Slipping Slightly
INTEREST RATES
OVERNIGHT
CHANGE to
4:15 AM
BONDS -11 — The rate cut rumor mill whirled into play right after the weak
construction spending and ISM reports were posted Tuesday and that added to the
already weakened tone in bonds. The fact that the Bush Administration offered up
a spending program might also have given the bonds an added push, but the
selling reached a crescendo in the face of the massive equity market recovery.
While the numbers were basically disappointing, it’s hard for bonds to deny the
positive economic feeling generated by the stock market rally.
STOCK INDICES
OVERNIGHT
CHANGE to
S&P -200,
NIKKEI -112, FTSE +91 — While the S&P appears to have held most of the big rally
Tuesday, the Asian markets did not manage a positive reaction. In
the averages are higher, but are not posting as impressive a short-covering move as the
markets posted. The combination of slightly reduced war threats, rumors of a
rate cut and a proposed stimulus spending bill all combined to spark one of the
most impressive short-covering rallies in months.
FOREIGN EXCHANGE
DOLLAR: As would be expected,
the dollar continued to climb in the overnight action because the sudden
explosion in bullish “hopes†seen Tuesday. Not only did the trade assume that
the war threat was declining with the UN/Iraqi agreement, but there was also a
sense that a
rate cut might be in the offing. When the
stock market soared that simply added short-covering fuel to the fire in the
dollar. Since there are no
economic reports on the docket today, maybe the dollar bounce will continue.
However, around mid-session we will see two Fed speeches, and we are sure that
the market will be gleaning those comments for any sign of a change in interest
rate policy. Usually these types of speeches avoid telegraphing policy, but since
policy is so critical to direction in the dollar, they should not be discounted.
In summary, the lack of scheduled news might allow the dollar to rise enough to
fill a gap left up at 107.90. In the event that the Fed does send off signals of
a possible rate cut, then we would exit any fresh shorts implemented on the gap
filling move, as the December dollar might be able to rise to 109.00. However,
we like the idea of getting off a short position on this rally for the
unemployment report Friday.
EURO:
Euro zone September business climate improved slightly, but remained in a
contractionary mode, which adds to the temporary liquidation tilt. Euro zone
Industrial confidence was unchanged and consumer confidence was improved, but
also still holding in a weakened state. The net result from the euro zone
reports is that consumer demand is softening and that is exactly why the euro
didn’t rise more aggressively against the dollar in the last two weeks.
Unfortunately, the euro has a long way to fall before chart support is found at
97.16.
YEN: The
fact that the Nikkei didn’t mange to catch a lift from the
stock market gains Tuesday is a very critical reaction to remember. In fact,
with the West Coast Shipping strike in the
it’s possible that the economic outlook in
deteriorates and the December yen declines to support of 80.82. There is just a
lack of confidence in the ability to handle the loan situation and thus far the
deflation fighting effort is unimpressive.
SWISS:
A
gap down move overnight confirms to us that the Swiss gains since the September
low, were mostly the result of soaring macroeconomic concerns and the
escalation of the war threat. At least for another session, the anxiety level
looks to decline and the Swiss should slide to at least 66.74.
POUND:
Besides an overbought technical condition we don’t see the pound coming under
too much selling pressure in the coming session. In fact, on a correction to
155.08, the pound should be bought.
CANADIAN:
Because the Canadian didn’t exhale off the temporary economic euphoria in the
Tuesday, the currency is apparently not poised to stage a recovery move. We
still like being lightly long the December Canadian on a dip to 62.93.
METALS
GOLD: The
gold market might enter the session under pressure today as the residual of the
big stock market gain Tuesday creates a temporary feeling of euphoria. While
the economic numbers don’t permanently alter sentiment, we do think that the
apparent progress between
and the UN had some negative influence on the market. We also think that the
President’s planned spending bill gave the market hope that some stimulus would
be provided to the economy, which in turn could lower the economic threat.
SILVER:
While silver appears to have bounced off its overnight low, the path of least
resistance is down. A lack of leadership from gold could combine with the
slightly lower war threat to forge a liquidation wave. Silver is also
moderately overbought, but some of that condition was alleviated by the 22-cent
slide off the September high.
PLATINUM:
An outside range up in platinum overnight hints that platinum will respond to
the favorable equity market action Tuesday. We have to wonder if the equity
market will be able to extend gains and in turn if the platinum market can climb
above heavy overhead resistance seen around $568 basis the January.
COPPER:
As would be expected, the copper market saw short-covering interest which helped
form the low yesterday. The short covering by the funds was a response to the
equity market recovery. The fact that the funds were covering shorts, instead of
fresh buyers being interested in copper, should mitigate the upside adjustment.
CRUDE COMPLEX
OVERNIGHT
CHG to 4:15 AM: CRUDE +6, HEAT
+0, UNGA +29 — The energy complex decided to
maintain a positive stance by discounting the potentially bearish information
spinning out of the apparent progress between the UN and Iraq in the weapons
inspection debate. While the energy complex never really weakened under the
weight of the sagging macro economic condition, prices might have been given a
slight lift Tuesday by the sudden and massive recovery in the equity market.
NATURAL GAS
After a
massive trading range Tuesday, natural gas would seem to have trouble
extending gains with natural gas rising from $3.73 to $4.25 in only four sessions.
However, it would appear as if hurricane Lili is intensifying into a category 3
hurricane and therefore could keep the bullish focus in control.