Foundation For Positive Sentiment
INTEREST
RATES
OVERNIGHT
CHANGE to
4:15 AM
: BONDS
-28 — While the bonds have fallen 6 full points in less than 6 days, they look
to have more declines ahead. The fact that IBM knocked one out of the park for
the recovery camp means that more and more long-term holders of bonds are
expected to scramble out of them. While most investors are still scared, there
will be a growing number of those who are willing to accept the risk of the
equity market over more conservative bond holdings.
STOCK
INDICES
OVERNIGHT
CHANGE to
4:15 AM
:
S&P
+26, NIKKEI +75, FTSE
+127 — Just as everything was negative in the April-through-September
period, the stock market has apparently entered a period where everything is
positive. With the price of crude down for the third day in a row, a number of
companies posting better than expected earnings, and the President suggesting
military action should be a last resort, there is
certainly a foundation for some positive sentiment. While the IBM earnings story
is certainly a major lift for stocks, the fact that Nokia posted some favorable
numbers is a distinct change in the wireless sector.
FOREIGN
EXCHANGE
DOLLAR:
If the
US
manages
to post good readings in both sets of numbers this morning, that could give the
US
a
distinct edge in the economic recovery derby. In other words, if housing figures
and industrial production manage to show even the slightest up-tick,
that could propel the
US
stock
market sharply higher, which in turn elevates the chance that consumers will
continue to spend and drive the
US
economy
toward recovery. Therefore, it would seem that the dollar has a distinct chance
to move to the top of the recent consolidation which is just under 110.00 basis
the December contract. The coiling pattern in the dollar (for the last four
months) could make a breakout a significant technical event, and therefore
traders might use an upside breakout of 109.71 and a downside breakout point of
107.27. Our preference is to be long the dollar, looking for at least a
100-point rally.
EURO:
It is clear to us that the euro is in the process of breaking out to the
downside. While some might think that the industrial production
readings from the euro zone were strong enough to discourage selling (they were
up +0.6%) they were below the forecasts and will be compared to those to be
released from the
US
this
morning. We see the euro falling to 96.85 and possibly to levels below 96.00 if
the
US
numbers
(this morning) are in any way better than expected.
YEN:
The Japanese yen looks to continue its downward track, but we expect the decline
to come at a much slower pace. The fact that September crude steel production
rose by 6.8% in
Japan
highlights the recovery trend in
Japan
.
Therefore, the yen might see some investment flow and that could serve to
diffuse the downside pattern. Keep
in mind the BOJ wants the yen to decline.
SWISS:
A downside breakout is already logged on the Swiss chart and with the financial
anxiety draining from the marketplace, we suspect a
continued liquidation pattern in the Swiss. Near-term downside targeting in the
Swiss is seen at 65.60.
POUND:
The track in the pound is not as clear-cut as in the dollar and the euro, as the
UK
economy
might have remained strong enough to get a distinct lift from the renewed
optimism. Therefore, we would expect the pound to make a good show of holding
above chart support of 154.06 and it might even manage to climb toward the
recent highs.
CANADIAN:
The Canadian should begin a long-term upward adjustment as the massive
devaluation in the currency since the June high should be put back in place. The
June high was 66.20 and that is an objective for the Dec. Canadian contract.
METALS
OVERNIGHT
CHANGE to 4:15 AM: GLD -0.70, SLV
-1.0, PLAT +0.30; London
Gold Fix $312.80, -$1.70; LME Copper
Warehouse stks
859,375 tns, -625 tns; Comex
Gold stocks 1.889, +6,719 oz; COMEX
Silver stocks 107.4 ml oz, Unchanged. OVERNIGHT: Reports of bombings
in the Philippines didn’t manage to lift gold.
GOLD:
A strong recovery in stock prices in
Japan
overnight and pre-opening indications for the
US
market
to be sharply higher is undermining gold. The fact
that gold was largely unmoved by the reports of bomb explosions in the
Philippines
highlights the markets downward bias. Furthermore, for gold not to have bounced
following such a big break yesterday really
highlights ongoing weakness.
SILVER:
If silver weren’t already 7.5 cents off the low, we
would be inclined to buy it, as the potential for improved economic sentiment is
rising. Following the favorable IBM earnings, silver would certainly be given an
added lift if the industrial production figures were to show anything positive
in the report this morning. We think that action in silver Wednesday
highlights the industrial/physical demand focus, especially since silver has
managed to rise in the face of recent gold weakness.
PLATINUM:
Platinum should rise to a new contract high today, given the early indications
from the stock market and the optimism toward the economy generated by such a
strong recovery move. Platinum has been forging gains since the July low mostly
off tight supply and now it might get an added lift off demand hopes.
COPPER:
The copper market is already breaking out of the recent consolidation to the
upside and that move is expected to extend. If by chance the industrial
production readings this morning are in positive ground, that might spark
widespread fund short covering. Supposedly a major copper producer denied rumors
that they were preparing to cut production to support prices and simply serves
to create a more bullish outlook.
CRUDE
COMPLEX
OVERNIGHT
CHG to
4:15 AM
: CRUDE
-22, HEAT -49, UNGA
-38 — The statement from the President that going to battle is a last
resort rung in the ears of the energy complex Wednesday afternoon. While the
trade acted like it wanted to rally on the potential for tightness in US product
stocks, it was unable to overcome the disappointment from the war front.
NATURAL
GAS
The
natural gas market is pausing waiting for fresh news from the weather and from
the economic front. However, the macroeconomic
condition is supporting prices.