Futures Are Pointing To Weaker Open
INTEREST RATES
OVERNIGHT
CHANGE to
4:15
AM: BONDS
+15 — The press heavily documented the soaring premium being attached to corporate
bonds as compared to Treasuries. In other words, economic anxiety has risen to
a level that the trade is extracting increased yield from a wide range of
corporate
debt issues. Just as investors expand and contract risk tolerance
in the stock market, they are now casting a more skeptical eye toward corporate
borrowers.
STOCK INDICES
OVERNIGHT
CHANGE to
AM
-620,
NIKKEI -169, FTSE +12 — The failure to hold the impressive gains off the temporary
end to the dockworkers strike clearly suggests that this market wants to
continue falling. With a series of analysts moving to lower earnings and sales
projections off the dockworkers situation, sentiment is ratcheting downward.
Furthermore, with those same analysts suggesting that the economy will continue
to be damaged by the slow process of catching up on the shipments, it is clear
that the trade is assuming the worst.
FOREIGN EXCHANGE
DOLLAR: The best way for the
dollar to look good is for everything around it to look really bad. Against the
overnight slide in the German and Japanese stock markets, the
market almost looks attractive. In other words, the rest of the world is
fortunately coming down with severe slowing pains and concerns over corporate
debt, and that in a way boosts the dollar’s value as a store of
value. While there is the sentiment that the
could be the most likely to cut rates first in the current environment, there
really is no clear cut leadership in the currencies. However, the dollar will
probably continue to have a slight edge. In fact, weakness in the Canadian and
the yen could give the dollar support against the pressure from the euro and the
pound today. We see no reason for a breakout above 108.60, but if something
extreme arises out of the unfolding economic debacle, money might rush to the
dollar.
EURO: For
today’s action, the initial damage done to the euro, off the weak German stock
market action is replaced by what the
stock market will do to the dollar.
did manage to release a favorable August industrial output figure, and that has
certainly put the euro up as an attractive issue, at least for the session today.
We would expect the euro to rise toward resistance of 98.20, and possibly 98.30,
if the
equities really fall apart.
YEN: We
are actually surprised that the yen isn’t under a full-frontal assault this
morning, with the Nikkei falling apart and the
stock market failing to respond to the end of the dockworkers strike. However,
we would be prepared to sell the yen on a rally because a disaster in the
means a double disaster in
Sell the December yen on a rally to 81.20, looking for new contract lows.
SWISS:
Given the recent correction in the Swiss, we would continue to hold recently
suggested call plays and would certainly entertain the idea of buying the
December futures at 66.90.
POUND:
The breakdown in the charts seems to point to a sustained correction down to at
least 154.00 and possibly 153.28. Since the pound is well above the August lows
and recently being the most favored G7 economy, it could have the most downside
adjustment due.
CANADIAN:
We have to think that a new contract low is in the cards, especially if the
stock market fails and ruptures sentiment again. Even US Fed members are
suggesting that the biggest barrier to North American
recovery is the volatility in the stock market. Say hello to excessive
stock market volatility and to new contract lows in the Canadian Dollar.
METALS
OVERNIGHT CHANGE to 4:15 AM: GLD
+0.40, SLV -0.3, PLAT
+2.60; London Gold Fix $318.80, -$1.90 LME Copper
Warehouse
stks
864,600 tns, +1,050 tns;
Comex
Gold stocks 1.892, Unchanged; COMEX Silver stocks 107.4 ml oz, Unchanged. OVERNIGHT:
Despite a lower London fix, gold saw short covering in Asian
action.
GOLD:
According to political sources, the President is going to see a large number of
votes against his request to use force against
and that vote may come late this week. With Congress failing to give the
President a strong united front against
Iraq,
that could in
effect turn up the political pressure not to act, and that could keep the
liquidation pressure on gold. In the overnight action, the $318.80 level appears
to have become a minor double bottom support point, but without the war
potential prompting buyers to buy gold, we have to think that the overly long
position leaves the market vulnerable.
SILVER: A
dismal technical trade in silver combined with a lack of leadership from gold
probably means more downside losses ahead. In fact, given the relatively
overbought condition in silver, deterioration in the macroeconomic outlook
could easily result in surprising losses in silver. While we thought that $4.40
represented deflated pricing, there is recent history of silver prices trading
in a $4.40 to $4.27 range (January and February of this year).
PLATINUM:
With platinum soaring to a new contract high overnight, it is clear that demand
and macroeconomic conditions are not the primary driving force behind platinum
prices. We have to assume that Russian supply flow remains so restricted that
what moderate demand there is is enough to push
prices higher. If slack demand can’t undermine the bull pattern, then the trend
remains up.
COPPER:
The recent bounce off the lows might be an opportunity to get short, especially
since the macroeconomic outlook is once again looking perilous. Even with the
Chinese reported to be light buyers of copper overnight, that hardly serves to
improve the outlook into the US action. Given the size of the short fund
position and the relative close proximity to contract lows, sellers at least
have to wait for a rally to 66.80 to get short.
CRUDE COMPLEX
OVERNIGHT
CHG to 4:15 AM: CRUDE -15, HEAT
-35, UNGA +35 — The energy complex maintained
what appeared to be a slightly corrective stance Tuesday, even with the nearest
delivery unleaded showing some strength off the residual tightness created by
recent US shipping delays. Supporting prices late in the
session, were suggestions from Kuwait that the shooting of a marine on
an exercise was an act of terrorism.
NATURAL GAS
The trade
reported heavy fund buying in natural gas and that could be because of the
potential for another tropical storm that is hovering
to the East of Florida. As long as tropical storm Kyle is a threat and the
regular complex isn’t into a massive liquidation,
natural gas will probably be able to avoid significant weakness.