Bonds Soar on ISM Weakness

U.S. 10-year Treasury bond prices rallied sharply today to start the year,
pushed higher by a weaker than expecting U.S. manufacturing report. Bonds are
trading just off 3-year record highs. Bonds typically rally on economic weakness
and fall on economic strength, so today’s bad news only helped to worsen general
sentiment towards the U.S. economy. It’s obvious that traders have positioned
themselves defensively to start the year, and today’s rally only emphasized
underlying U.S. negative sentiment.

The yen rallied today against the euro and the dollar, as U.S. and global
equity markets opened sharply lower to start the new year. The U.S. economy and
dollar have been under major pressure in the months leading up to 2008, and the
year started off on the wrong foot for the greenback. Underlying dollar weakness
was exacerbated by a report that showed U.S. retail sales rose less than
expected during key holiday periods. The yen has been trading in line with the
so-called carry trade. Traders borrow yen on equity strength and buy it back on
weakness, leading to a direct relationship between global equity risk and yen

Crude oil futures rallied past the crucial $100 watermark before falling back
slightly, up on the day. Crude has been rallying on record worldwide demand,
which is threatening global supplies. Crude fell back recently from record
prices a few weeks ago, on concern that slowing U.S. growth and uncertainty
would lead to a slowdown in energy demand. The U.S. economy continues to slow,
however, while global demand continues to rise. Oil prices are one of the major
focuses of the market heading into the new year, and all traders will be
watching energy prices in the weeks to come to watch for continuation into new

Gold futures rallied above $860 today, on dollar weakness and record oil
prices. Gold normally trades inversely to the dollar and with oil, which is
exactly what happened today. Traders bought gold in the face of record oil and a
declining dollar. Copper was also up slightly.

Stocks declined on the first trading day of 2008, after a much weaker than
expected ISM manufacturing report was released, and oil hit $100 per barrel for
the first time. Click

to read the rest of today’s

Stock Market Recap

Economic News

The ISM manufacturing index fell to the
lowest levels in nearly 5 years.