Futures Point To A Higher Open
8/13/2004
INTEREST RATES
Despite the sloppy and lackluster action this
week, the Treasury market still seems to have an upward tilt. We thought at mid
week the macro economic trend was set to brighten a little, but in retrospect
the only thing positive about the US and world economic setup is the US Fed’s
forecast that the slowing is to be “short livedâ€. We really have to wonder if
the decision to hike rates was a good one, as one of the Fed’s main assumptions
was that high energy prices were a transitory issue.
STOCK INDICES
While the stock market has shown periodic
capacity to recover it, would seem that the vast majority of macro economic
factors are becoming more negative by the day. Overnight the Japanese stock
market was rocked by a set of much weaker than expected economic readings and
that caused the Nikkei to get hammered. As we have been saying for most of the
last week, traders and investors have to be seeing infinitely more risk than
reward in the future outlook.
DOW
Early this week and last Friday the Dow managed to find support at 9,800 and
that level might hold prices up today, unless there is an additional downside
push from soaring energy prices or from overly weak US economic readings. While
we doubt that the numbers today carry the weight necessary to send the market
sprawling, seeing run away energy prices, in the face of soft numbers could be
enough to prompt even more investors throw in the towel. Technically the market
could hold and bounce from the 9,800 level, but fundamentally one can’t make a
case to pick a bottom!
S&P
As mentioned before, the September S&P has managed two impressive rallies off
the 1061 double low and from a week ending technical perspective it would not be
surprising to see a bounce from that level again. However, from a fundamental
perspective, it would be a surprise to see prices bounce! Watch energy prices
today, they should be a good indicator of the ability to hold, or not hold above
the recent lows. However, the odds seem to favor the downside, as the energy
complex can fear the outcome of the Venezuelan recall vote easier than it can
assume the opposite.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is strong this morning and for a change
the reason for the strength is overt economic weakness outside of the US. With
both Japan and the Euro zone posting much softer than expected economic
readings, it would seem that the rest of the global economic train (other
countries usually lag the US) is beginning to show signs of the same slowing
that gripped the US in early June. Fortunately the US Fed hiked rates in the
face of soaring energy prices and intense fighting in Iraq, or it could have
been harder to predict the direction of the US economy. In other words, unless
energy prices soften considerably, it would seem like a contraction is ahead. In
the short term, the US Dollar looks to benefit from the setup, as the slowing
mentality is a fresh issue for Japan and the UK. While the Euro also slides
versus the Dollar, Dollar gains against the Euro might be less impressive
because the euro zone outlook wasn’t that stellar to begin with. Since we really
can’t expect good numbers from the US to fuel more upside gains, it will be
residual buying interest that lifts the Dollar begrudgingly. The problem is that
we have a horse race without a horse capable of winning! Expect a chopping
action, with the Dollar capable of rising to 89.42 or falling to 88.78.
EURO
One has to realize that the Euro is lacking a trend
and is lacking enough guidance to trend. Like a boat in the doldrums, the
forward momentum in the Euro zone economy is so slow, that the boat can’t be
steered. In the mean time, fresh ideas of slowing should contribute to minor
weakness but without the US being capable of posting strong numbers, there is no
reason to jump on the euro with sell orders. However, a slide down to 121.50
wouldn’t be surprising.
YEN
While the GDP numbers from Japan didn’t look
disastrous, they were much worse than expected and that has caused a minor
panic. The GDP readings were still in positive ground but they were so close to
no growth that support under the Yen vaporized. There were also some dramatic
downward revisions in Industrial output and that is really bearish. The Japanese
economy feeds off the US and the US is grinding to a halt. Therefore, expect a
slide in the Yen down to 89.10.
SWISS
The Swiss is getting some spill over interest from
the Euro and Yen weakness but the Dollar strength is leaving the Swiss capped.
We can’t make a case for being long the Swiss, unless the slowing track
developments into a major economic mess. The Swiss could trade up to 80.03 and
it could also slip to 79.16, there is no trend and no clear fundamental tilt!
BRITISH POUND
After peaking out below chart support overnight, the
Pound has managed to climb back into the consolidation. We have to think that
seeing a number of economies leaking oil, makes the UK economy look a little
better. In short, without competition, being long the Pound is as good as being
long any other currency, when one considers the chart setup in the Pound.
However, fresh longs in the Pound might have to risk positions to 180.88.
CANADIAN DOLLAR
The Canadian is caught between a rock and a hard
place. The Dollar is stronger, which can pressure the Canadian. The US economy
is sagging and that can undermine the Canadian economy and the Canadian did fall
back below moving averages yesterday. However, since there is consolidation
support just under the Canadian and Canada has recently posted a June government
surplus, one would think the currency would stand out among the competition!
METALS
OVERNIGHT
London Gold Fix $393.75 -$3.50 LME COPPER
STOCKS 80,725 mt tons -600 tons COMEX Gold stocks 4.711 ml Unchanged COMEX
Silver stocks 110.4 ml -1,193,827 oz
GOLD
If the magnitude of the overnight US Dollar rise
holds into the US pit opening, that could turn up the liquidation pressure on
gold. Under an environment of a rising Dollar and a sagging economy, the gold
market finds an unusual mix of negative elements. Typically the gold market
would have been somewhat lifted by a move to new lows for the year in the stock
market, but instead that is contributing to a slight deflationary tilt.
SILVER
While exchange stocks of silver continue to contract
and now stand at 110.4 million ounces the silver market comes into the session
today seeing some pressure from gold. September silver is also bordering on a
chart failure at $6.49-$6.46 and with the world macro economic track so soft,
the bear camp seems to have near term control. If near term support at 6.46
fails that could lead to another retest of the 644 level.
PLATINUM
After another new high for the move overnight, the
platinum appears to have fallen back in response to soft economic numbers out of
the Euro zone and Japan. While we suspect that platinum will be able to respect
up trend channel support down around $840, the outside influences appear to be
robbing the platinum market of its preexisting upward track. While we aren’t
afraid to be lightly short gold or silver today, one must be careful selling
platinum, as it has shown a persistent capacity to recover after only minor
bouts of selling.
COPPER
Following the upside flare yesterday, copper prices
are showing vulnerability into the US opening. While copper has been largely
ignoring the sagging macro economic conditions, the overnight news from the
global economy was pretty encompassing and that has to leave the pressure on
copper prices. In fact, with Shanghai copper stocks rising slightly on the week
(+2,113 tons) and world equity markets in moderate declines, we see the path of
least resistance pointing down.
CRUDE COMPLEX
The energy complex once again appeared to get
significant upside price mileage out of only moderately supportive fundamental
developments. We suspect that some of the upside action Thursday was a delayed
reaction to the patently bullish weekly inventory readings released during the
session Wednesday. The trade is understandably concerned that the Iraqi
situation is setting up to get out of control again and that could certainly
result in new attacks on the Iraqi pipeline.
NATURAL GAS
The weekly natural gas inventory report showed an
injection of 72 bcf and that brought the annual surplus down to 230 bcf. The
natural gas market continues to exhibit weakness even in the face of impressive
regular energy complex gains and that is because of the entrenched much cooler
than normal temperatures. Following the surprising and compacted rally off the
recent hurricane threat, it was clear that natural gas lacked the residual
bullish interest to keep prices pointing to the upside and with the recent
weakness in the gas market, it is clear that the bulls are on the run.