Futures Indicate Stronger Open
METALS
GOLD:
From the action this week two things are clear, one that a weak Dollar is a
critical necessity for the gold bulls and secondly that gold really isn’t seeing
any support off the idea that more rate cuts are on the way. We had hoped that
gold would get a slight lift off the prospect that a whole new round of rate
cuts might be necessary to pull the world economy away from deflationary
conditions. In the end, we get the sense that the bull case in gold is missing a
component or two and that without a Dollar dive below 92.71, it might be
difficult to get back above $370.
SILVER:
Silver will continue to be a slave to gold but with the technical action early
this week, we are a little more confident that the market found a bottom.
Certainly a failed economic recovery would send silver prices back down to the
deflated range of $4.40 to $4.35 but we don’t see that happening off the current
track of numbers. Short-term traders might consider buying the September silver
at 4.495 and using a stop at 4.44, while longer-term position traders might buy
at 4.50 and risk the position to 4.35.
PLATINUM:
The choppy nature of the platinum market leaves us unwilling to call a trend.
However, it would seem that the longs are under a little more risk than the
shorts and that lost momentum usually seems to favor the shorts, especially when
a market is at historically high price levels.Â
COPPER:
Chinese futures were slightly higher overnight but didn’t really show much
intensity. September US copper has managed a slight consolidation pattern, which
would seem to diffuse the recent downward track. However, given the slack macro
economic readings this week and the ongoing talk about deflation, there would
seem to be to much risk and too little reward to get long.
CRUDE
COMPLEX
OVERNIGHT
CHG to  4:15 AM Â
:CRUDE -19Â ,HEAT-40Â
,UNGA-52 Â The energy complex saw a partially bullish set of weekly
inventory report readings with crude stocks declining moderately and the
refinery operating rate declining. The fact that the refinery-operating rate
declined, in effect raises the prospect of summer gasoline shortages.
NATURAL
GAS
The
natural gas market was softer yesterday partly because of the ongoing cool and
wet weather that is sitting on a large portion of the Midwest and partly because
the trade was fearful of the weekly inventory report this morning. The
expectations call for a 100 bcf injection but if the injection comes in above
103 bcf that would be the biggest build in the last 5 years.
INTEREST
RATES
OVERNIGHT
CHANGE to
4:15 AM
:BONDS -3 While the bond
market might have failed to hold all the gains yesterday, there would not seem
to be the macro economic conditions to puncture the bull balloon. In fact, we
suspect that business inventories and initial claims will be supportive or
inconsequential. Open interest in bonds is pretty high at 638,549 contracts but
given the last COT report, we are not sure that the gains this week, have pushed
the spec position to a level that would begin to limit the upside, or put the
market under a liquidation tilt, if key chart levels were violated.
STOCK
INDICES
OVERNIGHT
CHANGE to
4:15 AM
:S&P+450
DOW +45Â NIKKEI +28 FTSE +33Â Given
the overnight action, it would seem that the market is starting out on a very
positive note (to some that might be disconcerting). The fact that stock traders
are taking the Fed Beige book readings as a positive, highlights the forgiving
nature of the market and in a word, highlights the bullish bias of sentiment.
With expectations calling for a slight decline in retail sales there is
certainly the chance that the trade could get a better than expected reading but
in order to ignite the market into a strong run the retail sales expansion has
to be something to write home above.
FOREIGN
EXCHANGE
DOLLAR:
The Dollar is still basically without direction. Even with extensive comments
from the ECB President overnight, the Dollar didn’t show much in the way of a
reaction. The fact that
US
numbers
have been soft all week should have fostered the weakness seen in the Dollar
yesterday but once the Dollar gets a little lower in the consolidation pattern
we would expect selling to abate and for intervention bulls to begin buying a
few Dollars. The macro economic information today will probably be insignificant
but if there is a surprise, it could come from the retail sales report. Close in
support in the September Dollar comes in at 93.10 but a move below 93.00 could
attract significant attention. There were some rumors on the street this
morning, that the Treasury Secretary and the President might be in disagreement
on the Dollar but it is not clear if Snow is prepared to challenge the President
and try to support the Dollar! We see no reason for the consolidation to end in
the Dollar.
EURO:
The President of the ECB suggested that it is too soon to even consider
additional interest rate action and that might be a slight undermine to the
Euro. The ECB President also suggested that the ECB should not allow deficit
rules to be bent and that could be another minor negative for the Euro. For the
Euro to rise above 118.13, the
US
economy
will have to stumble and see a threat of a deflationary spiral.
YEN:
The yen seems to be poised to rise on the charts but the macro economic numbers
remained soft. In fact, Industrial output saw a decline of 1.5% and the
operating ratio also declined. In our mind, if the
US
is even
slightly concerned about deflation that should mean that the BOJ is very
concerned about a restart of the deflationary spiral. Therefore, the path of
least resistance is up in the Yen but the fundamentals don’t support a long
position.
SWISS:
We still don’t see anxiety returning to the trade and therefore the Swiss will
be a complete hostage to the direction in the Euro. Expect the Swiss to trade in
a range of 76.03 to 77.15.
POUND:
A massive thrust higher in the Pound seems to be a product of the Dollar/Euro
battle. In fact, with the economic differentials right now, it would seem that
the Pound is the best candidate to benefit from Dollar weakness. We have to
think that some players are concerned about the ECB slowing the rate of climb in
the Euro and that is contributing to the interest in the Pound. Resistance in
the Pound can’t be found until 170 and that comes off the monthly chart.
CANADIAN:
Trend line support today is 73.08 but we get the sense that the Canadian is
preparing for another up side probe. In order to clearly throw off the recent
corrective tone, the September contract needs to close above 74.26 this week.