Weak Housing Data Leads to Higher Bond Prices

U.S. Treasuries inched higher today, boosted by a weaker than expected
housing report that fell far short of analyst expectations. Traders have been
focusing heavily on housing and the subprime mortgage problem, and both of those
issues are taking their toll on bond prices, slowly pushing them higher. Bonds
typically rise on economic weakness and fall on strength, so recent action shows
that traders have a somewhat negative economic outlook right now for the U.S.

The dollar rebounded dramatically against the euro today on the U.S. equity
rebound, and was up slightly against the yen. Despite a severely weak housing
report out of the U.S., the dollar managed to move the most in nearly 5 months
against the euro, defying recent negative U.S. sentiment. The dollar has been
falling steadily against the euro to new record lows, as continuing housing
problems and the subprime mortgage meltdown wreak havoc on investor sentiment.
Most traders have been betting on U.S. weakness and slowing growth. Traders also
attributed the dollar rally today to extended conditions stemming from a
sustained fall against the euro. The euro also slumped against the yen.

Crude oil rose nearly 3% today, after an Energy Department report showed the
third straight decline in oil inventories, despite increasing refinery
operations. Summer is usually a period of rising oil prices and falling
supplies, as people around the country use more energy than normal to deal with
the heat and to travel on vacation. This summer, it’s business as usual, with
oil moving steadily higher through the first half of the off-season. Natural gas
futures bounced about 1% on hurricane fears.

Gold futures fell nearly 2%, as the dollar rebounded against the euro. Gold
normally trades inversely to the dollar and with oil; today’s dollar strength
led to gold selling, as traders turned to dollar buying from extended lows.
Copper futures fell 1.6% after an extremely weak U.S. housing report was
released.

Grains were mixed. Soybeans fell over 0.5%, while corn was up slightly.

The major indices bounced back slightly after Tuesday’s harsh
selloff. Today’s volatile session was guided higher by great earnings from
Amazon and Boeing and the Fed’s Beige Book manufacturing report. The report
showed that economic activity continued to expand in June and early July.

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for the rest of today’s Stock Market Recap.


Economic News

U.S. existing home sales fell to the
slowest in 5 years last month, down 3.8%.

John Lee

Associate Editor

johnl@tradingmarkets.com

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