More Weakness in Treasuries?

INTEREST RATES

OVERNIGHT CHANGE to 4:15 AM: BONDS +4 — The bonds took a much bigger hit than
would have been expected given the slate of economic information Wednesday.
However, because the market has had such a steep rate of climb in the month of
September, it’s understandable that the bonds broke when it became apparent that
equities were going to see widespread short covering. With the potential
addition of that short covering this morning, bonds might remain under pressure
until given reason to rally around 7:30 CST.

STOCK INDICES

OVERNIGHT CHANGE to 4:15 AM: S&P +340, NIKKEI +155,
FTSE +96 — Nokia increased their
2003 global handset growth forecast by a significant amount and that sparked a
huge recovery surge in telephone equipment shares in Europe overnight. However, rumor of a
bomb on a plane headed to France caused the early gains to
temporarily evaporate, which underscores the injured status of sentiment.
Eventually, the French airline discounted the rumor and the market returned to
moderately impressive gains.

FOREIGN EXCHANGE

DOLLAR: The dollar continues to coil, which would seem to be a much better
development than was expected for the dollar at the beginning of the week. Thus
far, the majority of the economic information has showed more slowing in the US,
but once again other economic areas have posted similar weakness, which in a
sense diverts selling away from the dollar. We suspect that the dollar will see
some pressure following the 7:30 numbers, but that the market lacks conviction
and has no clear-cut trend. Traders might go with a breakout of a 108.60 and
107.52 in the December dollar Index contract.

EURO: French business sentiment came in slightly above expectations but still
remains at a concerning level. Money supply in the euro zone also showed a very
minor increase making it clear that the euro zone economy isn’t showing much
growth, which would attract investment. Rumors that French officials found
explosives on a Moroccan plane headed to France were eventually discounted, but
the rumors caused early European equity market gains to evaporate and that could
negatively impact the euro. A trade below 97.20 in the December euro could open
up aggressive selling, but we expect the euro to find support off the early US
numbers, but not enough to take out consolidation resistance at 98.20. Eventually,
the trend in the euro will show itself, but in the near term, no such decision
appears evident.

YEN: A 2.3% increase in August Japanese auto production is a “life-ring” to the
Japanese economy, especially since the IMF forecasted 2002 Japanese GDP to be
-0.5%, with that economy not returning to positive growth status until 2003. The
yen would take out a downtrend resistance line if it were to manage a climb
above 82.12, but we have to think that the odds are high that the US numbers this
morning could rekindle concern for the Japanese export sector and that in turn
should put the brakes on any yen rise. Other traders suggest that the yen could
rise to 83.00 without kicking into a bull trend.

SWISS: With world equity markets showing the prospect of more gains, anxiety and
flight-to-quality status takes a backseat and that should weaken the Swiss.
However, a break in excess of 30 points today in the Swiss should be bought.

POUND: The UK posted a 0.2% decline in second quarter business investment and that
rekindles some concern for the growth pattern in the UK. However, the currency
is showing no weakness off the numbers and would seem to be poised to rally off
short-term technical considerations. After the US durables report this morning,
it could be easier to assume that the UK recovery is more impressive than the US
recovery. Seeing a trade above 155.96 could project an upside breakout and an
eventual move to 156.60. However, the threat of another UK transit workers
strike could undermine what appears to be a positive bias in the pound.

CANADIAN: Unless the US numbers are concerning, we would expect the Canadian to
respect recent support of 62.78. On the other hand, a Canadian trade above 63.52
could spark short covering buying. The Canadian needs to see excessive concern
over the US economy in order to return to the strength seen earlier in
the year. In summary, for the Canadian to rally, the US economy has to be not
too cold and not too hot. 

METALS

OVERNIGHT CHANGE to 4:15 AM: GLD -0.10, SLV
-2.0, PLAT +2.90, CP +10; London Gold Fix
$322.35, -$.95; LME Copper Warehouse stks 876,950 tns, -3,400 tns;
Comex Gold stocks
1.905, -96 oz; COMEX Silver stocks 107.4 ml oz, -573,199 oz; OVERNIGHT: Asian gold
prices rose despite more equity market short covering.

GOLD: The bulls have to like how gold managed to pull off the lows
Wednesday, especially since the rally took place in the face of a strong equity
market rally and a stronger dollar market. However, gold might have to face
another session of higher equity prices and that could weigh on prices unless
there is a cleared supportive indications of a weakening dollar. However,
neither silver, nor gold, posted enough upside action off the low yesterday to
scare fresh shorts out of position.

SILVER: It’s a little disappointing that the market and the press didn’t play up
the talk about increased silver coinage demand in the US because that could have
given silver fresh investment interest. The overnight price action is negative
and we have to think that the durable goods report could cause silver to slide
further. Near-term support in silver comes in at 4.55 and then again at 452.5.

PLATINUM: Even platinum is showing a bad technical trade overnight and that
means that the leader of the metals is into a liquidation press. Near-term
downside targets on the current swing down is 543.9 and then again at 540. The
durable goods report should negatively impact platinum today.

COPPER: The copper respite from the selling should end today with a return of
macroeconomic fears. However, unless the war threat resurfaces, the macroeconomic pressure might not be as severe. A key Russian copper company indicated
that they would raise their domestic copper sales projections, but said that
exports are coming in down from early forecasts and that could be considered a
very minor bull story.

CRUDE COMPLEX

OVERNIGHT CHG to 4:15 AM: CRUDE +20, HEAT
+25, UNGA +30, NG +51
— After the market got
a look at even more supportive DOE stats Wednesday morning, (when compared to
the API stats) the bears began to lose control over the market. The minor rally
attempt gained extra momentum around mid session, on statements from the Iraqi
ruler that should serve to escalate the war talk.

NATURAL GAS