Market Looks To Open Lower
INTEREST RATES
OVERNIGHT CHANGE to
4:15 AM
out the surprise move from the Fed. Surprisingly, the trade seems to be a
little concerned that the Fed voted unanimously to cut rates by such a large
amount. Even with the Fed suggesting that the cut was made to carry the
economy through a soft spot and that war fears were making recovery more
difficult, there is a sense of concern instead of a sense of euphoria.
STOCK INDICES
OVERNIGHT CHANGE to
4:15 AM
NIKKEI -32, FTSE
+17Â — We would have to quantify the reaction to the Fed cut as disappointing,
considering that the Fed went bigger than most economists predicted. However,
a month-long rally into the Fed action probably left the market a little
ahead of itself. Given historical patterns, we would not be surprised to see a
single day let-down, as shorter-term players bank some profits.
FOREIGN
EXCHANGE
DOLLAR: The
dollar is just
not getting any respect. Maybe the magnitude of the rate cut suggests that the
US Fed is really concerned about the ability of the
economy to recover. Maybe the currency markets are simply looking to the
interest rate differential and deciding to avoid the dollar. The dollar should
get some supportive information from the numbers today, especially since the
Germans have already posted some weak numbers. However, with the dollar
holding around a downside breakout on the charts, it would seem that favor
isn’t readily going to shift back into the dollar. If the
equity market were to resume the recent upward march that could certainly give
the dollar a lift but right now that doesn’t appear to be the case. Short-term technicals in the
dollar are about to give a buy signal, but we are not sure
the fundamental case supports that opinion. Maybe the dollar needs to extract
more of that extra premium interjected from 1998 to the 2001 high and isn’t
necessarily tracking directly off the daily economic news. A failure to
recover today could mean that the dollar is headed toward 104.12. To reverse
sentiment, a close above 106.10 is needed today.
EURO: Euro zone second quarter GDP growth came in at +0.4%, unchanged from the prior
reading which was a soft number. The German unemployment rate also up ticked
and now stands close to 10% and one would think that would prompt the ECB to
cut rates. However, unless the ECB cuts rates, it appears it will maintain an
upward track. We are surprised that seeing the
cut and the ECB holding steady isn’t a big negative to the euro!
YEN:
Instead of traders taking the big US cut as a positive to the Japanese
economy, there is some concern about what happens to
if the
recovery fails. If the dollar remains soft and the
equity market remains soft, that probably gives the yen a slight lift. The yen
has a bigger chance of consolidating sideways than it does moving up or down.
SWISS:
The Swiss trade is confused. In fact, the euro trade is also confused as the
market is evidently shifting to an interest rate differential instead of a
raw growth focus. We suspect that the Swiss is overbought and is lacking the
fundamentals to move higher without a correction.
POUND:
The BOE left rates unchanged and that has initially resulted in a firmer
pound. Therefore, the trade is tracking off the interest rate differential.
One might also say that the
economy is seen as better than the
especially after the Fed sent a message of concern to the market. We suspect
that the pound will attempt to rise but will find it difficult to forge new
highs for the move.
CANADIAN: The Canadian got the better of two worlds, a more favorable interest
rate differential with the
better prospects of growth in the
and no clear cut leadership in other currency markets. Therefore, long term
short covering is possible with a move toward the summer consolidation high
range of 64.50 -66.20.
METALS
GOLD:
One has to like the prospects in gold, if those liquidating gold off the
flight-to-quality theme are replaced by inflation longs. The surprise and
aggressive rate cut by the Fed, combined with muted responses from the stock
market and the US dollar, should leave gold upwardly biased. In other words, it
would seem that gold weaved its way through the Fed meeting (and the stock
market response to the meeting) to come away with conditions that are
conducive to more gold gains.
SILVER:
December silver is showing signs of a return to the recent highs, but thus far
gold leadership is pretty limited. We still think that the strongest
fundamental path for silver is to see the economy bounce back and for demand
to pull silver prices up. However, in the near term longs might have to
settle with an ongoing flight-to-quality focus and a tight correlation with
gold.
PLATINUM: Surprisingly, the platinum isn’t being given a direct lift off the
events of the last 24 hours and that hints at weakness on the part of the bull
camp. We do suspect that the rate cut will help January platinum respect the
bottom of the nearly two-month-old consolidation, which provides support down
around $571. Â
COPPER:
The copper market basically has a four-day consolidation pattern building, with
short-term technical indicators in a slight sell mode. One would have to think
that the rate cut bolsters the bull view, but at the same time, copper prices
have risen 700 points off the October low and some of that was off the
anticipation of a rate cut. After an early rally in
copper prices softened but stories about strong demand in
should keep the market poised to rally if the
stock market manages to rise.
CRUDE COMPLEX
OVERNIGHT CHG to
4:15 AM
+66, UNGA +137 –Â The energy complex continued to decline,
partly because the UN resolution appears to be in the offing. The White House
added to the selling incentive by suggesting that the new UN resolution
contained what the
was looking for and that in a way would seem to lower the threat of military
action.
NATURAL GAS
Expectations for the weekly inventory report call for a 10 to 30 bcf draw,
which alters the injection pattern and should at least give the bears a second
thought. With the funds reported as big sellers in the action Wednesday, it
would seem that the market deflated at least most of the net spec long of
37,000 contracts registered in the last COT report.