Microsoft Is Not Helping The Futures

OVERNIGHT CHANGE to 4:15 AM: BONDS +1 — While positive stock market
action makes
economic recovery hopes more prevalent, there continues to be significant
trouble spots and a lingering fear of deflation and that should begin to provide
support to bonds. Furthermore, now that the bonds have seen a 7 point slide
from the October high to the recent low, we would have to assume that downside
volatility will decrease. However, many think that the Microsoft earnings report
this morning is going to fuel the stock market sharply higher today.

STOCK INDICES

OVERNIGHT CHANGE to 4:15 AM: S&P -170, NIKKEI +126,
FTSE -55 — The stock market will
battle fears of an overdone status and the residual of the slack economic
numbers seen Thursday. The bulls cite a favorable earnings surprise from
Microsoft as a reason to press prices higher today, while the bears dredge up
slack earnings readings from Ericsson as a sign that bullish sentiment is
running ahead of reality. We have to suggest that softer energy prices and a
more dovish diplomatic approach toward Iraq is a supportive development from
the overnight newswires.

FOREIGN EXCHANGE

DOLLAR: Like the stock market, we have to think that the
dollar is a little
ahead of itself. Since the economic numbers released Thursday rekindled fears
of an ongoing economic slowdown, some dollar longs might decide to take profits
today. In order for the dollar to continue straight up to the 110-00-resistance
level, the stock market will have to provide consistent support with headline-type gains. Therefore, if the stock market starts to
soften after a strong
opening, one might expect the dollar to slide to support of 108.54.

EURO: The EU President’s suggestions that EU budget rules are folly did seem to
spark the euro slide, and given a chance to retract the statements, the President
stood by his claims. Therefore, some the euro losses are off internal
developments and some of the recent losses in the euro are because money is
moving toward the US in hopes of seeing above average rates of return. With the
Microsoft earnings making Ericsson earnings seem even worse, we can see the euro
remaining near the downside breakout point of 96.72. In other words, if US
stocks soar, the euro falls back to the weeks lows but probably doesn’t forge a
new low. Aggressive traders might be a buyer of the December euro at 96.83, with
an objective of 97.28.

YEN: An extraordinary session of Parliament saw another anti-deflation speech
from the Japanese Prime Minister, but all that was offered as a plan was
government support of the banking sector. Therefore, the yen looks to continue
the downside breakout with an initial target now down in the 79.00 to 80.00
trading zone.

SWISS: We suspect that heavy selling of the Swiss will wane today and that a
near-term bottom might be forged around 66.13.

POUND: The UK posted some strong numbers, with net lending rising smartly in
September and an increase in money supply. Therefore, the trade detects no
slowdown in the UK economy. With the dollar possibly without as much direct
support from its equity market, that could clear the way for the pound to bounce
further away from the recent low. In fact, we think that the big probe down was
rejected and that the pound might try to rise back into the early October
consolidation range, which is bound by 154.30 to 155.00.

CANADIAN: While the Canadian might be overdone technically, it could maintain
the upside climb if the US stock market managed to open higher and continue
higher. However, it would not be surprising to see the December Canadian correct
with a dip to 63.39 and then build a base to work higher from in the action next
week.

METALS

OVERNIGHT CHANGE to 4:15 AM: GLD +1.10, SLV
+1.5, PLAT +2.80; London Gold Fix

$312.45, -$.35; LME Copper Warehouse stks 858,375 tns, -1,000 tns;
Comex Gold stocks
1.889, -3,215 oz; COMEX Silver stocks 107.4 ml oz, -39,093 oz; OVERNIGHT: More minor
losses as equities are directly impacting gold prices.

GOLD: As the US stock market and US corporate earnings spark equity market
rallies worldwide, it is clear that more flight-to-quality longs are exiting
gold. Unfortunately, there is not enough physical buying to compensate for the
long liquidation, and gold prices look to maintain a downward tilt. Even the
dollar is creating negative pressure for gold.

SILVER: If the gold market sees less pressure, then the silver market might be
free to respond a little more favorable to the equity market surge. However, we
are not sure that silver is ready to come out of the bottoming consolidation
pattern, especially with heavy overhead resistance around $4.40. With a key
European mobile phone company reporting reduced sales projections this morning,
it is clear that the strong stock market rally has yet to translate into
improved demand for products that use silver.

PLATINUM: We are actually surprised that the platinum stalled with the external
conditions so favorable. However, it should be noted that the economic
information released Thursday were all softer than expected. As long as January
platinum holds above $577.2, the bulls control.

COPPER: Another big day up in US stocks might allow the December copper to climb
above 70.00 and head toward the September high of 71.40. Shanghai copper stocks
declined 3401 tons in a pattern that continues to hint at moderately good demand
inside China. Certainly some of the gains Thursday were funds covering shorts
but we also have to think that some fresh buyers came into the market.

CRUDE COMPLEX

OVERNIGHT CHG to 4:15 AM: CRUDE -6, HEAT
-42, UNGA +32 — While the market didn’t
respond to the decline in DOE gasoline stocks, we have to think that is an
important development. Certainly the massive build in DOE crude stocks diffuses
some near-term bull sentiment, but with the US refinery rate at such a low
historical level, we can’t help but think that the old product issue is going to
build back in as the primary supporting issue for the energy complex.

NATURAL GAS

We are impressed with the natural gas market’s ability to forge a new high close
in the face of a 48 bcf injection in stocks. The gain in the natural gas is even
more impressive given the generalized weakness in the regular energy complex.