Bonds Rise Ahead of Fed Announcement

U.S. 10-year Treasury bonds rose today, ahead of the Fed
meeting tomorrow and key economic reports due out later in the week. The
Fed is almost guaranteed to hold rates at 5.25%, but investors are tuning in to
the Fed’s comments, looking for clues as to the Fed’s longer-term position on
inflation and interest rates. A number of positive economic reports came
out of the U.S. last week, which helped to drive the bond yield lower and prices
higher. However, tomorrow’s comments and reports later this week will
affect investor sentiment into the new year. Bond prices shot up initially
when the Fed began a rate-pause in June to deal with a slowing U.S. economy and
cooling inflation. Conflicting reports and comments from Fed officials
have kept bond prices near 11-month highs, and tomorrow’s Fed comments are the
key focus for bond traders at this point.

The dollar fell against the dollar but rallied against the
yen. Former Fed Chairman Greenspan warned that the U.S. currency will
continue to show weakness until the U.S.’s deficit is lowered, which helped to
spur a rally against the dollar by the euro. The global currency market
has been dominated by interest rate and inflationary news, as investors seek to
buy into currencies backed by hot, inflationary economies. The ECB raised
rates last week for the last time this year, but any euro rally was capped by
comments that there is no hurry to keep raising rates in Europe. Japan has
been negatively affected by poor economic reports, lessening the chances for a
BoJ rate hike in the near future. The fate of the dollar is also up in the
air, but tomorrow’s Fed announcement will give investors more information and
sentiment to work with.

Crude oil fell more than 0.5% to close at $61.50 a barrel
today, on continued warm weather forecasts across the U.S. Warm weather
lessens demand for most energy futures, and the balmy forecasts are keeping a
lid on any price gains in crude. Crude is down 25% from its record July
highs, and OPEC has even called for an international reduction of output to curb
the losses. Despite lots of talk, OPEC has yet to produce any united front
from its member nations in instituting such a reduction. Natural gas fell
nearly 3% to 6-week lows, as the warm weather continues to drive energy demands

Gold rose about 0.5% as Asian investors took advantage of the
relatively cheap price of the metal. Gold usually moves inversely to the
dollar, and the dollar’s fall against the euro could have helped to send gold
higher. Gold is down around 20% from its May highs, but still well-up on
the year. Copper gained around 1% today as workers in Chile, the world’s
largest copper producer, prepare to strike.

Orange juice futures fell the most in 16 months today, after
the U.S. government unexpectedly raised its expectations for Florida’s crop
output for this year. Soybeans rose 2% on signs that demand for U.S.
soybeans has been growing recently.

Economic News

No major economic news to report today.

John Patrick Lee

Start your trading day with

Futures Trend Matrix
designed to help you define the short-, intermediate-, and long-term trend for
more than 40 active futures contracts.