Futures Point To A Flat Open
10/6/2004
INTEREST RATES
The Treasury market would like to have bounced
sharply yesterday, as US economic information seemed to justify a recovery move.
However, the Fed stands in the way of the bull camp as they continue to cheer
lead the recovery theme. We also think that while soaring energy prices tend to
support Treasury prices, we are beginning to see a slight inflation tilt from
the gold and silver price action and that is probably chasing away some
potential buyers of bonds and notes.
STOCK INDICES
The stock market continues to perform
impressively and with the Nikkei managing to post a 5th straight daily gain
overnight, it would seem like prices come into the session today with a positive
tilt. Surprisingly the ever present threat of rising energy prices is not
derailing investor sentiment toward stocks and even more surprisingly, continued
softness in US numbers hasn’t undermined the bullish bias. Even with the Fed
suggesting that they have a long way to go in their desire to raise interest
rates, the market wasn’t unduly impacted.
DOW
The Dow has already violated a couple key support levels on the charts and that
suggests to us that a minor profit taking has begun. Considering the charts and
the relatively empty economic report slate for the coming two sessions, we see
the scope for a shallow 2-3 day correction. In fact, we see 10,047 as near term
support and a possible target in the December Dow for the coming two days.
S&P
With the Dow already showing signs of a correction and oil prices showing signs
of moving to an even higher level, we suspect that the S&P might decline back to
the 1130 level. If the December S&P would have remained at the top of the recent
trading range, into the payroll report on Friday that could have set the stage
for a significant washout. On the other hand, if prices manage to slide over the
coming two sessions that could set up a buy the fact type play off the coming
payroll report. In other words, a moderate break in stock prices today could in
a sense make it easier for the market to put a favorable spin on the report
Friday morning.
FOREIGN EXCHANGE
US DOLLAR
Despite the ongoing concern that US Gulf of Mexico
oil production remains partially shuttered and that the US economy could
logically be at more risk of rising energy prices than other countries, the
Dollar seems to be getting a slightly lift. In other words, the market seems to
once again be giving the Dollar a lift off the prospect of even higher energy
prices. The Dollar is being helped out by soft numbers from the Euro zone and
predictions in the mainstream media that the Euro is overvalued. The US economic
report slate is empty today and that would seem to leave the Dollar adrift. In
the near term, the December Dollar would seem to have chart resistance at 88.72
and chart support at 88.28.
EURO
With German manufacturing readings softening and
coming in significantly below the expected level and the market already aware of
the recent rise in German unemployment, it would seem that the Euro is being
downgraded by a number of sources. In short, it would seem like the market is
making the assumption that the Euro zone economy isn’t strong enough to totally
buck the headwinds being thrown off by soaring energy prices. Therefore, the
Euro would seem to be headed down to chart support of 122.43 but it would not be
surprising to see the Euro fall all the way down to the 120 level in the event
that the US payroll report is at or above expectations.
YEN
The Press is beginning to voice its concern of
deflation in Japan and the general view is that zero interest rate levels will
be in place for a long time in Japan. With international rates rising it is
possible that Japanese investors move to put more money abroad and that could
serve to deflate the Yen below critical consolidation support of 90.00. In
short, the bias is down in the Yen, look to sell rallies.
SWISS
Despite the extension of the energy rally, the Swiss
is simply not getting flight to quality support. In fact, the Swiss is
apparently being lumped into the same equation as the Euro and that isn’t a
bullish equation. In the near term, expect the Swiss to trickle down to chart
support of 79.06 and to fall below that level in the event that the US numbers
on Friday are at expectations.
BRITISH POUND
UK Industrial production numbers saw the biggest
decline in almost 2 years and that puts the Pound into a downward posture. Like
the Euro the market is apparently seeing the progression of energy prices, as a
major negative to the UK economy. Near term downside targeting in the Pound is
seen at consolidation support of 176.76 but we can’t rule out a slide down to
176.00.
CANADIAN DOLLAR
The up trend pattern in the Canadian continues to
look more and more impressive, as the patterns in most other currencies are
looking even worse. In other words, with the exception of recent US Dollar
strength, there is very little competition for the Canadian. Near term upside
targeting comes in at 79.50.
METALS
OVERNIGHT
London Gold Fix $417.95 +$3.70 LME COPPER
STOCKS 95,350 metric tons -2,275 tons COMEX Gold stocks 5.12 ml Unchanged COMEX
Silver stocks 107.3 ml -21 oz
GOLD
After being in a profit taking posture yesterday,
the gold market reversed course and managed to forge a new high for the move
overnight. In fact, the gold market forged the gains even in the face of
moderate follow through strength in the Dollar. In other words, the gold is once
again showing that it is multifaceted.
SILVER
Like gold, silver has managed another new high for
the move and has managed to hold above the prior days close. From the aggressive
buying binge on Tuesday, it would seem like the funds were moving into silver,
especially as it managed to climb above the August high. While this market is
becoming overbought technically it is in no way bought out.
PLATINUM
For a change, the platinum market would seem to be
lagging behind the performance being seen in gold and silver and that could be
because of the rather lofty historical price of platinum and it could just be
that the missing Asian element is temporarily absent and that platinum prices
will play catch up soon. The platinum market also has the support of strike
concerns and given the existing tightness in platinum that is no minor
consideration. Near term upside targeting in platinum is seen at $876.
COPPER
Even though the macro economic outlook is concerning
(due to soaring energy prices and slack economic readings) copper prices remain
in a positive posture. With copper stocks posting moderately large daily stock
declines and sentiment toward most metals very strong, we have to think that the
end of the Chinese holidays will bring about a round of new highs in the copper
market. While the gains yesterday were thought to be short covering plays, we
have to think that the early action today is indicative of a market that is
preparing to move to a new higher trading range.
CRUDE COMPLEX
The energy complex just wouldn’t give up the
bullish tilt on Tuesday and it would seem like the market was moving to factor
in another weekly US inventory tightening. In fact, considering the information
flow on Tuesday, it would be difficult to explain the sharp rally without the
proximity of the weekly inventory reports. While we suspect that product stocks
will continue to tighten we wouldn’t be surprised to see US crude stocks show a
little rebound from the ships forced to loiter around the storm.
NATURAL GAS
As long as the BTU comparison prices of crude oil is
a moving target on the upside, we suspect that natural gas will remain
entrenched in an upward thrust. Apparently natural gas, crude oil and gasoline
all fueled higher Tuesday on talk that US Gulf supply flow is recovering too
slowly off the hurricane damage. It is also clear that the annual surplus is
expected to narrow further and until the market sees the opposite, the bull camp
looks to remain in control.