Slightly Lower Open

INTEREST RATES

OVERNIGHT CHANGE to 4:15 AM: BONDS +4 — Following the surprising correction in
bonds, one has to conclude that prices above 114-00 will be difficult to sustain
unless the US economy is under heavy pressure. The fact that a “not as weak as
expected” durable goods report managed to washout the bonds should not be given
too much credence because the two-day equity market rise primed the bonds for
the washout. New trendline support comes in at 112-10, while the top of the
channel is seen at a lofty 115-18.

STOCK INDICES

OVERNIGHT CHANGE to 4:15 AM: S&P -360; NIKKEI +209
FTSE +37 — There were some crosscurrents in the overnight action as foreign markets were moderately higher with
the US markets showing weaker opening indications. Several key US stocks saw
negative overnight news, with G.E. being downgraded, Philip Morris cutting sales,
and SBC announcing more layoffs.

FOREIGN EXCHANGE

DOLLAR: Unfortunately, we expect to see more coiling action ahead with the
economic and interest rate differential debate among the currencies, either too
close to call, or deemed to be unimportant. We would have to think that the US
wins the economic differential debate by a slim margin and that yields are so
narrow that money simply isn’t moving around. We suspect that the dollar could
get a minor lift off the GDP readings this morning, even if the figures are old.
In any regard, it shouldn’t hurt the dollar to reconfirm that net/net, the US
economy is still operating at a faster pace than the euro zone, as measured by
the relative GDP readings. Critical resistance in the December dollar comes in
today at 108.60, but we would have to see the path of least resistance as up for
the action today.

EURO: The euro is seeing a slight undermine off the French employment readings
and that is simply exaggerated by the US layoff announcements at SBC. Unless the
US stock market melts down, we would expect the euro to slide, especially since
the euro is apparently weakening versus the yen! Near-term support in the euro
comes in at 97.16 with extremely firm resistance at 98.24.

YEN: While the yen staged a strong rally yesterday afternoon and the Nikkei
followed up with a big gain, the yen might be undermined by comments from a
ratings agency. Fitch indicated that without further reforms in Japan, they
would be prepared to downgrade Japan. However, the ratings agency suggested that
an October stimulus package would be considered before any change was made. We
think the yen is a sell at current levels, looking for a return to the September
lows. The US economy remains too weak, to expect the yen to outperform other
currencies and now that a correction has been seen, it should be safer to sell
it.

SWISS: No significant developments expected today and that should leave the
Swiss with a tight trading range. Support in the Swiss is just below the current
market at 66.64.

POUND: We have to think that the UK second quarter GDP reading of +0.6% will be
compared to the US number this morning, and that the pound will slide. Near-term
support in the December pound comes in 154.06 and that level could easily be
tested before the close today.

CANADIAN: The basing action in the Canadian appears to represent a bottom
formation, but we doubt the fundamentals will be seen for the currency to climb
above resistance on the charts at 63.50. Position traders should wait to buy Dec
on a dip to 63.03.

METALS

OVERNIGHT CHANGE to 4:15 AM: GLD -0.20, SLV
+1.0, PLAT +6.90, CP +25;
London Gold Fix
$320.15, -$2.20; LME Copper Warehouse stks 874,450 tns, -2,500 tns;
Comex Gold
stocks 1.903, -2,101 oz; COMEX Silver stocks 107.4 ml oz, Unchanged; OVERNIGHT:
Sideways action was seen but traders are watching the stock marke

GOLD: If gold were to bounce following a narrow three-day correction, that
would be very impressive, as the last two corrections lasted six and five days,
respectively. Supposedly, the Asian trade was waiting for direction from the US
equity market, suggesting a little greater correlation than we expected. We
would expect the US equity market to run out of short covering incentive today,
but unless stock prices are moving sharply lower, gold probably won’t be
impacted.

SILVER: While gold might have more downside ahead, the silver correction
is already the steepest since the August correction. The silver market appeared
to stop and reverse right on the lower retracement point off the August low to
September high rally. The 452.2 level should therefore be viewed as a near-term
support point.

PLATINUM: Evidently, the platinum market is going to consolidate above $550 in
the January contract. It appeared as if platinum was in the midst of a
moderate correction that was truncated by the equity market recovery. The
platinum market should find support from a stronger yen and an impressive
overnight rally in the Nikkei. Be long, using a risk of 547.

COPPER: We wonder how long the copper market can expect the impact of the equity
markets to be supportive to copper prices. Given that the Nikkei was moderately
higher overnight and the weekly Chinese copper stocks report was supportive, it
is possible that more minor gains are registered today. Shanghai copper stocks
were down 17,173 tons on the week to 161,652 tons.

CRUDE COMPLEX

OVERNIGHT CHG to 4:15 AM: CRUDE -18, HEAT
-17, UNGA -19 — The energy complex
absorbed a new angle Thursday when the US Administration appeared to be take a
new stance toward Iraq. Instead of using the weapons of mass destruction
argument, the US might be looking to imply that Iraq is harboring terrorist
which according to the “with us or against us” doctrine, would seem to justify
an attack could be legally justified with UN support.

NATURAL GAS

The weekly inventory report came in at the middle of the range and the hurricane
threat looks to stand down slightly. Therefore, the market might be in for a
profit-taking session.