Getting Stronger…
INTEREST RATES
OVERNIGHT
CHANGE to 4:15 AM:
BONDS -4
— With
slightly higher bank stock action in
and another inspection offer from
anxiety could be lower today and that in turn could weaken bond prices. With the
bonds a full point off the recent lows, the market is vulnerable to another one
of those quick chops down. However, there is simply too much economic anxiety
and fear, to suspect that anything other than a temporary correction will unfold
in bond prices.
STOCK INDICES
OVERNIGHT
CHANGE to 4:15 AM:
S&P
+720,
NIKKEI -99, FTSE -65 — While the negative tide of panic resides just below the
surface, selling pressure might pause for part of the session today. Given the
ease with which the market is grasping the negatives and the ultra-poor
performance in the late afternoon trade, we have to think that short covering
will be limited to the early trade. With energy prices down,
again offering weapons inspectors inside the country and European bank stocks
bouncing, there is a measure of optimism.
FOREIGN EXCHANGE
DOLLAR: We expect the
dollar
to bounce at least in the first half of the trading session. Not only has the
dollar reached consolidation support on the charts, but with lower oil prices,
an Iraqi inspections offer and positive and negative US earnings reports, there
is less selling pressure on the dollar. The best way to quantify the outlook for
the dollar
today
is that the sellers are pausing. However, just ahead of the US opening this
morning there could be interest rate decisions made by both the BOE and the ECB
and that could dramatically alter today’s action. Since the dollar has
respected
consolidation support and resistance levels pretty consistently
for the past 3 ½ months, we don’t see the news today putting the dollar below
support unless a foreign central bank cut interest rates. However, if the US
dollar doesn’t climb up and away from critical chart support before the retail
sales report Friday morning, there could be a failure tomorrow.
EURO:
The
expectation was that the ECB would leave rates unchanged, but the market is
looking to the dialogue to see if recent weakening of stats and severe pressure
on bank stocks softens the tone of the ECB. We would have to think that seeing
bank stocks under extreme pressure (especially German bank stocks) might finally
register in the mind of the ECB President Duisenberg! With the ECB lowering
their third and fourth quarter GDP forecasts, there is certainly cause to at least
change attitudes. If there is a surprise rate cut, that would certainly result in
the euro testing the Sept high of 99.46. However, if the tone doesn’t soften
toward cuts, then the euro might see a profit-taking correction to 98.10. A
break to 98.10 in the euro is a buy for the
news Friday.
YEN: The
yen is probably a sell following the recent rally, as the economic report flow
yesterday showed a very disconcerting condition unfolding. The problem with
selling the yen, is that under a world financial
debacle, money repatriates back toward
and lifts the currency. If the
outlook levels out, then the Japanese condition pales in comparison and the yen
gets pressed sharply lower. At this junction, we would do a balanced volatility
play, sell 1 December yen futures at 81.25 and buy 2
83.00 calls for 72 each. Near term, a correction to 80.15 is possible.
SWISS: We
doubt the Swiss has the capacity to breakout up today but it could breakout up
Friday. Therefore, look to any correction to 67.53 for a place to enter fresh
long plays.
POUND:
The BOE left rates unchanged, as it’s clear that central bankers don’t really
grasp the severity of the current condition. The BOE did recognize the concern
toward the equity markets, but apparently the whole idea of not targeting stock
prices won’t be abandoned. The pound is significantly above chart support but
probably won’t slide far because of anticipated weak
numbers and concern toward US and German banks. Be a buyer of the pound on a
correction to 155.44.
CANADIAN:
We are not sure where the Canadian stands in the big picture, because it is
reacting negatively to US problems, but isn’t recovering on days where anxiety
declines. If we had to make a near-term trade it would probably be to sell a
rally in the Canadian for the action Friday, especially if the Dec bounces to
62.77 today.
METALS
OVERNIGHT CHANGE to 4:15 AM: GLD
-0.40, SLV +0.0, PLAT
+4.70; London Gold Fix $318.80, -$1.90; LME Copper
Warehouse
stks
862,375 tns, -2,225 tns;
Comex
Gold stocks 1.892, Unchanged; COMEX Silver stocks 107.3 ml oz, -50,165 oz.
GOLD: The
gold market will generally remain under pressure because the war track
continues to wane and oil prices continue a near-term weakening trend. In fact,
crude oil prices have fallen almost $2 a barrel since the September highs and
that is, in a sense, a verification of falling war threats. It would appear that
the President will be granted the ability to attack
but the margin of that confirmation is looking to be far from the total mandate
the Administration was looking for.
SILVER:
Because the silver market has declined 40 cents from the September high to the
October low, we have to assume that a moderate portion of the fund and small
spec long has been balanced. However, like gold, the silver market is being
tugged lower by deflationary conditions and by the idea that high tech and
communication demand is unlikely to improve as long as equity prices are
creating an atmosphere of fear. There is decent weekly chart support around
$4.30 or 5 cents below the current trade.
PLATINUM:
The platinum market is acting a lot like cocoa as tight supply is simply overriding negative demand developments. The fact that US automakers are shutting
down plants due to the port strike could have pressure prices, but didn’t.
Furthermore, significant negative ness in the equity market could have hammered
platinum, but didn’t. Therefore, expect the up trend to prevail.
COPPER:
The copper market might have dodged a major macroeconomic bullet in the last
several sessions as Asian buyers did just enough buying to discourage a direct
run to new contract lows. We have been looking to resell copper on a rally to
66.80, but will now raise that sell point to 67.10 because of lower energy
prices, lower war threats and the potential for technical short covering. We
also note that LME warehouse stocks continue to fall at a very steady pace which
might be a sign that the move to reduce production, months ago might have been
perfectly timed to offset slackening demand.
CRUDE COMPLEX
OVERNIGHT
CHG to 4:15 AM: CRUDE -33, HEAT
-84, UNGA -104 — The DOE report showed a
crude stock decline almost twice that of the API report and that could have
detracted from what appeared to be a downward bias Wednesday. However, with open
interest in crude oil reaching 557,761 contracts on Oct. 2, the last COT
report registering an extensive overbought condition and the President partially
backing away from the direct attack mode, the bears have the capacity to push
prices lower.
NATURAL GAS
The
natural gas market was simply waiting for the usual cold winter forecast to
boost prices and with another hurricane in the hemisphere, the bulls dominated
action. Expectations for the weekly injection call for a smaller figure and at
this point we don’t see the figure having an impact unless the injection is
smaller than 25 bcf or larger than 60
bcf.