Bonds Rally On Housing Announcment

U.S. 10-year Treasury notes reversed a slide today, rallying
after a report from homebuilder Toll Brothers showed that revenue has
significantly decreased in the last three months. A drop in home
production is reflective of a slowing housing market, which would then in turn
point to a slowing U.S. economy. Bonds shot up in June, when the Fed
decided to initiate a rate-pause. After the minutes from September’s
meeting showed a lingering fear of inflation, prices went back down, but
reversed on a continued hold in October, followed by negative economic reports.
This recent report adds more weight to the notion that the U.S. economy is
indeed slowing down, and that the Fed may have to cut rates sometime in 2007.

The dollar fell the most in six weeks against the yen today,
and fell against the euro, after the BoJ Governor announced that Japan would
take preemptive action against inflation, hinting that the country will raise
rates before the year is out. The currency market has been dominated by
interest rate and inflationary news, so a hawkish comment from the BoJ would be
expected to carry positive results for Japan’s currency. A negative
homebuilder announcement in the U.S. also fueled speculation that the U.S.
economy is weakening, which helped to push the dollar lower. Last week the
ECB announced that more rate hikes would probably be instated before the year is
out, bolstering the strength of the euro on the global market.

Oil fell 1.8% to close at $58.97 a barrel on ample inventories
and skepticism that OPEC will follow through with any serious output cuts.
Oil has fallen nearly 25% from its record July highs, and OPEC has threatened
global output reductions to curb the falling energy prices. However, it is
clear that no agreement or unified front could be reached so far, and the
warnings remain spineless. Oil also fell on U.S. inventories, which are
well above the 5-year average. Natural gas futures rose 3.7% on
speculations that the inventory report tomorrow will show a drop in supplies.
Weather forecasts have been mild lately, which has kept natural gas prices lower
on low demand.

Gold rose during the day, but erased gains to finish
fractionally lower. Gold and oil have been trading lockstep, so the
falling price of oil kept a lid on rising oil, despite a plummeting dollar.
Gold is down nearly 20% from its May highs. Copper futures rose fractionally
during the day.

Softs traded mixed for the day. Cocoa was up 1.5%,
coffee fell 0.2%, orange juice rose 0.6% and sugar fell 1.4%.

Grains traded mixed. Corn rose over 2%, wheat fell
fractionally, soy rose 0.8% and oats rose 1.6%.

Meats traded mixed as well. Cattle fell 0.7% and pork
bellies rose 0.3%.


BOJ Fukui Hints At Rate Rise (full

John Patrick Lee