Futures Point To A Flat Open
10/21/2004
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INTEREST RATES
The Treasury market is certainly being lifted by
speculation that the risk of global slowing is increasing with every new high in
the energy markets. The trade is also beginning to factor in the idea that the
Fed could be put on hold with the next rate hike, because of the threat from
energy prices. So far, the Treasury market isn’t being undermined by the fear
that the US Trade Deficit is set to explode.
STOCK INDICES
The stock market remains under pressure and
instead of seeing that pressure mitigate with progressively lower pricing, it
would seem that the fundamental outlook is turning up the liquidation pressure.
While the stock market could have been cheered by ideas that the Fed was
becoming less likely to hike interest rates, there are so many other concerns
that equity prices hardly stand a chance of mounting a rally, off a delay in the
rate hike process. Even the earnings reports, which were generally expected to
provide the market with support, have turned negative.
DOW
We expect the December Dow to continue tracking toward the August low of 9,793.
With the earnings flow turning sour, concerns of disinvestment rising and little
favorable direction coming from the scheduled numbers, we see little to turn the
tide of selling. Therefore, expect prices to grind lower. Traders should sell
20-30 point Dow rallies, looking for new lows for the year.
S&P
While the S&P managed a partial spike down reversal yesterday, we really don’t
see the scope for a fundamental bounce. While the S&P might not make it all the
way down to the August low above 1060, we suspect that a return to the low
posted yesterday is an easy target. On the other hand, an extremely critical
pivot point comes in up at 1103.30 on the upside and a rise back above that
level, could spark some program buying. A logical bottom for this move would
seem to be down at 1089.
FOREIGN EXCHANGE
US DOLLAR
At first blush it would seem to be all negative for
the Dollar, as the trade has turned on the Greenback after it managed a downside
breakout of a protracted consolidation. The soaring trade deficit seems to be
the primary driving force at work, but it would also seem like a number of
currency analysts are thinking that the Dollar will hold. In other words, those
that think sentiment toward the Dollar is significantly overdone, should think
again as a number of analysts are still willing to fight the recent downside
thrust. While the US Treasury market is beginning to suggest that the next US
rate hike might be put off, we doubt that the Dollar will bottom off that
argument. In the near term, it is pretty clear that progressively higher energy
prices will serve to send the Dollar lower. We suspect that the 86.00 level will
provide the Dollar with temporary support but another new round of highs in
crude oil and the Dollar will quickly fall even further.
EURO
The euro did manage another new high for the move
overnight and with Italy providing another boost through a sharp rise in its
October Consumer Confidence reading, we have to think that even more gains are
in order. In the near term, there would seem to be little to prevent the
December Euro from managing a rise all the way up to the 2004 highs above
127.50.
YEN
While the Nikkei continues to falter and oil prices
continue to soar, it would seem like the Japanese economy is immune to some
extremely discouraging macro economic conditions. Even after some Press outlets
detected some slowing in Asia, due to ultra high oil prices, the Yen continues
to rise. Near term targeting in the Yen comes off the weekly chart at 93.78.
SWISS
The Swiss is getting spillover support from the Euro
and is getting a fair measure of pure flight to quality buying. So far, the
Swiss hasn’t managed to take out the 2004 weekly high at 82.49 but it would seem
like the bull track is entrenched.
BRITISH POUND
With Retail sales in the UK rising by 1% in
September (a reading that is significantly higher than expectations) we have to
think that the Pound will see some direct upside follow through buying. The next
upside targeting in the Pound comes in at 183.70 off the weekly charts.
CANADIAN DOLLAR
As suggested yesterday, to find some resistance in
the Canadian, one has to go all the way back to 1992 on the monthly charts.
Therefore, the next upside target in the Canadian comes in at 80.60. About the
only thing that would derail the rally in the Canadian would be fears of a
significant economic debacle in the US economy.
METALS
OVERNIGHT
London Gold Fix $425.50 +$2.80 LME COPPER
STOCKS 84,025 metric tons -700 tons COMEX Gold stocks 5.304 ml +40,332 oz COMEX
Silver stocks 105.0 ml Unchanged
GOLD
The gold market continues to show signs of more
gains ahead. With the Dollar falling to another new low and temporarily falling
below the psychologically important 86.00 even level, we suspect that more
buyers will be pulled into gold. The Press is noting a direct interest in gold
off the Dollar/Euro relationship but we also have to think that soaring energy
prices are also providing the market will an additional lift.
SILVER
Overnight the December silver contract failed to
rise above the prior days high of $7.385 but with the gold providing clear cut
bullish direction and platinum showing such significant gains, we have to think
that the tide will eventually carry silver to a new high for the move. We still
see the silver lagging behind the rest of the metals on this pulse up, as there
is a nagging fear that physical demand might falter in the event that the world
economy really begins to slow. In the near term, the silver should be able to
rise further, with the top of the up trend channel at $7.424 seen as the next
upside target for the bull camp.
PLATINUM
The platinum market exploded toward the top of the
recent consolidation zone, as traders who missed the gold run decided to buy
some platinum instead. However, until the platinum market manages to climb above
$853 it really hasn’t even managed to breakout out of a three month old
consolidation pattern. As long as an across the board rally in metals continues,
the platinum will be pulled higher, but the absence of that outside support
could quickly produce a sharp correction.
COPPER
While the copper market remains mired in the recent
consolidation, prices have managed to migrate to the top of the consolidation.
Chinese copper prices were higher overnight, lending some support to the early
US action. With energy prices soaring, the US trade deficit exploding and
concern for the global economy rising, we are not surprised that some copper
buyers are hesitant to jump into long plays.
CRUDE COMPLEX
The energy complex has been all over the map,
with initial weakness early in the week and then an aggressive recovery
following the weekly inventory readings yesterday. While the crude stocks
situation isn’t that critical, the distillate stock situation continues to
foster concerns for the coming winter. We are also a little concerned that the
weekly inventory reports showed a contraction in the crude import tally.
NATURAL GAS
The natural gas market continues to show signs of
leading the complex, which is a real change of pace. Certainly the cold weather
threat providing some of the punch but if the crude oil market can manage to
soar to new highs that would simply give natural gas another push. We suspect
that the weekly inventory readings today will once again narrow the annual
surplus figure and that is what we think determines if the report is bullish or
bearish.