Markets Weaker At The Open

OVERNIGHT CHANGE to 4:15 AM: BONDS +2 — A private analyst lowered his firm’s bond
allocation and increased their net equity allocation, and that would appear to
go directly against the trends in both fixed incomes and stocks. However, we
have to agree that bonds are beginning to encounter some disconcerting
longer-term developments. For instance, the growing global concern toward banks,
combined with exploding supply of public and private sector debt, means that
debt supply is already expanding rapidly.

STOCK INDICES

OVERNIGHT CHANGE to 4:15 AM: S&P -460; NIKKEI -188; FTSE -51 — One has to ask whether
the market is headed for a debacle, or just a significant downward thrust, as
the corporate earnings news is dismal, oil prices are soaring and Iraq has
seemingly pulled the US closer to an attack. While the COT report in the S&P
seems irrational at times, we are now seeing a reduction in the small spec long
which remains at vulnerable 65,387 contract long level. A private brokerage firm
downgrade of the German banking sector simply gets thrown into the pot of
bearish developments that should continue to hammer equity prices.

FOREIGN EXCHANGE

DOLLAR: If it were not for the very disconcerting forecasts for the German
banking sector, the negatives toward the US economy would have the dollar weaker
in the early action this morning. In any regard, the outlook for the dollar is
negative, with the LEI reading this morning probably confirming that the US is
no longer recovering and that a double-dip recession is in the cards. Maybe the
impending talk of war will diffuse the pressure in the dollar, but we have to
think that the path of least resistance is down in the dollar. Until the dollar
falls to the bottom of the channel around 106.85, we assume more downside is
ahead. Maybe assumptions that the US Fed is set to act will provide support to
the dollar, but once the meeting passes with no action, the dollar could get
pounded.

EURO: The euro should have solid support around 97.50, especially once the
market gets past the Fed rate cut decision. In the mean time, fears that the Fed
might act will restrain the euro gains and leave longs uncertain. The ECB
suggested that euro zone growth in the second half will be roughly that seen in
the first half, which at least is a minor positive. Therefore, traders don’t have
additional “return” to look forward to when holding the euro over the dollar. We would wait to buy the
euro on a 30-tick break into the Fed meeting
Tuesday, rather than pay up for it today.

YEN: With analysts pointing out weakness in German banks, the Japanese banks
manage to take the spotlight off themselves and that might help the currency
find support. Supposedly, the trade is disappointed with the progress in
Japanese banking reform, and therefore, money isn’t going to flow toward the yen
without significant cause. Massive overhead resistance in the yen at 82.00
should be a good place to get short the currency on rallies this week.

SWISS: Given the rising war anxiety level and the chance for a double-dip
recession in the US, the Swiss is looking more and more like a haven. Given the
aggressive correction in September, the Swiss should be technically positioned
for a run to new contract highs in the weeks ahead. Buy a correction in the
Swiss to 66.92.

POUND: The pound is poised to run to contract highs as housing prices
continue
to soar, highlighting the relative momentum in the UK economy. First initial
resistance in the December pound comes in at 155.80.

CANADIAN: We are not sure if the Canadian will be able to shake off the
potential negative impacts from the US dollar and the US economy this week. In
the last three months, significant anxiety in the US has undermined the Canadian,
and with the Canadian 55 ticks off the recent low, it could be vulnerable. 

METALS

OVERNIGHT CHANGE to 4:15 AM: GLD +1.50, SLV
+2.0, PLAT +7.50; London Gold Fix
$323.45, +$1.90; LME Copper Warehouse stks 885,350 tns, -2,400 tns;
Comex Gold
stocks 1.905, -919 oz; Comex Silver stocks 107.7 ml oz, -213,468 oz. OVERNIGHT: The
Asian trade reports some forward sales offsetting war bounce.

GOLD: Despite seeing the fund and small spec long position rise another 5,700
contracts to 73,000 contracts, the gold market is showing signs of an upside
breakout. Supposedly, Iraq has now rejected UN weapons inspection rules, and oil
prices have risen sharply. Therefore, the war premium in gold is increased and
the odds of an upside breakout increase.

SILVER: We assume that silver will simply follow the lead of gold overnight.
Silver added slightly to its combined small spec and fund long position to
bring the net position to 38,000 contracts. Top of the uptrend channel in silver comes in today at $4.71, and that channel will climb just under 1 cent
per day.

PLATINUM: The war talk might spark a moderately impressive rally in platinum
given the wide range of trade in the last two sessions last week and the upward
bias in place in the rest of the metals. As long as October platinum doesn’t
fall below 546, an upward bias will remain.

COPPER: Despite a moderately higher attempt to rally in the overnight action, we
would think that copper is about to face another selling bout. With world equity
markets down and fears of corporate earnings weighing on sentiment, it is
possible that copper slides toward the September low of 66.75. We would have to
think that without a US rate cut, copper will at least temporarily forge a
new contract low during the week ahead.

CRUDE COMPLEX

OVERNIGHT CHG to 4:15 AM: CRUDE +36, HEAT +116, UNGA +132 — The energy complex
lacked upside intensity late last week, but the apparent change of heart by the
Iraqis has everyone in the US Administration pushing for an attack. The UN even
suggested that inspectors could have been inside the country by the middle of
October and that could have created a military deadline for the Bush
Administration.

NATURAL GAS

The track of last week’s hurricane failed to keep natural gas from correcting
Friday, but given the potential weather this week and a firmer regular energy
complex, natural gas should maintain an upward bias. New contract highs
expected.