Bonds Rally, Oil Sags
U.S. 10-year Treasury bond yields fell back near recent
5-month lows, after government reports showed that the economy is slowing and
inflation should not be a problem. One report showed that producer prices
increased less than expected, and another showed that housing construction fell
during the month of August. Interest rate futures show that there is a
nearly 100% chance that the Fed will not raise rates during tomorrow’s meeting,
and over an 80% chance that the Fed is done raising rates for the rest of the
year.
The dollar gained on the euro, but lost against the yen today
as economic reports and geopolitical crisis clashed. An economic report
came out early in the day that showed a drop in producer prices last month, a
sign that the U.S. economy is slowing. The dollar sagged against both the
euro and the yen on the economic news, but a military coup in Thailand helped
the dollar to recover some losses against the yen, and to make gains on the
euro. Global investors sought safety in the dollar, a relatively low-risk
currency, in light of a dramatic upheaval in the government of Thailand.
Crude oil futures fell over 3% to close at $61.70 after
President Bush said that he would push for a diplomatic solution to Iran’s
nuclear program. Over the summer, crude shot to record highs as the U.S.
and Iran sparred words over the Middle Eastern country’s controversial program,
in addition to the war that sprung up between Lebanon and Israel. Over the
past weeks, oil has fallen over 20% as the geopolitical situation cools down and
investors realize there is no shortage in oil inventories. Natural gas
traded nearly flat today.
Gold prices fell about 1.5% on inflationary data that shows
that the economy is slowing and inflation is not a problem. Without
inflation and rising oil to hedge against, gold has declined steadily since the
beginning of September. Copper fell about 1% today as the housing numbers
from last month showed a significant decrease in new house construction, an
industry that relies heavily on the cheap metal.
The softs mostly rose today. Cocoa was up 1%, coffee
rose 1.2%, orange juice rose 0.8%, but sugar fell 0.5%.
Grains traded mixed today. Corn fell 0.5%, wheat rose
3.4%, soy fell 1.5% and oats rose 0.8%.
Meats traded mixed, with cattle down 0.4% and porkbellies up
0.7%.
Housing Starts See Significant Decline In August (full
story).
Core Producer Prices Fall Unexpectedly In August (full
story).
John Patrick Lee