Bonds Steady Ahead of FOMC Announcement

U.S. 10-year Treasury bonds were flat today,
giving up gains from early in the day to close basically unchanged. Bonds
remained put today, ahead of tomorrow’s crucial FOMC announcement. Traders
expect the Fed to keep rates at 5.25%, but wording is always critical in these
announcements, and the investment community will be closely monitoring for any
change of tone or specific wording. Bonds usually fall on economic strength and
rise on weakness, so bonds look set to move tomorrow, after a stagnant day of
trading today.

The euro fell against the U.S. dollar and yen
today, as traders reduced risk ahead of this week’s coinciding U.S. and European
rate announcements. Both the ECB and Fed are slated to set policy rates this
week, and traders hedged their bets that the euro would continue to surge
against the dollar and yen. Despite negative reports from the U.S., the dollar
gained against the euro, but fell against the yen. Today’s action could be seen
as risk-reduction ahead of two major announcements from economically powerful

Crude oil futures gained about 0.4%, giving up
some gains through the day, after militants shut down three pipelines in
Nigeria. Crude oil trades very sensitively to world events, especially
geopolitical tension in Iran and terrorist attacks in Nigeria. Both Iran and
Nigerian terrorists could in theory severely disrupt the global supply of oil to
the market, which would send prices soaring. Natural gas futures fell about 1.7%
today, on slowing demand due to warm temperatures.

Gold futures fell about 0.4% today, as the euro
weakened against the dollar. Gold futures usually trade inversely to the dollar
and with oil, and today it was dollar action that dominated gold trading.
Traders sold gold in favor of a strengthening dollar. Tomorrow’s FOMC report,
however, could have a huge impact on gold prices, if the report were to come
with some unexpected data or commentary. Copper futures rose fractionally today
on signs of U.S. wholesale growth.

Grains fell today. Wheat fell about 2.6%,
soybeans dropped around 0.4% and corn fell just over 4%.


U.S. wholesales
prices rose 1.8%, the most in 18 months.

John Lee

Associate Editor