Dollar Falls, Gold Rises

U.S. 10-year Treasury bonds were flat for the day, as the
government auctioned off $13 billion in 10-year notes at the lowest yield since
February. Bonds shot up in June, when the Fed initiated a rate-pause,
brought on by a slowing U.S. economy. Prices continued to rise as the Fed
continued to pause, but the September meeting’s minutes showed a lingering fear
of inflation, which brought prices lower. However, more and more reports
trickle in, highlighting a slowing U.S. economy. Interest rate futures
show literally no chance that the Fed will lower rates before the year is out,
whereas earlier in the year, investors were beginning to price in a rate cut.

The dollar fell to its lowest in two months against the euro,
and rose fractionally against the yen, after the Bank of China said that he
plans to diversify his country’s foreign-exchange reserves, which would
inevitably lead to a dollar-sell situation. Currency markets have been
dominated by interest rates and inflationary concerns for the past months, and
China’s announcement comes at a time when the dollar is not on solid ground.
The Fed is not expected to raise rates, and some investors had even priced in a
rate cut until a positive jobs report. The euro is sitting nicely, with
the ECB reiterating its hawkish view on inflation, calling for another rate hike
before the year is out.

Crude oil futures rose 2.2%, a monthly high, on a drop in U.S.
distillate fuel supplies that was revealed yesterday. Crude has fallen steadily
from its July highs, and is now nearly 25% down from its record highs.
Crude inventories are well above its 5-year average, which is helping to contain
crude’s gains. OPEC has also called for significant output reductions to
curb the falling price of oil, but has failed to produce a unified front.
Natural gas rose 1.7% to a three-month high after yesterday’s energy inventories
showed an unexpected decline in the gas. Natural gas is commonly used to
heat homes.

Gold rose 3% on news that China is set to diversify its
foreign-exchange reserves, which would mean dumping the dollar. Gold and
the dollar usually move inversely, so a fall in the dollar translates to a gold
rally in most situations. Gold is used as a safe-haven commodity in the
face of inflation and a weak dollar. Copper rose 2% on the day, on
speculation that global demand will overpower current inventories, sending price
for the metal higher through the day.

Softs traded mixed today. Cocoa rose fractionally,
coffee rose nearly 3%, orange juice fell 1.3% and sugar rose 1.8%.

Grains traded lower across the board. Corn fell over 2%,
wheat fell over 3%, soy fell 1.3% and oats dropped 1.5%.

Meats traded mixed for the day. Cattle rose 1.5% and
pork bellies fell 0.4%.

Economic News

Jobless Claims Fall More Than Expected (full

John Patrick Lee