Bonds Retreat from Highs on Bernanke Comments

U.S. 10-year Treasury bond prices plummeted from 3-year highs today, after
Fed chief Bernanke said that economic pressure and “downside risk” might lead to
a rate cut later this month. Traders took this as full confirmation of a rate
cut at the end of the month, and sold bonds accordingly. Bonds typically rally
on economic weakness and fall on strength, so Bernanke’s comments were clearly
taken as a good thing for a weakened U.S. economy.

The euro surged against the dollar today, after the ECB kept rates at 4.0%,
and ECB President Trichet said in comments that the ECB would not follow the
U.S. Fed in cutting rates. The speech and rate cut decision rallied traders to
buy the euro and sell the dollar, in line with the current overall trend. The
dollar is close to all-time record lows versus the euro, as traders continue to
worry about the struggling U.S. economy. The euro was basically flat against the
dollar. The dollar plummeted against the yen, mostly on carry-over weakness from
euro trading.

Crude oil futures fell about 1.7% today, on concerns that a slowing global
economy will lead to a drop in crude demand. Traders took crude up to new
all-time record highs just last week at $100 a barrel on demand worries, but
traders sold oil today on overall economic concerns. Oil has pulled back in
recent months on similar worries, only to move to new highs shortly thereafter.
Natural gas was up moderately today.

Gold rallied today to fresh all-time records, as the dollar sank versus the
euro. Gold normally trades inversely to the dollar and with oil prices, and
today, traders focused on dollar weakness versus the euro and sold gold. Despite
falling oil prices, a weakened dollar was enough to send traders scrambling for
safety in the commodities. Copper futures fell for the second straight day on
economic growth concerns.

Economic News

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expected in November.

U.S. initial claims fell more than expected last