Markets Poised For a Weaker Open
INTEREST RATES
OVERNIGHT
CHANGE to 4:15 AM:
BONDS +5 — The most difficult part about calling the direction of the bond market
today is that it would appear to be too easy. With all roads pointing toward
increasingly dire economic conditions, the stock market slide picking up momentum,
and energy prices into new high ground, it would be an extremely impressive
trick for the
economy to avoid a double-dip recession. The Fed meeting today looks to be
irrelevant, with an informal survey of primary dealers yielding not one
prediction of lower rates from the Fed today.
STOCK INDICES
OVERNIGHT
CHANGE to 4:15 AM: S&P -710; NIKKEI -159; FTSE -95 — We can still remember vividly
Tom Daschle standing on the steps of the Capitol last year pontificating that
“we don’t need stimulus." In fact, we are about to see yet another mistake from
the Fed today. While lowering interest rates probably wouldn’t have any effect
and providing extra stimulus last year might not have done the trick, the one
thing that those in power have underestimated is the magnitude of the shock on
an economy that was already extensively overvalued.
FOREIGN EXCHANGE
DOLLAR:
The Dollar would seem to be holding up high in the recent range as if there is
an outside chance that the Fed will cut rates today. Besides the hope for Fed
action, about the only other reason money would be staying in the Dollar is
flight-to-quality status off the impending war. We just have to think that the
dollar is set to decline sharply as the Fed stands pat and the
economy slides toward double-dip recession. Even if there isn’t a big
disappointment off the inactivity at the Fed, the dollar could still slide to
106.85 and not really be forging a major downside breakout on the charts. We
also can’t see the conference board numbers this morning providing the dollar
with much of a lift.
EURO:
With the ECB President suggesting this morning that their economy is not headed
to a double-dip recession, we would have expected the euro to show a little more
strength. Things have gotten so bad that the best place to have your money is
where you can earn no profit but maintain principle. In other words, the euro
should end up winning by default later today. However, we don’t see the euro
managing to climb above near-term consolidation resistance up around 98.61. The
fact that German inflation numbers were muted at the same time that some French
numbers showed expansion should give the euro an early leg up on the dollar
today.
YEN: The
fate of the yen stands with the US Fed, and that standing should not end up
benefiting the yen or the Japanese stock market. Standing against a downside
breakout in the yen today are figures from the Japanese Ministry of Economy,
Trade and Industry, which showed an actual increase in business activity. The
July numbers, which might be a bit old, showed an increase of +0.2% for a +0.9%
increase on this year. Therefore, the yen has some reason to respect the recent
lows but support will not hold if the
outlook blackens considerably.
SWISS:
Given the proximity of the Swiss to the top of the channel and the potential for
widespread anxiety, we think this is a perfect setup for selling a Swiss futures
and buying three December 69.50 calls for 64 each. If the Swiss were to fall to
the bottom of the downtrend channel, that could mean a break of 120 points,
whereas a breakout up, might spark long-term short covering.
POUND:
The pound would not seem to be grasping the leadership role as many would have
expected, but at the same time the dollar isn’t as weak as many would have
expected. The pound would also appear to be operating under a cloud of
association with US military objectives and that could be holding the currency
back. The pound will need to climb above near-term chart resistance at 155.42 to
turn around the negative chart look and inspire new buying.
CANADIAN:
When the
sneezes,
catches cold, and the numbers from
Monday suggest that more declines are to be expected in the Canadian in the near
term. We forecast at least a decline to the 62.50 level in the coming three
sessions.
METALS
OVERNIGHT
CHANGE to 4:15 AM: GLD +0.20, SLV -1.3,
PLAT +6.50; London Gold Fix $323.30,
-$.15; LME Copper Warehouse stks 882,800 tons, -2,550 tons;
Comex Gold stocks 1.905,
Unchanged; COMEX Silver stocks 107.7 ml oz, Unchanged; OVERNIGHT: Asian buying
pushed prices higher but physical sales limited gains.
GOLD: The
overnight net price action from
in many ways failed to highlight the growing anxiety toward the banking sector
and the economy in general. Supposedly some profit-taking by holders of physical
gold result in the net gain being somewhat unimpressive. However, from the looks
of the opening indications in the
equity markets, anxiety is going to continue to rise.
SILVER:
The macroeconomic talk could in many ways hinder silver as the high-tech and
communication sectors continue to slide and the outlook for the economy is
dismal. However, as long as gold can provide positive leadership, silver will
probably avoid a correction below near-term support of 4.564, basis the December
contract. Top of the channel in silver comes in at 4.719 today.
PLATINUM:
Evidently, the war premium is now overshadowing concern over deflation and
slackening demand in platinum. In fact, it would appear that platinum is getting
more flight-to-quality buying than either gold or silver. As we mentioned last
week, platinum certainly has the best physical supply and demand condition of
all of the metals. Restricted supply in a commodity just makes it easier for a
minor expansion of buying to impact the price structure.
COPPER:
It is only a matter of time before new contract lows are posted in copper. We
think the copper market will be punished in the days ahead; specifically after
the Fed does nothing with rates today and the stock market slides back to the
July lows. While the ECB doesn’t think that the economy is headed into a double-dip recession, a growing number of analysts do think the
is headed back into recession.
CRUDE COMPLEX
OVERNIGHT
CHG to 4:15 AM: CRUDE +44, HEAT +103, UNGA +33 — As if the Iraqi situation
wasn’t enough, the energy complex is now going to be dealing with the track of
Hurricane Isidore, which could make landfall in Texas or Louisiana. We have to
think that the US Administration would rather attack
than wait for weapons inspections and that means pressing forward with war
plans.
NATURAL GAS
Make no
mistake about it, the natural gas market got two pretty big lifts in the action
Monday. To a degree, the rally Monday came partly off the war threat, but mostly
off the hurricane threat.