Market Stronger
INTEREST RATES
OVERNIGHT
CHANGE to 4:15 AM: BONDS -3 — Given that the stock market is set to extend its
short-covering run, the bonds will not get as much support from a 1% to 1.2%
decline in the retail sales report this morning. In other words, the euphoria
from the stock market finally makes the press and the trade put a positive spin
on bad economic readings. What will be heard after the report this morning is
that the report was expected to be down, or that the results weren’t as bad as
were expected.
STOCK INDICES
OVERNIGHT
CHANGE to
S&P +620,
NIKKEI +89, FTSE +112 — The stock market is expected to display another one of
those surprising short-covering bursts. As we mentioned early this week, given
such pervasive selling pressure and such massive downside losses, it’s
understandable that rallies are so strong that they create the illusion that
macroeconomic conditions are improved. Certainly, bearish expectations have run
well ahead of reality, and therefore an occasional balancing is necessary.
FOREIGN EXCHANGE
DOLLAR: It will be interesting
to see if the newfound optimism toward the
equity market and the global economy rubs off on the dollar. Unless we are
missing the magnitude of the attitude shift altogether, it would seem as if the
equity market wasn’t on the brink of collapse 24 hours ago! It would also seem
like the mid-2003 recovery view has been pulled forward (temporarily). The real
test of this improved sentiment will be the retail sales report this morning.
But given the spin being seen in the press this morning, it would seem that all
the world’s problems are suddenly cured. Since the currency markets didn’t know
which currency they favored in an economic debacle, they might not have a clear
opinion now that the pendulum has shifted back toward recovery. We still have
to think that favor will be seen toward the dollar, but that getting the dollar above resistance of 107.88 might be difficult.
EURO:
Given that the pressure on all fronts is reduced (maybe only temporarily) we
would expect the euro to slide toward
consolidation support of 97.50. Since the euro zone showed slowing
a couple months later than the
the danger to the euro is that US numbers begin to improve and the euro zone
figures stay bad for a couple months. In the meantime, it is crazy to think
that the recession ilk has been completely tossed out and that the
is a distinct winner. However, today, if investors are feeling less risk
adverse, that means the dollar is favored.
YEN:
Evidently, moving the
bad debt from bank balance sheets to the government, is all that
is needed to clean up the mess in
In the near term, the yen slides because the
repatriation action seen early in the week reverses and the money
looks to the
for higher yields. We are not sure if a new low is needed, but that level should
be tested.
SWISS: No
anxiety today and that means the Swiss is set to decline. Near-term support on
the charts comes in down at 67.00 and that is a target.
POUND:
The pound is certainly vulnerable to a correction, but only if the
stock market makes significant positive noise in the early going today. When
stock markets were falling sharply they hurt the domestic currency during their
trading hours. When stock markets are rising, they help the domestic currency
during their trading hours. Therefore, after the FTSE closes and the
market has the stage for the day, it could be easier to sell the pound against
the dollar. There is probably no need to see the pound slide below 154.76.
CANADIAN:
Jobs data showed the labor force increasing by 67,000 jobs in
and that simply blows away the recent
numbers. Therefore, it is a little disappointing that the Canadian isn’t showing
more signs of strength. However, because the jobless rate rose to 7.7% the trade
is prevented from benefiting. In other words, the Canadian continues to seek out
the negatives, meaning that a major bottom and reversal is not at hand.
METALS
GOLD: For
the gold market to continue to slide despite the President being given war
powers suggested that the trade doesn’t think war is an immediate threat or that
the stock market was a bigger part of the bull case than was previously
anticipated. With so many longs into gold and silver, it’s understandable that
there is a liquidation trend off of the events of this week, but traders should
also realize that neither the war issue nor the economic conundrum is a done
deal. However, with opening indications for the stock market positive and the
dollar mixed, we would suggest that any long preparing to exit should at least
hold out for the early
numbers today.
SILVER:
Initially December silver has a double bottom at $4.28 and that could hold even
if gold falls because the stock market is providing enough economic optimism to
diffuse the deflation talk. Very heavy volume totals in silver early in the week
confirm to us that most of the technical stop loss selling action is completed
and that silver is now less vulnerable. Being less vulnerable doesn’t
necessarily give the market a reason to rally.
PLATINUM:
With the stock market action following through on the upside seen Thursday, the
platinum market rally has even less resistance. If the stock market gain is big
in the early going, platinum might forge a fresh contract high. Volume is
building on a rally, a bullish sign.
COPPER:
Given the positive direction of the stock market this morning, we would suggest
that shorts exit positions and look to reset up around 68.60, especially since
copper stocks declined -21,815 tons in the last two weeks. While the Shanghai
copper stocks decline was for a two-week period, the trade is pent up for a
bullish opportunity even if it is temporary. With a major copper producer
suggesting it could expand and contract copper production as the market
dictates, there is certainly a more positive tone generated toward copper.
CRUDE COMPLEX
OVERNIGHT
CHG to 4:15 AM: CRUDE +32, HEAT
+25, UNGA +79 — Adding to the slightly
negative tone seen in the energy complex Thursday were suggestions that Canada
shipped its highest ever monthly oil volume to the US in August. Evidently,
shipped over 16% of the 9 1/2 million barrels per day imported into the
NATURAL GAS
The
weekly injection report showed a 42 bcf injection, which was evidently enough of
a recharge to get the attention of a recently overbought market. Natural gas was
probably given an added profit-taking push, by the ongoing weakness in the
regular energy complex.