficit grew last month, at -$49.3 billion vs a
consensus of -$49.0 billion.
John Patrick Lee