Bonds Up on Weak Data, Bernanke

U.S. 10-year Treasury bonds rose today, after Fed Chief Bernanke said that inflation will probably recede and that housing weakness might spread to slow other areas of the economy. Bonds fell through May and June before bouncing off of 11-month lows on extended price levels and general worries about the subprime mortgage problems. With Bernanke's somewhat pessimistic comments out today, more and more traders are betting that the U.S. growth could slow dramatically soon.

The dollar fell against the euro and the yen today, after Fed Chief Bernanke warned that a home construction slump could lead to slowing growth in the U.S. The subprime mortgage collapse has led many traders to speculate that the U.S. is about to enter a period of major slowing growth, and the current housing problems are also weighing on the market. Even despite a positive consumer prices index report, the dollar fell on overall negative sentiments, fueled further by Bernanke's comments. The euro fell against the yen. The dollar was flat against the Canadian dollar, and continued to fall against the British pound.

Crude oil futures rose about 1% today, after the energy inventory report showed an unexpected drop in gasoline inventories today. Oil fell yesterday on speculation that today's report would show an increase in reserves, due to the increased refinery capacity across the country. Most analysts were looking for an 850k gain, but supplies actually dropped by more than 2 million barrels. Natural gas futures were up nearly 3% on weather forecasts for a heat wave across the U.S.

Gold futures rose over 1% as the dollar fell against the euro. Gold usually trades inversely to the dollar and with oil; today, traders bought gold and sold the dollar. Lately, high interest rates have also been helping to keep gold prices lower, as high interest rates create an attractive investment for safety. Copper futures rose fractionally amid some mine worker protests in South America.

Grains jumped today after a major slide over the past two days. Soybeans gained nearly 2% and corn rose 1.4%.

The major indices pulled back on subprime worries, missed earnings reports, and higher crude prices. The Nasdaq led to the downside giving up 0.5% after tech bellwether Yahoo cut its earnings forecast for the year and Intel reported lower profit margins. Click here to read the rest of the Stock Market Recap.

John Lee
Associate Editor
johnl@tradingmarkets.com

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