Futures Point To A Higher Open
11/5/2004
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INTEREST RATES
In the ebb and flow of rate hike dialogue, it
would seem like some Dealers are discounting the chance for a rate hike next
Wednesday. However, we suspect that the US non farm payroll report this morning
will be a major input into that decision. We fear that the expectation is set a
little too high for the Payrolls and with the last 4 reports all coming in below
expectations, there is plenty of evidence to think that the number will come in
below the 200,000 mark.
STOCK INDICES
Just when it seems like the stock market was
overbought it manages to forge yet another leg higher. Certainly the decline in
energy prices gave the market the impetus to rally again yesterday, but we also
think that dialogue from the President gave the market a lift. It almost seemed
like the President was poised to push aggressively for a new energy plan and
that certainly struck a favorable chord.
DOW
The Dow remains moderately below the highs of the year and could continue to
extend the gains aggressively but given the ongoing concern on the actual pace
of growth, the Dow stocks probably won’t react well to even the slightest
disappointment in the payrolls. Given the added concern of higher interest rates
next week, the Dow needs a good reading this morning or a setback to 10,200
might be expected. In conclusion, if the Dow falls back to 10,200, it is a buy,
because the trend is up and the economic clouds are lifting.
S&P
The S&P has already managed to post a new high for the year, but it would not be
a positive to see prices fall back and create the impression of a double top
around 1160. We suspect that the market will ultimately continue higher but it
would certainly smooth out the back and fill potential, if the payrolls managed
a gain of at least +170,000. As mentioned before, seeing lower oil prices might
be as important to the bull camp as seeing a decent payroll reading. Corrective
targeting today is seen down at 1154, but under a perfect storm of bullish
developments, the gains today, could be as big as the prior two sessions.
FOREIGN EXCHANGE
US DOLLAR
While the Dollar charts look pretty negative, there
is a chance that the bears in the Dollar will be confronted with a little
temporary adversity. In addition to weakening energy prices, the Dollar is also
seeing some rather impressive US equity gains. Furthermore, the market might be
confronted with a possible tempering off the soaring trade and budget deficit
issues. The President hinted at some stimulative efforts and also hinted at
changes to the US energy policy. Therefore, the idea that the oil prices are
going to drive the US economy into the ground, is mitigated and the idea that
the budget deficit will rise unchecked, could also be called in question. We
understand that the trend in the Dollar is well defined but we also have to give
the Dollar credit for the apparent improvement in its macro economic condition.
However, in order to get the trade in a position where it will credit the US
economy with improvement, the payroll readings will have to be strong and US
crude prices will have to drop below $48.00. In the near term, one should not
rule out a bounce to 84.97 and possibly to 85.68.
EURO
The Euro zone posted retail sales gains of only
+0.1% and that could serve to prompt some profit taking in the Euro today if the
US payroll numbers are strong. However, the operative phrase is “strong” as the
trend in the Euro is up and the market won’t be discouraged easily. Therefore,
it might take a non farm payroll gain in excess of +200,000 to turn the head of
the market down. Near term correction support in the December Euro is seen at
127.91 but a steeper correction could be seen if energy prices fall again today.
YEN
The Yen isn’t nearly as overbought as the Euro but
in the event that the Dollar manages a corrective bounce, the Yen probably falls
the most, given the tight correlation between the two currencies. Near term
downside target for the December Yen comes in at 93.88.
SWISS
Expect the Swiss to exhibit some extensive
volatility today. Near term pivot point support is seen at 83.86 but a major
wash to support of 82.60 shouldn’t be ruled out.
BRITISH POUND
UK manufacturing for September came in at an anemic
+0.1% and that leaves the Pound vulnerable to profit taking and a slide to
consolidation support of 182.60. Trend line support in the Pound comes in at
181.33.
CANADIAN DOLLAR
The Canadian remains poised for more gains,
especially since the currency remained strong through the Canadian payroll
readings. The Canadian readings showed an unchanged jobless rate and a 34,000
jobs gain, which are good figures. Therefore in order to derail the Canadian
rally, the US payroll report will have to be extremely strong.
METALS
OVERNIGHT
London Gold Fix $428.75 +$2.45 LME COPPER
STOCKS 74,000 metric tons -1,750 tons COMEX Gold stocks 5.333 ml Unchanged COMEX
Silver stocks 103.7 ml Unchanged
GOLD
The gold market is certainly tracking the Dollar
tightly and with the US monthly payroll report due out this morning and the
Dollar significantly oversold; the gold trade realizes the potential volatility
today. Expectations for the payroll report are high enough that the Dollar could
get some support from the report but in the event that the report doesn’t meet
or exceed expectations, the Dollar could take an extensive beating. In order to
halt the slide in the Dollar, oil prices will have to continue to slide or the
outlook for the US economy will have be upgraded dramatically.
SILVER
The silver never really managed to reach news highs
like gold in the action Thursday. In fact, the silver market would almost seem
to be presenting a broadening top type formation. However, while it might be a
little premature to think that silver is beginning to benefit from the physical
demand expectation, the stellar gains in all metals markets yesterday certainly
make it seem like something more than Dollar action is fueling the metals
higher.
PLATINUM
Another rejection of recent highs and an extension
of the lower high pattern, leaves the technical track pointing down in platinum.
Given the sharp gains this week the platinum market needs to get a favorable US
payroll report or prices could drop $14-$18.
COPPER
Unlike the other metals, the copper market retained
most of the gains posted Thursday. However, we suspect that copper will maintain
an upward bias, especially if the payroll numbers are acceptable. Shanghai
copper stocks declined by 6,786 tons to stand at 22,934 tons and that is another
supportive reading.
CRUDE COMPLEX
The crude oil started the session out Thursday on
an indecisive track but by the end of the session, crude oil prices had declined
aggressively. Apparently the President hinted at expanding drilling in Alaska
but we also have to think that the rally on Wednesday was at least partially
misguided and therefore the big declines Thursday weren’t that shocking in
retrospect. In fact, crude oil prices still managed to hold above the prior days
low, despite the compacted debacle.
NATURAL GAS
The trade was expecting a minimal weekly injection
of 25 to 40 bcf and with the 44 bcf injection, it seems that the market found
the resolve to dump prices aggressively. Seeing the slightly larger injection
resulted in the annual surplus expanding for the first time in several weeks and
caused some novice analysts to suggest that stock levels were rising to high
levels. We understand the need to knock natural gas prices down at little in
order to correct an overbought status and we have been expecting the January
contract to fall to 850 for a couple weeks, but once the small specs are out and
the crude oil market has found solid support, we look for a solid low to form.