Oil Continues To Fall; Bonds Ease Off Highs

U.S. 10-year Treasury bond yields rose today for the first
time in 4 sessions, as yields came down off five-month highs. Investors
are betting that the Fed will keep rates steady at the coming meeting, after a
17-meeting streak ended in August when the Fed did not raise rates.
Interest-rate futures show that there is a 19% chance that the Fed will raise
rates. The ISM index, which comes out tomorrow, is expected to show that
the service industry remained at 1-year low levels during the month of August,
which could send bonds higher and yields back to their new lows.

The yen rallied against the dollar and the euro today, on
speculation that the BOJ will signal that rates will be raised before the year
is out. The BOJ’s policy makers are meeting later this week to determine
if rate hikes are necessary before the year is out. Investor sentiment has
wavered on the yen, as conflicting reports continue to emerge on Japan’s
economic state. With the ECB on a tightening schedule, the dollar would be
in trouble if both the BOJ and Europe implemented rate-tightening plans.
The dollar rallied strongly today against the euro, and kept the yen’s gains at
bay, only losing 0.1%.

Crude oil futures fell 0.8% to close at $68.61 as geopolitical
tensions appear to cool off as summer eases into fall. Iran began to show
signs of reaching an international agreement, with the help of the U.N and Kofi
Annan. Crude prices historically decline after the Labor Day weekend, and
with a reprieve in diplomatic threats from the Middle East, crude has
significantly eased off of its record levels from earlier this summer.
Natural gas rose 2.7% as investors took advantage of the low prices, stemming from
a sell-off spurred by cooling weather and ample supplies.

Gold futures rose 2.3% to close at $646.90 an ounce, the
biggest gain in eight weeks. Gold has historically gained during each month of
September since 2000, as jewelers and retailers stock up on the precious metal
ahead of the holiday season. Silver rose 0.5% to close at $13.14, the
highest level since May of this year.

The softs traded mostly higher today. Cocoa was up
fractionally, coffee was up 3% on damaging weather forecasts, orange juice was
up 3%, and sugar was up nearly 1%.

Grains traded mixed for the day. Corn was down 0.5%,
wheat was up 0.7%, soy was up 0.5% and oats were up 2.3%.

Meats were up today, with cattle up 1% and porkbellies up
1.3%.


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John Patrick Lee