Bonds Pullback on GDP Numbers

U.S. 10-year Treasury bonds fell back from recent highs today,
after a government revised-report showed that the economy grew more than
expected during the third quarter. Bonds were trading at levels not seen
since January, on rampant speculation that the Fed would be forced to lower
rates during the first part of the year to deal with a slowing economy with
little inflation. Bonds shot up in June when the Fed initiated a rate
pause on a slowing economy, and prices have been wavering near 7-month highs for
weeks. Interest rate futures are still showing more than 30% chance of a
rate cut by March, which highlights that investors are still looking for an
overall economic slowdown.

The dollar advanced the most in three weeks against the euro,
and rose moderately against the yen, after a revised GDP report showed that the
U.S. economy grew more than previously thought last quarter. The dollar
was trading near 2-year lows against the yen before rebounding on the somewhat
balmy report. Continued weak housing reports and widespread speculation
that U.S. growth is slowing should dampen any serious bull rally for the dollar.
Currency market have been dominated by interest rate and inflationary reports,
as investors seek to buy into currencies backed by hot, growing economy.
Both the U.S. and Japan see a slim-to-none chance of raising rates before the
year is out, while Europe has basically guaranteed that there will be one more
hike this year.

Crude oil rose 2% to close at $62.10 a barrel today, as cold
weather settled across the U.S., and inventories showed that heating fuel
supplies have dwindled. Energy prices across the board tend to rise during
cold weather, which puts a strain on heating and energy sources, boosting
demand. Crude oil is down nearly 25% from record highs in July. OPEC
has called for international reductions in output, but those efforts have yet to
produce any significant effect on price. Natural gas rose 3% today as the
U.S. braces for winter weather.

Gold fell fractionally today as the dollar found support in
the global market. Gold usually trades inverse to the dollar, and followed
suit today as the dollar gained ground. Traders use the safety of the
commodities metal as a hedge against dollar weakness and inflation, which
accounts for their inverse relationship. Gold is down 20% from its May
highs. Copper fell 1.5% on continued weakness in the housing market, which
uses the metal in home construction.

Corn and soybeans both fell about 1% today, on speculation
that higher grain prices are actually boosting sales and lessening demand.

Economic News

The U.S. government released revised GDP numbers, which were
higher than previously thought.

Fed’s Beige book sees growth and optimism in U.S. big cities.

John Patrick Lee

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