Futures Point To A Weak Open
INTEREST
RATES
OVERNIGHT
CHANGE to 4:15 AM: BONDS +16 — A new high for the move overnight clearly shows the
renewed sense of concern for the US and world economy. The double whammy of the
North Korean missile test firing and the apparent stalemate at the UN has
created a cloud of economic uncertainty. The cloud of uncertainty has already
hammered international equity prices overnight and that in turn has given bonds
a boost.
STOCK
INDICES
OVERNIGHT
CHANGE to
4:15 AM
S&P -710,
DOW -70, NIKKEI -204,
FTSE -85 — One could look to earnings news and suggest
that things aren’t that bad, but once one considers the ever-widening range of
bearish issues confronting the economy, it becomes clear that earnings are old
and irrelevant news. In fact, we detected a number of economists beginning the
process of downgrading their view for 2003 and that is understandable, as the
Iraqi stalemate continues to extend further and further into the future. For
instance, the recent French, German and Russian Iraqi proposal would seem to
give
Iraq
another
4 months to disarm, which is probably not enough time given the Iraqi progress
of the last 12 years.
FOREIGN
EXCHANGE
DOLLAR:
The Dollar is poised to become the whipping post of the world, as the
US
political policy to attack Iraqi is fraught with peril and it would appear that
the
US
could
now attack at any time. While the
US
seemed
to offer a Mid March vote on the second resolution, it would now appear that
there is no hope of passage on that resolution. It would also appear as if the
alternative proposal by the French, German and Russian coalition wants to give
Iraq
at
least another 4 months to disarm, in a “step by step fashion. Furthermore
it would appear that UN weapons inspectors have told
Iraq
to
destroy the illegal missiles found two weeks ago and Saddam has flatly declined
to do so. Therefore, the French have seen their step-by-step disarmament plan
foiled, before it was even proposed. In any regard, the
US
is seen
as the war mongering Nation, with President Bush being seen in
Europe
as the
root-of-all evil. With the
US
economy
also being hammered by soaring energy prices the added weight of the political
flak, keeps the currency in a downside pattern. While
the Dollar might have trouble getting through support around the February low,
we expect it will have no trouble getting to the February low of 98.87.
EURO:
The world has seen the slowing in the Euro zone and they also see the French and
Germans taking a more proactive role in the political drama and that is to a
degree weakening the flight to quality status of the Euro. With the necessity of
lower rates talked about last week, the market is concerned about the Euro
economy, even after German Ifo numbers this morning
showed some light at the end of the tunnel. The Euro has and is carrying
significant flight to quality premium and right now, the economic differential
and the interest rate differential have very little to do with the valuation of
the currency. We see a slight upward bias but we see a vulnerable currency and a
currency that is losing its flight to quality status to the Canadian and the
Yen. We would hold long term June Euro puts and expect to see massive volatility
in the Euro.
YEN:
The Press is calling the new financial leadership in
Japan
, the
dream team and the dream team is suggesting that they will stimulate the economy
and will not look for coordinated intervention to stop the rise in the Yen.
Therefore, the Yen will continue to see flight to quality buying and may not
find resistance until 86.20.
SWISS:
The current situation might end up being very bullish for the Swiss, as the Euro
losses some luster at a time in which the world is looking for a place to hide
money. The Swiss has the same disconcerting chart pattern as the Euro and that
gives us pause. Therefore, maybe the best play is to buy a call and quantify
risk. The April calls have enough time at 38 days.
POUND:
The BOE is suggesting that lower rates will not alter the deteriorating pattern
in business investment and that certainly causes the Pound to weaken. While the
UK Foreign Minister is suggesting that the
UK
will
make its own decision on
Iraq
, it is
clear that the Pound is in the process of paying for its alignment with the
US
. If the
UK
succumbs to political pressure and tempers its war talk,
that would avert a new low for the move in the Pound, otherwise expect the Pound
to fall toward 156.00.
CANADIAN:
The Canadian will continue to get flight to quality buying, as there are few
places to seek refuge against the Iraqi flap. We suspect that the Canadian will
be able to distance itself from the
US
economic and political situation, but there will be turbulence from the
developments in the
US
. We
have to think that more gains are ahead, with a new target of 67.60.
METALS
OVERNIGHT
CHANGE to 4:15 AM: GLD +3.60,
SLV +1.0, PLAT +9.60;
London Gold Fix $359.10, +$6.20;
LME Copper Warehouse
stks
823,600 ton, -1,250 tns; Comex
Gold stocks 2.263 ml, Unchanged; COMEX Silver stks
108.0 ml oz, Unchanged; OVERNIGHT: A North Korean Missile test sparked gold higher
in the Asian session.
GOLD:
Apparently the whole issue on the 2nd UN resolution is a moot point, as the
US
lacks
the votes and
France
,
Germany
and
Russia
all look
set to veto the issue. In fact, the French, German and
Russian block, have come out with their own resolution, with yet another
time-table for “step by step” disarmament. Therefore, it would
seem that seeking an answer through diplomacy is unlikely.
SILVER:
The silver market is also being pulled higher by international anxiety and a
lack of alternative investments. May silver looks to have a
critical pivot point at $4.75, with near term support seen down around $4.675.
Gold looks to provide more than enough leadership so that silver won’t be unduly
impacted by the potential deflationary influences being presented by the current
economic situation.
PLATINUM:
A gap higher move overnight clearly puts the platinum in a positive track today,
especially with gold and silver also showing upward sensitivity. Considering the
fundamentals behind platinum, we would not be surprised to see the April
contract rise to the January highs around $694.
COPPER:
The copper market would seem to be confronted with even more negative macro
economic conditions, as world equity markets are sliding and energy prices are
booming. With May copper 410 points above the February lows and 850 points above
the December lows, one has to wonder what justifies such an appreciation. We
understand that the funds might be looking beyond the conflict in
Iraq
, to
better growth in the second half of the year, but we have to wonder why copper
is the only market in the world to “look though the war”.
CRUDE
COMPLEX
OVERNIGHT
CHG to
4:15 AM:
CRUDE +40, HEAT +233,
UNGA +54 — We are very impressed that the energy complex
managed to forge higher on Monday, despite the fact that the war timing looked
to be delayed until mid March. However, before the close yesterday it became
clear that the 2nd resolution had no chance of passing and that
France
,
Germany
and
Russia
had come forth with yet
another proposal to disarm
Iraq
.
NATURAL
GAS
With
heating oil soaring to all time highs, players lifted natural gas prices off a
alternative use tilt and because of the much colder than expected current cold
weather patterns. We also suspect that some funds took profits last Friday by
selling into the market last Friday and therefore those funds were forced to
chase prices Monday morning.