Bonds Surge on Weak U.S. Data

U.S. 10-year Treasury bond prices rose for the 3rd straight day today, after
a U.S. housing report showed that housing starts declined last month. Bonds have
been rising since Friday last week, on general consensus that bonds are
oversold, and following week economic reports out this week. Bonds rise on
economic weakness and fall on strength; the obviously negative housing reports
pushed bonds higher, on speculation that the Fed may be forced to cut rates this

The yen bounced back this morning from major weakness against the dollar
and the euro, after a weak housing report was released in the U.S., and also
after German investor confidence fell. However, as the day went on, the yen
gave up some gains against the yen, but stayed fairly strong against the
dollar. The yen fell to record lows against the euro, and also fell on the
dollar yesterday, on widespread speculation that the ECB would be forced to
keep lifting rates this year. Weakness from Germany, however, forced traders
to pare bets on unimpaired European strength. A weak housing report from the
U.S. also helped to propel the yen higher against the dollar; the two weak
reports from the U.S. and Europe seemed to cancel themselves out, as the euro
was flat on the dollar. The dollar sank against the Canadian dollar today,
after moving slowly higher over the last 2 weeks.

Crude oil futures fell fractionally, but remained at 9-months high on
fears that oil workers in Nigeria will carry out threats to strike. Nigeria
and the Middle East remain two sore spots for oil traders, as both of the
areas are rich in oil and have volatile sociopolitical dynamics. Crude has
been rising steadily since last Wednesday, on a soft inventories report.

Gold rose about 0.7% on a weak economic report from the U.S. Gold normally
trades inversely to the dollar and with oil; today’s gold trading was
dominated by dollar action and high oil prices. Copper dropped about 0.6%
after a weak housing report pointing to slowing demand for the metal.

Grains fell across the board today. Soybeans fell 3%, corn dropped 4.8%
and wheat fell 3.3%.


U.S. housing starts fell unexpectedly last
month, the first time in 4 months.

John Lee

Associate Editor

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