Futures Point To A Flat Open

INTEREST RATES

02/03 OVERNIGHT CHANGE to 04:03 AM:BONDS+16 Even
after some initial weakness Monday, the Treasuries managed to right the ship and
now appear to be poised to claw out even more minor gains. Even with the US
stock market throwing off some optimism on the economy Monday afternoon, the
Treasuries managed to reject the early lows posted Monday. Certainly the market
saw the economic reports released Monday as lackluster and therefore supportive
of the bull case.

STOCK INDICES

02/03 OVRNIGHT CHG to 04:03 AM:S&P-60, DOW-10,
NIKKEI -134, FTSE-10 The stock market certainly mounted an impressive rally on
minimal news Monday. In fact, the trade seemed to muster renewed long interest
even after the persistent weakness seen at the end of January and that should
help to discourage renewed selling pressure in the coming sessions. So far, the
reports of Ricin being found in a Senate Office building overnight have not
dramatically undermined the international equity markets.

DOW

The chart formation in the Dow is pretty negative and if the market hadn’t shown
such bullish conviction over the last several months, we would be more concerned
about an anxiety type washout. In short, the odds of a slide to 10,400 in the
March Dow contract seem to be high, but a near term decline should take the form
of a casual slide, instead of a concentrated aggressive washout.

S&P

The S&P chart seems to be in much better shape than the Dow chart. In fact, the
short term trend would still seem to be up in the S&P, instead of down as in the
Dow. However, we do have a nagging feeling that the stock market could be
seriously undermined later in the week off the January payroll. Therefore, risk
to longs is rising and for the near term and it would also seem as if the reward
for being long is shrinking. Those long from current levels, will have to earn
their profits the hard way. In fact, the only thing preventing us from
recommending a sale in the S&P at current levels is that the market has been
able to show persistent optimism and resiliency over the past several months.

FOREIGN EXCHANGE

US DOLLAR

The Dollar is mounting a big slide overnight and it
would seem that the slide is only partially caused by the potential terrorism
incidence at a Senate Office building. In our mind, the currency markets are
simply adjusting the Dollar down ahead of the G7 meeting, because key members of
the G7 are not fully prepared to ask for formal intervention against the Dollar.
In other words, the recent Dollar bounce might be for naught, unless several G7
members talk about formal intervention. We also have to think that the
lackluster condition of the US economy is partly the cause of the Dollar
weakness, especially if one looks back to the results of the December US payroll
report. In fact, if the US posts another weak payroll reading on Friday, that
will make it very clear that the interest rate differential isn’t about to shift
solidly in favor of the US Dollar. While we still think that growth in the US
dramatically exceeds the growth seen in the Euro zone, the market needs a
compelling case to alter the long term down trend pattern in the Dollar. In
short, it would make sense to call for a bottom in the Dollar if the US economy
was roaring. Near term downside targeting is seen at 86.44 and then again at
85.85.

EURO

Euro zone Producer Prices released overnight
declined 0.1% and that would seem to hold back the overnight desire to rally in
the Euro. However, since the ECB hasn’t come out in the Press with a hint of
stopping the Euro rise, the trade turns back on the bull track. A down trend
channel resistance line comes in at 126.56 today and a close above that level
might spark a return to the recent highs. Since the Euro really balanced its
technical position with the January break, one should not underestimate the
capacity to rally in the near term.

YEN

The Nikkei was down rather aggressively overnight,
creating some concern for the Japanese recovery. The Yen managed to trade to the
highest level since September of 2000 overnight and that certainly brought out
intervention talk. The trade is now talking up the idea that the Euro has
suffered more than its relative share of gains off the weakness in the Dollar
and that the BOJ must now let the Yen rise faster. Some even think that the BOJ
will avoid intervention right into the coming G7 meeting and that would seem to
give the Yen a chance of soaring in the coming sessions. In short, the G7 seems
to be leaving the Japanese alone in their battle against the sliding Dollar.

SWISS

The sharp rally overnight puts the Swiss right up
into technical resistance, derived off the January down trend channel. While the
trend might be up in the Swiss, the risk and reward of buying the overnight high
is unattractive.

BRITISH POUND

A strong hook up reversal should catch some shorts
and provide stop loss buying to the Pound. Considering the ultra strong trend
that was present prior to the January correction, we would have to think that
the Pound is primed to rally. Furthermore, with a favorable retail sales reading
from the CBI for January, the Pound would seem to have technical and fundamental
reasons to rally.

CANADIAN DOLLAR

The sharp decline in the US Dollar has simply
discouraged a further slide in the Canadian. In fact, we hardly even expect the
Canadian to bounce above near term resistance of 75.25 in the coming sessions.
In order to reignite the Canadian bull market, the March Dollar Index will have
to slide below 86.38.

^next^

METALS

OVERNIGHT

GLD+2.80, SLV+7.70, PLAT+6.70 London A.M.
Gold Fix $401.75 -$.10 LME COPPER STOCKS 354,575 -3,500 tons COMEX Gold stocks
3.32 ml +11,332 oz Comex Silver stocks 124.1 ml Unchanged

GOLD

With the Dollar falling below critical support and
apparently headed toward even lower levels, the gold market has a chance of
correcting a slightly oversold condition. Even after the French Bank Societe
Generale projected lower gold prices later in the year, off continued Dollar
strength, the gold market managed to mount a mild rise. The gold market also
discounted news that Chinese gold production rose 5.6% to 200.5 metric tons.

SILVER

Like gold, the silver market appears to be poised
for a minor short covering bounce. Also like gold, silver can be expected to
encounter significant resistance off the bottom of the January consolidation at
$616. Since the funds dropped longs so aggressively in the recent washout, we
are not sure they will come back into the long side, unless key a key technical
pivot is regained at $619.

PLATINUM

While the Chinese bird flu issue hasn’t been
specifically blamed for the recent correction in platinum, we have to think that
fear, was part of the recent liquidation tilt. Adding to the slightly defensive
tone this morning, are reports that Zimplats reported record platinum output for
the 4th quarter of 2003. However, the platinum producer didn’t make the record
off new production efforts, but did so off the processing of concentrate that
was already on hand.

COPPER

So far, the fear of an Asian economic contraction
off the bird flu issue hasn’t really injured the copper market. In fact, Chinese
copper prices finished higher overnight, leaving the tilt for the US market
positive. With the US stock market showing signs of strength Monday, the copper
market isn’t nearly as disappointed by the lackluster US economic reports.

CRUDE COMPLEX

As the EIA suggested has suggested several times
over the last two months, the US is vulnerable to minor supply problems and with
the series of refinery problems from late Friday afternoon to Sunday evening, it
was clear Monday that buyers can easily be pulled back into the fray. In other
words, even a series of very minor supply threats are now capable of sparking a
sharp recovery in energy prices. Certainly energy prices were a little oversold
and recent weather was certainly cold enough to boost demand, but the refinery
snag issue appeared to be the main driving force for the bull camp Monday.

NATURAL GAS

A series of lower-lows in natural gas, leave the
market undermined and without intense speculative long interest. Fortunately for
those still long natural gas, the regular energy complex is showing some
strength and that probably kept the natural gas from remaining around new lows
for the move Monday. We continue to think that a March natural gas trade below
$5.25 will represent a value buy, but traders might have to risk the position to
$5.10 to $5.00.