Futures Point To A Flat Opening
INTEREST
RATES
OVERNIGHT
CHANGE to
4:15 AM:
BONDS -11 The bonds are
showing weakness this morning because of hope that upcoming stimulus offerings
will spark recovery and partly because of the anticipated negative impact of
increased government spending. With the Dollar falling sharply and expected to
fall significantly in the month ahead, we can understand why foreign investors
are shying away from US bonds. With the increased threat of war and the sagging
Dollar, foreign investors have two reasons to avoid buying US Treasuries.
STOCK
INDICES
OVERNIGHT
CHANGE to
4:15 AM
S&P -360, NIKKEI +134,
FTSE -56 — The
stock market was trying to put a bullish spin on the current situation by
bidding up stock prices in the early action this morning. However, traders
eventually “woke up” and realized that the Dollar was falling
aggressively, war with
Iraq
seems
more likely and the track of the economy is still rather suspect. Certainly
eliminating taxation on dividends would be a bullish implication for the stock
market, but in order for that to significantly benefit the market, the outlook
for the economy has to be good enough to attract long term buying.
FOREIGN
EXCHANGE
DOLLAR:
While the
US
stock
market is confused this morning, the US Dollar is not confused about its
direction. With talking heads projecting a Euro up at 108, the Dollar would seem
to have quite a distance to fall. Even with the
US
possibly reducing taxation on dividends, the Dollar is unable to find support
and that is a very telling bearish indication. With a moderately full slate of
US
economic information due out this week, we have to think that the downside in
the Dollar will easily be propagated. Near term targeting in the March Dollar
Index comes in at 100.00. Short-term technical indicators remain in a sell mode,
despite what many suggest is an extensive oversold status.
EURO:
As mentioned before, some European Press reports are suggesting that the Euro
could rise to 108.00 specifically off US Dollar weakness. Despite some minor
decline in Euro zone PMI readings, the trade is convinced that the Euro zone is
going to outperform the
US
economy. We do have to note that the trade is almost completely sold on the idea
that the
US
economy
will under perform the Euro zone and there will be quite a slate of economic
news out this week to test that hypothesis. The Euro zone PMI report posted a
decline from 51.1 from 50.5.
YEN:
Favorable December auto sales readings from
Japan
surprised the trade and could project the Yen high enough to trigger
intervention later in the week. In the mean time, we would expect the Yen to
rise to the highest levels since late August. Until the Yen rises above 84.78 we
don’t see a significant intervention threat.
SWISS:
About the biggest problem the Swiss has, is competition among alternative flight
to quality instruments. In other words, the Swiss is splitting its potential
long interest among gold, the Euro and even the energy markets. Near term
targeting in the March Swiss comes in at 72.54 and then again at 72.70.
POUND:
With a weak
UK
services PMI the Pound would seem to be held back from the overall run that is
taking place against the Dollar. In any regard, the Pound looks to rise with the
overall tide and isn’t being hindered by the defiant attitude from the Iraqi
leader. Initial support in the Pound comes in at 160.22.
CANADIAN:
The Canadian apparently shook the negative correlation with the US Dollar last
week, but a return to more normal volume levels might be an initial test for the
Canadian. We suspect that the Canadian economy will in the end, be left with
relatively stronger payroll conditions and that might be the main driving issue
for the Canadian Dollar. Therefore we suspect that more gains will be forged but
that risk and reward of being long the Canadian just barely supports fresh buys
in the currency.
METALS
OVERNIGHT
CHANGE to
4:15 AM
GLD +3.50, SLV +2.2,
PLAT +7.00; London
Gold Fix $356.00, +$12.00; LME Copper Warehouse stks 855,850 ton, + 425 tons;
Comex
Gold stocks 2.03 ml, -19,965 oz; COMEX Silver stks 107.9 ml oz, +596,823 oz;
OVERNIGHT: Profit-taking in
Asia
reversed
with impressive European price gain
GOLD:
A new high for the move overnight seems to be sparked by the big decline in the
Dollar and by the
US
military
“call-up”. Some traders suggested that the proposed stimulus package
from the Administration is also providing an inflationary lift to gold prices.
About the only think that doesn’t fit in the overnight gold rise, was the
“initial” slightly higher overnight S&P price action and weaker
energy price indications.
SILVER:
A return to the June and July 2002 consolidation high pattern of $4.90 to $5.23
is anticipated, with near term support coming in at $4.88. We have to think that
silver will begin to see a little more spillover buying from the action in gold,
as silver continues to be slightly less overbought technically than gold. Silver
prices action seems to be mostly about flight to quality buying and not off a
hope for improved physical demand for the metal, which is a good thing for the
bull camp in silver.
PLATINUM:
In the same ebb and flow as gold, platinum prices appears to be headed to the
April 2001 consolidation high of $639. Evidently concern toward the
US
recovery
is not going to hold back platinum in the current wave higher.
COPPER:
Strong short covering in copper looks to continue, especially with the stock
market higher and the headlines full of hype over the potential
US
stimulus
package. Chinese copper prices rose sharply making the highest trade since early
December overnight and that should lend some support to US copper prices. If
Chinese buying is going to continue to surface, that should result in a copper
price return to the late November and early December consolidation bound by
74.00 to 76.20.
CRUDE
COMPLEX
OVERNIGHT
CHG to 4:15 AM:
CRUDE -38, HEAT -74,
UNGA -121 — Initially, the trade is weaker today because a number of
Middle East oil producers are suggesting they will make a good effort to offset
the continued shortage created by the Venezuelan strike. The question is, Can
OPEC make up for the supply gap caused by the nearly two month-long strike in
Venezuela
? We look for OPEC members to
exceed the production ceiling of 23 million barrels per day by a significant
amount, as they view the shortage as real and look to take advantage of high
prices, brought about by the sudden drop in Venezuelan production.
NATURAL
GAS
Friday’s
EIA Gas storage report was viewed as neutral at a 123 bcf draw, versus
expectations focusing around a draw of 120-125 bcf. The big chill is expected to
start at the end of the week, bringing the coldest temps seen in two years.