DROP IN CONSUMER CONFIDENCE BOOSTS BONDS -- WEAKENS STOCKS AND THE DOLLAR

BOND YIELDS DROP WITH THE DOLLAR -- THE EURO RISES... This morning's report of a drop in consumer confidence has boosted bond prices and caused selling in stocks. When bond prices rise, yields fall. Chart 1 shows the 10-year T-note yield falling under its 50-day average for the first time since late June. This morning's technical breakdown in yields suggests that money is starting to flow back into bonds. The dollar is dropping along with bond yields. Charts 1 and 2 show that bond yields and the dollar have been closely correlated. Rising bond yields since mid-June gave a big boost to the dollar. Both now appear to be falling together. The Dollar Index (plotted through Thursday) slipped under its 50-day average earlier in the week and is down again today. Chart 3 shows the Euro climbing over its 50-day average today. [The Euro rises when the dollar falls]. Weakness in the dollar (and new buying in bonds) appears to be having a negative impact on stocks which are being sold today. One market that should benefit from falling rates, a weaker dollar, and profit-taking in stocks is the gold market.

Chart 1

Chart 2

Chart 3