Bonds Stall Rally on Rate Cut Expectations

U.S. 10-year Treasury bond prices continued to slide today, as traders ease
off buying bonds on expectations of a guaranteed rate cut. Traders have priced
in a 100% chance of a Fed rate cut next week, which is allowing bonds to take a
breather after nearly 2 months of straight rallying. Bonds typically rise on
economic weakness and fall on economic strength, so traders have taken a mostly
defensive stance ahead of next week’s Fed announcement.

The dollar fell to new lows versus the euro, and was down against the yen, as
traders bet that the U.S. Fed will cut rates next week to ease economic
pressures. The recent credit crisis shook up the currency markets, with the yen
rallying on equity weakness, as traders exited the carry trade. The dollar has
been under major pressure in the last weeks ahead of the Fed meeting; with an
almost guaranteed rate cut on the way, many traders are taking positions against
the dollar on overall slowing growth and credit exposure.

Crude oil futures rose over 2% to hit new all-time records today, in the face
of an unexpected drop in crude supplies. Yesterday OPEC announced it would
increase global production by 500k barrels a day, which did little in the way of
easing price pressures. Crude prices fell over 10% in August, only to recover
those losses and move on to new highs. Natural gas jumped over 8% as traders
covered short positions ahead of tomorrow’s supply announcement.

Gold was flat today, resting after 4 straight rally days on dollar weakness.
Gold normally trades inversely to the dollar and with oil, but today gold was
flat despite rising oil prices and a declining dollar. Copper futures were down
about 1%.

Grains were up today. Corn rose about 4.5%, and soybeans gained nearly 2%.

The Dow and NASDAQ closed with small losses, while the S&P 500 was barely in
the green. Stocks struggled as the price of crude oil hit another record high
today. Click

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Economic News

No major news to report for the U.S.