Economic Sputter Emboldens Metals, Bonds And Euro

  • November 30, 2000
  • Marc Dupee

Higher unemployment claims and a
slowing Chicago Purchasing Managers Index today worked to solidify the view that the Fed’s six interest
rate hikes may have blunted economic growth too much. The Chicago index hit 41.7, an
eight-year low. The regional Chicago index is
generally predictive of the National Association of Purchasing Managers index
due tomorrow, suggesting a lower
NAPM. A reading under 42.0 is correlated with a recession. Friday’s NAPM is forecast at 48.5.
Coupled with other recent
evidence, including this week’s slower GDP growth, fear is mounting that the
economy may have slowed too much in response to the Fed’s tightening campaign.
Metals, the euro FX, and bonds rallied. 

December gold
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consolidation range, finishing on its high of the session, up 3.7 at 270.1. This
pattern, a big bar down followed by a larger-than-normal bar up, is often
indicative of a final test of a low or continuation. I have been discussing the
gold market with Fibonacci analyst Carolyn Boroden the past two days, noting
that there is a lot of overhead resistance. Carolyn agrees and said her analysis
suggests that gold will have to get through “273.40 and then 275.20 before
we’re sure that the October low is the low.” 

As I explained in yesterday’s Recap, gold often rallies
when the dollar declines because the metal is priced in dollars. This week’s revised GDP showing the US economy’s pace of
growth slowed last quarter was mildly supportive of the dollar Wednesday. Today,
however, the view is that the Euroland economy will grow at a faster pace than
the US, and that is supporting the euro and currency futures as the dollar falls. The December dollar index futures

(
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yesterday. 

The euro FX futures
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higher after adjusting to its sharp gap-up opening. The contract closed at
nearly a two-month high after striking a
New 10-Day High yesterday. The correlated Swiss franc
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List for a close .0098 higher at .5789. Note that today’s action in the
Swiss sets it up in a Turtle Soup Plus One sell pattern with the sell trigger
approximately at today’s low (which corresponds to the 11/3 low).

TradingMarket’s bond analyst Tony Crescenzi made a
potentially telling forecast in this morning’s Crescenzi
On T-bond Futures
commentary. Crescenzi writes, “The
latest economic news is simply casting a shadow over the economic expansion and its momentum appears to be decidedly downward.
Given the lagging effect of
changes in monetary policy, the Fed will be compelled to act sooner rather than
later. Therefore, look for the Fed to change its bias to neutral on December 19
and for a rate cut perhaps as early as the January 30-31 FOMC meeting. If
equities continue to spiral downward, the rate cut could easily come sooner than
that.”  

The breakout in December T-bonds
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the Fed may also lift their bias or ease rates in response to a stalling
economy. T-bonds are one of the strongest contracts on the Momentum-5
List and gapped to a new high for the second time in six days, a very
constructive setup. Basis December closed 26/32 higher at 102 19/32 and the
10-years
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An “as
expected” injection into the storage report from the American Gas
Association Wednesday of 146 billion cubic feet was reassessed today as forecasts for cooler weather in the
Northeast trickled in last night. Natural gas (NGF1) sold off
after the AGA’s weekly report was released yesterday, but after-hours trading on
Access bid the market higher on the reports of colder weather ahead. Natural gas
breaking out of a high-level, intraday inverted head and shoulders and hit a new all-time
high. Even though the AGA report
came in as expected, stockpiles remain seriously depleted from last year’s
levels. Gas came back from its highest levels of the session to close
slightly above gap-up levels, up .408 at 6.589.

An earnings warning from Gateway computer
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of the nation’s largest computer makers, whacked tech early on, sending the
underlying Nasdaq 100 cash Index
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Nasdaq 100 futures
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and is trading down 46.00 at 2484.00.The NDX cash closed down nearly 100 points,
while the futures closed unchanged. 

Coffee
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high but gave up all of the gains and accelerated to set and close at a new
contract low. The
contract’s Multiple Days Low
Volatility reading showed coffee was poised to make a larger-than-normal move in
either direction (as volatility reverts back to the mean). Coffee also traded
out of a 1-2-3 pullback-from-lows setup, to close down 2.85 at 71.70. Watch this
one for a reversal back to the upside out of a “soupy” setup as
well.