Bonds touch new highs on rate-cut speculation

U.S 10-year Treasury notes hit a 9-month high today, as
investors bet heavily that the Fed will have to cut rates by March to
accommodate a slowing U.S. economy with easing inflation. A housing report
next week is expected to show weak numbers for existing home sales; the housing
market has been the leading indicator highlighting slowing growth in the U.S.
Last week’s housing starts report led to the largest move higher by bonds in
three weeks, as the report showed that U.S. housing starts fell to the lowest
levels in over 2 years, which led to buying in the safety of the long-term

The dollar fell to its lowest levels in over a year against
the euro, as investors bet that the U.S. Fed will cut rates early next year,
while the ECB will continue to raise rates. The dollar fell to monthly
lows against the yen, despite the fact that the BoJ has not fully committed to
rate hikes any time soon. The global currency market favors hot,
inflationary economies, and market action moves in the direction of currencies
backed by a growing economy. Recent data, and projected data from the
future, should force the U.S. to cut rates to deal with slowing inflation, while
the ECB will raise rates to combat inflation and high growth.

Crude oil futures rose over 1% to close near $60 a barrel
today. Crude is down 25% from record July highs. OPEC has called for
an international reduction in crude output to curb crude’s steep fall in price,
but the proposed reductions have yet to produce any serious effect on price.
Natural gas rose 2% today as investors prepare for winter’s energy demands.

Gold rose over 1% as the dollar slumped in the global market.
Gold and the dollar trade inversely, as investors turn to the safety of
commodities in the face of dollar weakness. With the dollar trading at
yearly lows against the euro, it was no surprise when investors turned to the
metals as a safe-haven against a weak U.S. currency. Copper rose 3%, the
most in a month, as dollar weakness led to more buying in the commodities.
Copper has been struggling lately on high supplies and weakening demands.

Grains and softs traded mostly higher today. Wheat rose
1.1% on speculation that global inventories are declining, sparking demand in
U.S. supplies. Soybeans and corn both traded higher by about 1.5%.

Economic News

No major news to report today.

John Patrick Lee