Futures Show Weakness At The Open

OVERNIGHT CHANGE to 4:15 AM: BONDS +4 — Overnight action in
bonds was quiet as the
market awaits key economic reports. The biggest thing the bonds have going today
is a slightly oversold technical position (that was partially corrected late
Thursday) and a chance to get a clean sweep of weak US economic reports. The
weak close in the equity market Thursday pulled the bonds out of the ashes, but
we have a gut feeling that a slight extension up off the numbers this morning
will quickly run out of fuel and a key top might be made.

STOCK INDICES

OVERNIGHT CHANGE to 5:15 AM: S&P +290, DOW +33, FTSE -21.5, Nikkei
+112 — While stocks
were overdue for a profit-taking break, it will be critical in gauging market
sentiment if stocks can shake off any poor economic readings today and maintain
an economic recovery mentality. In other words, without a steady diet of
earnings surprises to raise hopes about future growth prospects, can stocks
continue to discount the near-term economic weakness? If market psychology has
shifted to the bull camp, we would think stocks should dip early off weak
numbers, but also attract buyers on the break. Earnings surprises yesterday
failed to support prices, but if the market hears more good news this session,
stocks should find support if the bulls are in control.

FOREIGN EXCHANGE

DOLLAR: It will take quite a set of weak numbers to put the
dollar down
aggressively, but it might only take slightly weak numbers to keep the dollar on
a slow downward track. Unless overnight earnings reports or some other headline
event have the S&P projected to open more than 900 higher, we doubt the dollar
will shake off the pattern of selling seen for most of the week. Unfortunately,
the dollar remains dead center in the middle of a four-month consolidation pattern
and really has little reason to come out of the range. Only overt economic
strength or overt economic weakness puts the December dollar outside of a 108.75
to 107.60 range today. Bias is down.

EURO: The euro will only gain what the dollar manages to give up. The
euro zone
is battling weak economic numbers and a political row over the European Union’s
Stability and Growth Pact which sets a budgetary cap of 3% of a member country’s
GDP. Several countries are close to the limit, including Germany and France and
with the ECB not likely to cut rates soon, growth prospects look poor. Like the
dollar, there are few reasons to push the December euro out of its 99.50 to 95.70
trading range.

YEN: Soft CPI readings overnight in Japan would seem to foster the promise
Thursday of some further easing. We suspect that the US economic numbers today
will be weak enough to prompt some profit-taking selling in the yen off the
recent minor rally. However, stronger US numbers combined with a delay in the
banking reform proposal until next week could give the yen a little more upside
fuel today. Banking reform, even in a watered-down version, is expected to put a
further strain on Japan’s economy which could put additional pressure on the yen
near-term, although in the long-term, cleaning up bad debt will be a positive.

SWISS: There should not be enough anxiety off the US numbers to get the Swiss
much above the anticipated top of the consolidation at 67.16.

POUND: Better than expected third quarter GDP (+0.7& Q/Q, +1.7% from year ago) was not
enough to keep December pound trading above 1.55 in overnight action, but it does
show the economy remains comparatively strong and lessens the chance for a rate
cut. Given the good economic news, the pound should benefit from any further
weakness in the dollar.

CANADIAN: The Canadian might be the most vulnerable currency coming
into key numbers from the US. Being 100 points off the October low means that
the Canadian probably can’t tolerate a disappointing set of figures. This is a
classic location for a short March futures/long 4 March Canadian 66.00 calls for
26. If the market fails and corrects, traders could recoup call premium with the
futures, but hold onto the calls as Canadian economic prospects look bright
especially if the US equity market continues to recover.

METALS

OVERNIGHT CHANGE to 4:15 AM: GLD +1.40,
SLV +1.3, PLAT +2.80;
London Gold Fix
$312.30, +$.55 LME Copper Warehouse stks 865,100 tns, +11,675 tns;
Comex Gold
stocks 1.946, +103,441 oz; COMEX Silver stocks 108.0 ml oz, +600,795 oz; OVERNIGHT:
New terrorist warnings for the weekend served to support the overnight bounce.

GOLD: The gold market should have further downside before the current selling
wave runs its course as the market continues to liquidate weak handed longs. The
fundamental story really isn’t that supportive of the bull case, but the
terrorist warning for the weekend could support bounce today as world money
managers seek some protection. The dollar continues to provide almost no
direction.

SILVER: The bottoming process takes time. Mixed economic signals and terrorist
anxiety are factors to contend with today. December Silver could bounce to 442
today, but we still can not rule out a test of the October lows.

PLATINUM: It does not seem to be the right environment for platinum to break out
up. Watch for resistance at 582.90 to hold for now and for a correction to the
567 level before finding good support.

COPPER: The market held up well yesterday and also in overnight trade in spite
of the weak stock markets as the base-building process continues. While
technically overbought, the market appears poised to breakout to the upside.
Terrorist warnings serve to weaken the economic outlook, but support the other
metals.

CRUDE COMPLEX

OVERNIGHT CHG to 4:15 AM: CRUDE +4, HEAT
-2, UNGA +163 — The energy complex
continues to lack conviction, as the UN/US debate is undeterminable. In total,
supply fundamentals continue to favor the bear camp, as US inventories rose in
the latest week and OPEC production appears to be on the rise.

NATURAL GAS

The weekly inventory report showed a 33 bcf build, which evidently was larger
than the trade expected. We also think that natural gas prices were over
extended from a short-term technical perspective and in need of a correction.