Bonds Hold Steady Ahead Of Fed Announcement

U.S. 10-year Treasury bond notes were little changed today,
after falling significantly yesterday on anticipation of hawkish comments from
the Fed on Wednesday. Bond prices surged in June when the Fed initiated a
pause on its rate-tightening cycle. Three weeks ago the minutes from the
last Fed meeting prompted a fall in price, due to the lingering inflationary
concerns. Interest rate futures show a nearly 100% chance that the Fed
will hold tomorrow, whereas in September some investors were beginning to price
in rate cuts, which would have been necessary for a slowing economy.

The dollar stopped its run against the yen and the euro today,
as investors brace for a Fed hold tomorrow. The dollar surged on
speculation that the Fed will come out hawkishly against inflation, but the
action today reflected insecurity in the Fed’s position. The major
currencies have played heavily on interest rate futures and inflation through
the summer, so tomorrow’s meeting will be a big step in illuminating the
dollar’s strength on the world market. The euro also gained fractionally
against the yen.

Crude oil futures rose 0.9% to close at $59.35 a barrel today,
on speculation that the coming winter will tax energy supplies, and that OPEC
will follow through in its planned output reductions. Crude is down nearly
25% from its July highs, which prompted OPEC to call for output reductions to
curb the falling price of oil. Natural gas rose 3.1% as a cold snip hit
the Northern U.S., increasing demand for the energy.

Gold futures rose 0.8%, as oil rose and the dollar halted its
move against the major currencies. Oil and gold have been trading lockstep
through the second half of the year, as rising energy costs prompt safe-haven
commodity buying. Gold is also used as a hedge against inflation, and with
the Fed’s position unknown ahead of tomorrow’s meeting, investors turned to the
metal for safety. Copper fell 0.7% to close at a weekly low, as
inventories surged 6.9% in London.

Softs traded mixed. Cocoa fell 0.4%, coffee rose 0.3%,
orange juice rose 0.4% and sugar fell nearly 1%.

Grains traded higher today. Corn was up 1.8%, wheat was
up 1%, soy rose nearly 1% and oats rose nearly 4%.

Meats traded higher today, with cattle up 0.1% and porkbellies
up 0.4%.


No major economic news to report today.

John Patrick Lee