Futures Point To A Lower Open
11/4/2004
Â
INTEREST RATES
The Treasury market recoiled sharply away from
significant oversold status Wednesday, and did so in the face of sharply rising
equity prices and a slight improvement in the economic outlook. However, some
traders moved into the long side of Treasuries because they doubt that the
fundamental outlook for the economy is going to improve simply because the
election was carried out efficiently. Even more surprising is the fact that
Treasury prices are showing minor gains in the face of dialogue this morning,
suggesting that the Fed may be poised to hike interest rates twice before the
end of the year.
STOCK INDICES
The gains in the stock market since the late
October low, is nothing short of astounding, especially when one considers the
flow of information during that rally. While the quick election and the outcome
was certainly a positive for the market, most of the gains off the October lows
came before the outcome of the election was known. The economic numbers released
since October 25th were mixed at best, with corporate earnings flow in that
period only slightly positive, it would seem that something else was responsible
for the price gains.
DOW
From the October 25th low, the December Dow has gained 477 points but we doubt
that the market is set to fully retrace to the first technical support point of
9,980. In fact, we think that the December Dow should be able to respect support
of 10,023. Unlike the S&P, the Dow has yet to climb above long term down trend
channel lines at 10,240. The Dow also hasn’t managed to rise to the highest
levels of the year and we think that is a sign that the market remains concerned
about high oil prices and the prospect of higher interest rates.
S&P
A normal retracement of the October low to November high move, in the December
S&P, would give a correction target of 1125.75 but we doubt that the market has
that big a break in store, unless oil prices really regain upside momentum. The
next resistance point for the December S&P comes in at 1160.10 but we think that
a correction back down to 1133.70 should be bought, looking for more gains into
the Thanksgiving holiday kick off season. However, the market is short term
overbought and will have to wade through significant economic information in the
coming two sessions and that increases the odds of a temporary profit taking
slide. Into the opening this morning Wal-Mart seeing sales below plan this
morning but 3rd quarter earnings at the high end of the scale there is an
offsetting tone to the early corporate news.
FOREIGN EXCHANGE
US DOLLAR
The Dollar has made more new lows for the move into
the opening this morning and the down trend would seem to set to extend. With
the world ready and willing to press the Dollar down, oil prices showing signs
of recovering and the US Fed poised to hike interest rates, we can understand
the ongoing negative attitude toward the US Dollar. In fact, we are not sure
what will change the track in the Dollar, unless there is a massive and
sustained slide in oil prices that suddenly whips the US economic outlook into
high gear. In short, the trend is down and even a favorable set of non farm
payroll numbers, might only result in a fleeting bounce in the Dollar.
Therefore, traders should look for a downside objective of 84.00, with solid
resistance pegged at 85.62.
EURO
The Euro is certainly into new high ground overnight
and would seem to be headed to 130. Even with German economic readings soft
overnight (manufacturing orders declined by 0.2%) the Euro isn’t really being
driven by the economic or interest rate differentials. Therefore, the trend is a
psychological trend that might well be given additional buying support from the
political realm. In other words, we have to wonder if the part of the strength
in the Euro isn’t coming because of the European disappointment over the US
election.
YEN
The Yen managed to shake off the weakness early this
week and would now seem to be poised to rise to new highs. In fact, as long as
energy prices remain somewhat under control, we think the Yen could rise to
96.00 before the BOJ begins to consider intervention efforts.
SWISS
While the Swiss isn’t getting nearly as much
interest from the flight to quality argument, it is cheered on by the technical
weakness in the Dollar. Therefore, the Swiss should ride with the herd, even
though the fundamental picture doesn’t justify a significant appreciation in the
Swiss. Next upside targeting comes in at 85.33.
BRITISH POUND
The BOE left interest rates unchanged and that
should give the Pound a significant lift, as we think many currencies are rising
off the idea that the US Fed is set to hike rates and that might serve to allow
other economies to narrow the economic differential. Near term support is seen
at 183.55, with the next upside target expected at 185.00.
CANADIAN DOLLAR
An impressive upward adjustment in the Canadian,
sparks a whole new wave of buying and could eventually result in the Canadian
rising to 84.47.
METALS
OVERNIGHT
London Gold Fix $426.30 +$4.10 LME COPPER
STOCKS 75,750 metric tons -650 tons COMEX Gold stocks 5.333 ml Unchanged COMEX
Silver stocks 103.7 ml Unchanged
GOLD
While we suspect that Chinese gold gains overnight
were mostly catch up from the prior days US gains, it is clear that both China
and Japanese players are favorable disposed toward gold. With the Dollar
actually managing to make new lows late Wednesday, it is clear that even more
declines are ahead in the Dollar. The most surprising thing is that the Dollar
continues to decline in the face of a quick election and in the face of
significant US equity market gains.
SILVER
The silver market continues to follow gold but the
overnight gains are simply not as impressive as one would have expected. Silver
stocks continue to hover just above the critical 100 million ounce level but so
far the market really isn’t focusing on physical supply and demand factors. Near
term pivot point resistance is seen at 7.38 and support should be firm at $7.12
basis the December contract.
PLATINUM
Apparently the strength in the gold market is giving
platinum a new lease, as prices have stubbornly managed to recoil away from the
recent weakness. It is a positive that China and Japan are showing such
consistent long interest as that could spill over into platinum and make chart
support levels more formidable. However, the platinum market has critical
resistance close-in at $840.
COPPER
The copper market comes into the action today poised
to breakout to the upside. With the Asian interest in gold giving copper traders
confidence, we have to think that the path of least resistance is pointing
upward. However, the US action is showing a positive tilt even in the face of
slightly weaker Chinese copper price action overnight.
CRUDE COMPLEX
The bull camp was certainly impressive with the
action Wednesday, as the trade failed from an early high and then still managed
to recover following patently negative weekly inventory readings. With US API
crude stocks rising by a significant 7.8 million barrels and the DOE crude
stocks also rising by 6.3 million barrels, it is clear that some rebuilding is
taking place. It should also be noted that Iraqi supply flow into the US was
found to have risen moderately in the most recent weekly supply reports and that
is a bearish factor as long as Iraqi production outlets aren’t attacked.
NATURAL GAS
The trade is expecting a minimal weekly injection of
25 to 40 bcf and that would seem to suggest that the annual surplus is set to
narrow again. With the surplus narrowing, a Gulf pipeline expected to be down
until the end of the year and crude oil prices showing much stronger performance
yesterday, support under natural gas prices should firm slightly. However, make
no mistake about it the entire energy complex is a little less powerful than
before and in order to get back into the ultra strong posture; there will have
to be a new supply threat or a dramatic upward revision in demand.