Mostly Calm Trading Ahead of Holidays

U.S. 10-year Treasury bonds continued to rally towards recent 3-year highs
today, on underlying negative sentiment surrounding the U.S. economy and credit
markets. Bear Stearns and Morgan Stanley both announced billion dollar losses
this week, adding to concern that troubles are spreading, and there is no end in
sight. Bonds typically rise on economic weakness and fall on strength, so it’s
clear that traders are positioned defensively heading into year-end.

The yen rallied today versus the dollar and the euro, on general consensus
that credit losses will continue into the new year, and could possible derail
the U.S. economy. The dollar was down on the euro, but most of the trading
chatter surrounded yen strength. The so-called carry trade has been a deciding factor in yen movement in the
past months, and looks to continue to do so. Traders have been buying yen on
equity weakness and selling yen on equity strength.

Crude oil futures rallied about 0.5% today, despite rampant speculation that
a U.S. economic slowdown will lead to slowing energy demand. Crude oil has
fallen off recent all-time records on general negative sentiment towards the
U.S. economy. Traders are betting that a recession would significantly dampen
all energy demands, and crude has fallen back on account of those speculations.
Natural gas futures were up slightly.

Gold futures were down about 0.4%. Gold normally trades inversely to the
dollar and with crude oil, and today, traders focused on neither, and gold fell.
Gold traders ignored dollar weakness and rising crude prices and sold gold, on
no major news. Copper futures rallied about 0.4%.

Grains were higher today. Soybeans rallied about 0.3% and corn jumped 0.4%.

Economic News

Philly Fed manufacturing fell to the
lowest levels since April of 2003.