Bonds Rally on Shaky Markets

U.S. 10-year Treasury bonds rallied further today, pushing towards 5-month
highs that Treasury prices hit last week. Bonds have been rallying steadily
since July, on concerns that the U.S. economy is slowing down, and that the
credit crisis will spread to other areas of the economy. Since the subprime
mortgage mess emerged a few months ago, traders began betting that the cash
crunch problems would spread to other areas of the economy, and exacerbate
already dismal housing numbers. So far, those negative scenarios look to be
playing out, as the Fed has pumped billions of dollars into the banking systems
to provide necessary liquidity.

The yen rose against the dollar and the euro today, on general fears of
economic slowdown and volatility. Traders bought back previously borrowed yen to
cover riskier asset trades, as U.S. equities opened the day lower, and an
underlying sense of fear continues to plague investor sentiment. The yen has
been trading inversely with equities, as traders play the carry trade, borrowing
yen based on perceived market risk. Overall, the big news lately has been the
worldwide credit crunch, bringing the yen into focus as traders continue to find
a balance to the so-called carry trade. The dollar was fractionally changed
against the Canadian dollar and the British pound.

Crude oil futures rose over 1% on signs that summer demand levels are
catching up to gasoline prices, and reserves are paying the toll. Traders
estimated that gasoline supplies fell by over 2 million barrels last week, but
those numbers won’t be reported until Wednesday. Oil price have taken a hit over
the past few weeks, as the credit crunch led to speculation that slowing growth
would lead to lower energy demand. Crude rose through summer until the beginning
of August, when the subprime mess began to unravel, and traders were forced to
liquidate assets to cover losing positions. Natural gas futures fell over 2% on
comfortable supply levels.

Gold futures fell fractionally, as the dollar gained on the euro today. Gold
normally trades inversely to the dollar and with oil; today, traders sold gold
in favor of a strengthening dollar. Copper futures rose nearly 3% on speculation
that U.S. demand will grow.

Grains were mixed. Soybeans gained nearly 1%, while corn dropped about 1.6%.

Stocks declined on Monday, after M&A news failed to offset negative data
from the housing market. Existing Homes Sales fell for the fifth consecutive
month in July, further evidence that the original source of the market’s recent
troubles persists. Click

to read the rest of today’s

Stock Market Recap

Economic News

Existing home sales fell to a 5-year low
in July.

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