Bonds Rise on Consumer Spending

U.S. 10-year Treasury bond prices rose today, after a weak consumer spending
report prompted fears that the economy is slowing. The Fed held rates at 5.25%
yesterday, and maintained that inflation remains the central bank’s primary
concern. A weak inflationary report today led traders to buy bonds, on fears
that slow inflation will lead to a rate cut. Bonds fell through May and into
July, but bounced from extended lows on a number of unexpectedly soft
inflationary reports.

The euro surged on the dollar and the yen today, as the yen continues to
collapse on a widespread resumption of the carry trade. The yen has attempted
to rally lately, but towards the end of the week, yen weakness carried through
to bring the Japanese currency lower. The yen is currently trading at record
lows against the euro. The dollar fell against the euro this morning and also
fell fractionally against the yen. The dollar plummeted against the Canadian
dollar, but rallied from extended lows.

Crude oil futures gained more than 1% today, and closed above the crucial
$70 a barrel watermark. Crude rose this week after the Energy Department
announced a significant decline in gasoline reserves, which pointed to slowing
refinery manufacturing. Summer is typically a period of high demand and rising
prices, so any type of decline in energy reserve usually leads to a jump in
prices. Natural gas futures rose 1.3% as traders speculated that this year’s
hurricane season could damage supply lines.

Gold futures rose 0.5% as the euro advanced over the dollar. Gold usually
moves inversely to the dollar and with oil; today’s dollar action dominated
gold trading, and the precious metal rose as traders hedged against dollar
weakness. Copper futures rose 0.7% on limited supply concerns.

Grains all bounced today. Soybeans rose about 0.3%, wheat gained 0.25% and
corn rose fractionally.


Consumer spending rose less than expected in

John Lee

Associate Editor