Under Pressure
INTEREST RATES
OVERNIGHT
CHANGE to
BONDS -25 — Thus
far, the bonds have not suffered massive liquidation off the Iraqi decision to
allow weapons inspections. We would expect to see some liquidation in bonds as
consumer and investor sentiment will be improved, if the decision is real and
backed up with action by the Iraqis. The bonds might choose to wait and see the
numbers this morning, which are a broad-based set of readings on the industrial
sector.
STOCK INDICES
OVERNIGHT
CHANGE to
S&P
+1570; NIKKEI +302; FTSE +80 — Some major volume spikes in the last several
sessions, combined with a major concession by
could fuel a big rally today. With open interest in the S&P rising above 675,411
contracts, it would seem that the market is primed to rally. We would suggest
that the macroeconomic condition has been so slack that the stock market will
have to prove that it can suddenly shake off the malaise and buy into the
“hope” of recovery.
FOREIGN EXCHANGE
Dollar: The Dollar rallied off
what many thought was a war premium from the September low and this morning it
would appear that the Dollar is rallying off the prospect of no war. In other
words, it is clear that the international community thinks that the
economy is the
odds–on
favorite to recover under a wide range of scenarios.
However, until the December dollar climbs back above 109.80, it remains in the
two-month-old
consolidation pattern. It will be interesting to see if the early
economic numbers have an impact on the dollar, as those numbers are just barely
expected to be up. With the dollar gapping higher, we have to expect a two-month
high and a chance that 110 could become support instead of resistance. To add
significantly to the overnight gains, the dollar does need to see a second kick off
a positive industrial production reading.
EURO: We
would expect the euro to fall right to the August low of 95.69 and possibly
lower if the US industrial production is +0.2% or higher. Adding to the
liquidation pressure in the euro is the 4.7% decline
in German car registrations. Also negatively impacting the euro this
morning is the anticipation of a downgrade in a
survey of institutions in
The euro should slide moderately, but will really gain downside momentum if the
numbers add to the pressure with a better than expected reading.
YEN: The
Japanese market responded aggressively to the Iraqi news, as that takes the heat
off the
economy and in turn helps the Japanese export market. The yen is also
seeing tax cut dialogue, but we assume that effort is reserved for clear-cut
double-dip recession fears from the
Unless the Japanese tax cuts are hurried into reality, we see the yen falling
toward the June low of 80.25.
SWISS:
With the Swiss already probing below the August low, it would seem that the
odds are good that it could fall all the way to the June lows of
64.00.
POUND:
The overnight failure on the charts would seem to
project a slide to the August lows of 150.74. The fact that the
saw a little hotter price reading from the RPIX might slightly reduce the rate
cut potential, and that in turn causes a minor liquidation of longs in the
currency. We see no reason to see the pound fall below the August lows unless
US stats really strengthen.
CANADIAN:
It would seem that the overnight news is good tonic for the Canadian, which has
been overly pressured since the August high. However, with the
response to
skeptical and the
economy still in a precarious position, the recovery capacity in the Canadian
might be limited to a couple sessions and perhaps held under the 63.85 level in
the December contract.
METALS
OVERNIGHT CHANGE to 4:15 AM:
GLD -2.30; SLV -2.0; PLAT -6.30; London Gold Fix $315.30, -$.25; LME Copper
Warehouse
stks
884,825 tns, -1,725 tns; Comex
Gold stocks 1.888, -18,778 oz; COMEX Silver stocks 108.5 ml oz, -31,349 oz;
OVERNIGHT: Downside action in gold after Iraq agrees to weapons inspection.
GOLD: The
gold might be expected to dip initially off the apparent acquiescence of
on the weapons inspection rift. While this development looks to prove that a
large portion of the long in gold was betting on war with
we doubt that the war issue is completely dead. The gold market will also have
to contend with a stronger dollar, which is apparently strong with or without
the war threat.
SILVER:
Trendline support in December silver comes in at $452.5, which was the
overnight low as of this writing. Therefore, it would seem that silver is
precariously balanced and is expected to be negatively impacted by the gold
market.
PLATINUM:
Shifting forward to the January contract, the platinum market should see fresh
support off the Iraqi weapons inspection agreement. If the world equity markets
manage to stay firm all day long that could project a platinum rise back to the
August high of $568.
COPPER:
The best thing that could happen to copper is too see a war averted and for
consumer and investing sentiment to consistently improve. The copper now sees
solid support around 69.00 and with a decent
industrial production reading this morning, we may forge a solid bottom above
68.00. Traders should also remember just how short the funds were (-14,592) in
the last COT report, as that could provide the fuel for a moderate swing higher.
CRUDE COMPLEX
OVERNIGHT
CHG to 4:15 AM: CRUDE -108; HEAT -221; UNGA -216 — The ebb and flow of OPEC
sentiment joins into the ebb and flow of war talk for a market that should come
under a liquidation press. Certainly, the bull case maintains a measure of
control, but with nearby crude prices recently bordering on $30.00, it is
important to understand that the war premium is not to be underestimated.
NATURAL GAS
A new
high for the move seems to suggest that natural gas managed to trade a little
more on its own fundamentals on Monday. Supposedly, the threat of shipping
disruptions in the Gulf off the weather last week added to the Iraqi war threat
reaction and left natural gas significantly overbought.