Markets Poised For Positive Open

INTEREST RATES

OVERNIGHT CHANGE to 4:15 AM: BONDS -5 — Despite the announcement that HP would cut
more jobs and the posting of a weak German Ifo reading, global equity markets
are showing higher indications this morning and that has resulted in a light
liquidation or profit-taking in bonds. In other words, the bonds were a little
ahead of themselves and in need of a technical setback. The August existing
home sales report this morning is expected to post a positive reading, and that
could add to the slight downside tilt early today.

STOCK INDICES

OVERNIGHT CHANGE to 4:15 AM: S&P +690; NIKKEI -156; FTSE +76 — The market is
discounting some potentially extremely negative developments this morning in
favor of technical short covering, or as funny as it may sound, a favorable
interpretation of the news. For the second time in recent history we come into
the session with favorable chip news from Europe. We also see the market somewhat
upbeat on the fact that at least two members of the Fed were inclined to cut
interest rates in the meeting Tuesday. The trade could have taken the German Ifo
readings extremely negatively, but didn’t.

FOREIGN EXCHANGE

DOLLAR: The dollar is lucky to be avoiding a strong push lower, considering the
lack of movement by the Fed. However, the dollar is being supported by the fact
that at least two members of the Fed were in favor of acting. In other words,
the Fed didn’t cut, but at least appears to be poised to act if necessary.
Therefore, dollar bulls can hold out hope. Also helping support the dollar this
morning were weak Ifo figures from Germany. In the end, the dollar just doesn’t
have enough information to move out of the last three months’ consolidation pattern.
Top of the consolidation in the December dollar comes in at 109.00, but we
seriously doubt that the dollar will be able to climb to that level today, and
the numbers Thursday look to foster return selling in the dollar.

EURO: The Ifo readings this morning hinted at slowing in the recovery pace, but
also suggested that some stress was leaving the situation, which in the long
run, might favor the euro. A big up range failed to hold overnight, suggesting
that the Ifo was indeed the cause of the break. We just don’t see the
information in the US to cause the euro to slide below close-in support at
97.16 in the December euro. In the end, the Ifo suggests that the European
economy has seen some semblance of stabilization and that should really increase
the support under the euro.

YEN: Improved interest in Japanese JGBs overnight goes along with the higher
yen action. Evidently, the Japanese economy is patient with the US Fed because
the Japanese stock market wasn’t off any more than the US market was Tuesday. We
think the yen has a near-term bottom in place, but resistance is significant at
82.10.

SWISS: For the near term, the flight-to-quality anxiety is reduced and profit-taking might unfold in the Swiss. The Swiss could see a correction to
66.74
before US numbers on Thursday put buyers back into the Swiss currency.

POUND: A huge failed auction rally overnight points to a correction in the
pound
down to 154.10, but that correction looks to run its course quickly.

CANADIAN: As long as anxiety in the US economy remains muted, the Canadian
probably manages to bounce slightly. However, the economic case is not strong
enough to expect much of a bounce. In fact, the Canadian looks to have moderate
resistance at 63.06.

METALS

OVERNIGHT CHANGE to 4:15 AM: GLD -0.90, SLV
-1.5, PLAT -0.90; London Gold Fix
$323.30,
+$1.95; LME Copper Warehouse stks 880,350 tns, -2,450 tns;
Comex Gold stocks 1.905,
Unchanged; COMEX Silver stocks 108.0 ml oz, +136,000 oz. OVERNIGHT: Minor setback
as some longs once again were quick to take profits.

GOLD: We are actually a little surprised that the international trade has shown
the tendency to bank profits considering that the stock market is throwing off
dire signals for the future. A six-year low in the Nasdaq and a four-year low in
the Dow highlight the rising anxiety level. Furthermore, we would think that the
failure to see the US Fed act yesterday in the FOMC meeting should allow
concerns to worsen, at least in the near term.

SILVER: In the news overnight, Peru recorded a mild dip in silver output for
August and that should give the silver bulls a little confidence to hold in the
face of sloppy gold price action. According to the US Mint, the new Eagle coin is
showing strong demand and has many silver bugs projecting higher silver prices,
suggesting that solid retail demand for the coin is a trend. Supposedly, the
coin saw sales jump to 1.745 million coins, or twice the pattern of sales seen
over the last year.

PLATINUM: The platinum market is also showing signs of weakness in a big
reversal off the recent highs. We would expect October platinum to find support
on the channel line at 557.

COPPER: While the Japanese posted a smart 21% increase in August copper imports
Peru reported an increase in August copper production of 13%, which in the end is
a net negative to prices. The copper market could have been significantly
defeated by the Fed inaction, but the fact that two members voted for a rate cut
tempered the blow against the bull camp. We would suspect that copper will
remain under pressure, especially if the stock market shows further declines.

CRUDE COMPLEX

OVERNIGHT CHG to 4:15 AM: CRUDE -20, HEAT -65, UNGA -136 — Comments from Iraq
officials that UN inspectors will have “unfettered” access to any site, trimmed
gains in the energy complex Tuesday as war tensions seemed to at least
temporarily ease. However, traders have to keep in mind that dialogue from Iraq
can change at any moment, which would send the US back to the brink of war.

NATURAL GAS

While the market was hit hard by profit-taking, any damage done by Isadore
(expected to reach production areas off the Louisiana by Thursday) that further
stalls production could revive the rally. A .382% retracement of the
August/September rally is back at 3.750 basis Nov Nat Gas.