Continuing To Weaken…
The tone in the pre-market action has fallen from
slightly negative to even more so, in spite of the unexpected increase in the
productivity numbers.
The market is also being hit amid speculation the
Fed will not lower rates when it meets next week.
Friday’s pre-opening outlook:
August
09, 2002
INTEREST RATES
OVERNIGHT
CHANGE to
4:15 AM
:BONDS +18 In
the past the Fed has suggested that high productivity is a barrier to increased
hiring patterns and that as productivity declines that could make it easier to
see more hiring. Therefore, the bond market probably wants to see a decent
productivity reading today but one that is only marginally positive, might not
do much to alter the rate cut discussion in next weeks FOMC meeting. We have to
think that the Fed is a little less likely to act with the stock market mounting
an impressive rally as that can’t help but temper damage to consumer sentiment.
STOCK INDICES
OVERNIGHT
CHANGE to
4:15
AM
NIKKEI +200 FTSE -42 The market has staged an impressive rally this week, all on
the back of the hope for a 25 basis point rate cut. The fact that the stock
market all but shook off the news that United
Airlines July traffic suffered a double-digit contraction, is certainly
impressive considering how similar stories have caused selling binges. It would
seem that the Worldcom accounting error magnitude
was raised again (in the last 24 hours) but it would not seem like the market is
overly concerned about that issue.
FOREIGN EXCHANGE
Dollar: Like the stock market,
the Dollar is technically overdone and probably vulnerable. Furthermore, it
would not seem like the Euro zone, is going to provide as much assistance to the
bull cause today. Therefore, the direction of the Dollar hinges on the strength
in the
productivity reading. Expectations are for a +0.5% to 1% gain, which is a major
slide from past readings. However, the trade has not been expecting much from
the
economy until the last several days higher bid in the Dollar changed sentiment.
Therefore we have to think that a disappointing productivity number of +.5% or
less could result in a profit taking slide in the September Dollar Index to the
108.08 level. Certainly a productivity reading above 1% would launch the Dollar
above the weeks highs and toward the 110 level.
EURO: For
all that has been said and published this week, on the Euro zone recovery pace
it would seem strange for the Euro to suddenly garner favor unless of course the
trips and falls on its own accord. Therefore, we expect recent support of 96.00
to hold but that solid resistance up at 97.58 will hold the trade down.
YEN:
After a probe into new low ground overnight, the Yen is primed to bounce as the
trade wanted nothing to do with prices below 82.66. Since money has been flowing
aggressively from
to the
the productivity numbers from the
this morning are an important development. Seeing a trade above 83.50 could
spark a surprise short covering rally that might be a good sale for next week.
SWISS:
The 66.00 level should hold up prices this morning with 67.00 reigning in
attempts to rally. The interest in flight to quality
currencies like the Swiss, decline step wise with the rise in world equity
markets. Look to sell a rally to 67.05 in the September contract.
POUND:
The Pound is very oversold and possibly primed for a
week ending bounce. However, the numbers continue to be bad enough that any
rally should be considered a sale.
CANADIAN:
The Canadian payroll report was positive and in fact should have given the
Canadian a bigger lift than is being seen in the early going. The long term
trend in the currency is up, get long at 63.00.
METALS
OVERNIGHT CHANGE to 4:15
AM:GLD-.60 ,SLV-.6 ,PLAT+1.50 CP +70 London Gold Fix $309.60 -$3.25 LME Copper
Warehouse
stks
889,425 tns -625 tns Comex
Gold stocks 1.798 -15,012 oz COMEX Silver stocks 107.3 ml oz +763,048 oz
OVERNIGHT: Asian prices weaker as recent disappointed longs exit positions
GOLD: The
liquidation in gold was to be expected, given the confluence of a soaring
Dollar, contracting US Producer Prices and a soaring equity market. While most
of the recent gold longs would not appear to be in for flight to quality
reasons, we think that some longs were in because the stock market wasn’t
offering much of a chance of a favorable return. Now that the equity market is
making some impressive gains maybe some investors are casting an eye back toward
the stock market.
SILVER:
The chart is a little worrisome in silver especially if the market appears to be
drifting below the $4.60 support level into the close. We fully expect silver to
respect a pattern of rising bottoms and that means prices will have to stay
above 4.54 or a number of longs might become nervous. Unfortunately silver
volume and open interest has really declined since the July high and that
suggests declining speculative interest.
PLATINUM:
The platinum market is certainly getting lift from the equity market strength
and probably because of technical stop loss buying. The fact that the Platinum
managed to rally in the face of gold and silver weakness is a real plus for the
bull camp. $540 should serve as some form of resistance unless the bull market
is restarted. Certainly a massive rise in open interest since the June high
makes it appear as if platinum isn’t completely done yet with the bull market
trends of the last year.
COPPER:
The Daily LME stock changes have gone quiet which is probably the result of that
August vacation period we have been mentioning.
copper exchange stocks were up by a moderately large 9,400 tons on the week and
that is a little discouraging. However, without the equity market rise this week
copper wouldn’t even be considering a bounce off the recent lows.
CRUDE COMPLEX
OVERNIGHT
CHG to 4:15 AM :CRUDE -6 ,HEAT-17 ,UNGA-29 While some in the trade would
like to make the March through August
consolidation pattern, a launching pad for higher prices, we think that
it is instead a broadening top. If the current correction fails to take out the
early July high by August 27th, that will be the longest period of time with out
a new high in this bull market.
NATURAL GAS
Having
the inventory report come in at the low end of the range of estimates must have
given the gas a reason to rally. We also think that the recent cool front (that
supposedly reached all the way down to
is giving the El Nino forecast some credibility.