Bonds Steady Ahead of FOMC Announcement

By John Lee

U.S. 10-year Treasury bonds were flat today, giving up gains from early in the day to close basically unchanged. Bonds remained put today, ahead of tomorrow's crucial FOMC announcement. Traders expect the Fed to keep rates at 5.25%, but wording is always critical in these announcements, and the investment community will be closely monitoring for any change of tone or specific wording. Bonds usually fall on economic strength and rise on weakness, so bonds look set to move tomorrow, after a stagnant day of trading today.

The euro fell against the U.S. dollar and yen today, as traders reduced risk ahead of this week's coinciding U.S. and European rate announcements. Both the ECB and Fed are slated to set policy rates this week, and traders hedged their bets that the euro would continue to surge against the dollar and yen. Despite negative reports from the U.S., the dollar gained against the euro, but fell against the yen. Today's action could be seen as risk-reduction ahead of two major announcements from economically powerful countries.

Crude oil futures gained about 0.4%, giving up some gains through the day, after militants shut down three pipelines in Nigeria. Crude oil trades very sensitively to world events, especially geopolitical tension in Iran and terrorist attacks in Nigeria. Both Iran and Nigerian terrorists could in theory severely disrupt the global supply of oil to the market, which would send prices soaring. Natural gas futures fell about 1.7% today, on slowing demand due to warm temperatures.

Gold futures fell about 0.4% today, as the euro weakened against the dollar. Gold futures usually trade inversely to the dollar and with oil, and today it was dollar action that dominated gold trading. Traders sold gold in favor of a strengthening dollar. Tomorrow's FOMC report, however, could have a huge impact on gold prices, if the report were to come with some unexpected data or commentary. Copper futures rose fractionally today on signs of U.S. wholesale growth.

Grains fell today. Wheat fell about 2.6%, soybeans dropped around 0.4% and corn fell just over 4%.

Economic News
U.S. wholesales prices rose 1.8%, the most in 18 months.