Yen Continues To Fall

U.S. 10-year Treasury notes rose fractionally today, as
investor speculation grew that the Fed will be forced to lower overnight rates
from 5.25% by March. Interest rate futures now show an over 30% chance
that rates will be lower by early spring, to combat cooling inflation and a
slowing U.S. economy. The housing market has continued to show weakness,
and October’s housing start levels were at 6-year lows. The economy seems
to be slowing, and investors are betting that the Fed will lower rates to combat
those effects.

The yen fell against the dollar, and to record lows against
the euro, as the BoJ and ECB came out with conflicting inflationary statements
today. BoJ Governor Fukui said that his country does not face an immediate
inflationary threat (no rate hikes), while ECB’s President Trichet said that
global growth will remain dynamic (rate hikes). Rate hikes become
necessary to combat inflation and to cater to a growing economy, which means
that Japan’s economy is cold, and Europe will probably have to raise rates
before the year is out to combat inflationary risks. The currency market
has been dominated by inflationary and interest rate news, and euro/yen action
today certainly keeps in-line with that thinking, as the hot European economy
continues to drive demand for the euro.

Crude oil futures fell fractionally today, as warm weather
continues to pervade the U.S., diminishing demand for heating and other
oil-based consumption. Crude oil has fallen 25% from record highs in July,
when the global supply was threatened by a tense war between Israel and Lebanon.
Since then, OPEC has called for a unified front between its member nations,
proposing to reduce global output by 1 million barrels a day. Some
countries, like Saudi Arabia, have praised and followed the cuts, but the
organization has yet to produce any effect onto the rapidly falling oil prices.
Natural gas fell 2.1% on warm weather forecasts across the U.S.

Gold futures rose during the day but closed basically flat, as
falling crude prices continue to drive demand for the metal lower. Gold is
commonly used as a hedge against rising oil prices, and as a hedge against
inflation and weakness in the dollar. With oil continuing to drive lower,
gold is showing weakness, as investors see no reason to turn to the commodities
metal as a safe-haven. Oil is falling and the dollar has somewhat
stabilized, and these two factors continue to drive gold down from its record
May highs. Gold is down over 20% from the recorded May highs. Copper
prices fell a half a percent today, as global inventories continue to signal
excess supply and weakening demand.

Grains traded lower today. Wheat fell nearly 1% on signs
that high prices are hurting U.S. exports, which are at 4-month lows. Corn
and soybeans erased early gains, as investors continue to bet that the rally in
grains is over-extended and nearly finished.

Economic News

No major economic news to report at this time.

John Patrick Lee