Markets Settle into New Interest Rate Atmosphere

U.S. 10-year Treasury bonds fell further off recent highs today, on common
sentiments that the double rate-cut yesterday will do good things for the
economy on the whole. Bonds rose steadily through the summer as the housing and
credit markets unraveled, and traders looked for safety in long-term government
treasuries. Bonds typically fall on perceived strength and rise on weakness, so
most trades are starting to loosen up ultra-defensive bond positions.

The dollar pushed off record lows versus the euro today, and was also up
against the yen. Yesterday, the US Fed cut interest rates more than expected,
and traders sold the dollar in favor of the euro. This morning, disappointing
inflation and housing data was also released in the U.S., but the dollar managed
to climb anyway. Most traders attributed the small dollar rally to consolidation
after an extended slide. The dollar rose against the Canadian dollar and the
British pound.

Crude oil futures fell about 1.3% despite a U.S. report that showed reserves
declined much more than expected last week. Crude hit new record highs today at
$82.51 before plummeting. Traders sold crude into the new highs to take profits
after a spectacular rally month so far. Natural gas futures fell nearly 6% on
speculation that tomorrow’s energy report will show comfortable natural gas
supply levels.

Gold futures gained about 0.7% today, on forecasts of dollar weakness.
Despite a rally in the dollar today versus the euro, traders took yesterday’s
Fed rate cut as a negative sign for the dollar. Gold normally trades inversely
to the dollar and with oil; today’s perceived dollar weakness led to a gold
rally, which just missed hitting new highs. Copper futures gained over 3% on a
rosy demand outlook.

Grains rose today. Soybeans were up fractionally, and corn jumped nearly 2%.

Stocks added to gains on Wednesday, following the Fed’s decision to slash
interest rates by 50bp yesterday. The Labor Department reported August CPI
declined by 0.1%, the first decline in ten months. Core CPI (excluding food and
energy) rose by 0.2%, so providing you don’t eat or use energy, there’s no
inflation. Click

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Stock Market Recap

Economic News

U.S. housing starts fell more than
expected, as well as consumer prices.