Futures Point To A Higher Open
8/10/2004
INTEREST RATES
The Treasury market is generally holding the
majority of the gains put in place off the surprise monthly payroll report but
it is a little surprising that the market failed to rise in face of more slowing
evidence Monday morning. However, in the face of impending supply and the FOMC
meeting, we can understand the markets hesitancy on the long side, especially
after the concentrated rally last Friday morning. While a number of economists
think that the Fed is poised to “historically adjust†rates to a higher, more
normal level, we think that current economic conditions argue against a move.
STOCK INDICES
While the market showed some slightly impressive
action yesterday, it seemed as if corporate news managed to temporarily divert
attention away from the fact that the US economy continues to throw off weak
numbers. We have to think that the stock market was seeing some short covering
ahead of the FOMC meeting, as the market could find temporary solace from a
steady Fed. However, given the poor technical action of the last month, the move
to new lows for the year and ultra high energy prices, a move to raise interest
rates would seem to be the straw that breaks the camels back.
DOW
On a no rate hike reaction, the September Dow could temporarily bounce back to
9,895 but then we would still see the ultimate downside target of 9,490 for
later this week and possibly even 9,258 by the end of the month.
S&P
The next downside target in the S&P comes off the weekly chart down at 1052 but
the market could easily mount a temporary bounce to 1074 off the Feds soothing
talk before turning lower again. In short, without a distinct change in the
overall environment, something big and positive from the battle on terrorism, or
a major decline in energy prices, we assume that the trend is down!
FOREIGN EXCHANGE
US DOLLAR
While some think that the Dollar is set to be lifted
by the Fed dialogue and possibly by Fed action, we have to think that the Dollar
is locked in a down trend and that any attempt to rally today or Wednesday
should be seen as an opportunity to get short. In the event that the FOMC
actually hikes interest rates today, we would expect the move to facilitate the
slowing pattern seen since the beginning of June in the US. Certainly, seeing
higher returns on US money could attract a temporary flow of money toward the
Dollar and certainly seeing the Fed rationalize their move by their favorable
talk on the economy, will be cause for a Dollar rally but we just don’t see the
rally as a sustainable force. In fact, on a rally to 89.00 traders should
consider buying some at the money Dollar puts. On a rally to 89.45 we would
consider getting short the Dollar using an objective of 88.00.
EURO
Short term technical indicators are signaling more
gains ahead for the Euro and the only thing lacking for a strong bull pulse is
the fact that the Euro zone economy is probably in the same anemic condition as
the US economy. Also rather unfortunate is the fact that the Euro is caught in
between two technical zones on the chart. In other words, we could see a slide
back to 122.00 without much fanfare and we could see a continuation of the rally
to 123.15 without seeing a significant change in the charts. As has been the
case since the April lows, we see the Euro managing a rise off the negatives
spinning out of the US, as opposed to the positives spinning out of the Euro
zone.
YEN
The Yen has been unable to rise against overhead
resistance on the charts and that leaves the path of least resistance in
question. However, if the Yen manages a trade above 91.00 again today that could
turn off the negative chart tilt. Short term technicals are also in a buy mode
and that could be enough to foster some minor gains.
SWISS
The Swiss continues to fail at the moving average
and in order to add to recent gains, the Dollar will have to falter rather
significantly. Near term support in the Swiss comes in at 79.60 with an upside
breakout taking place with a rise above 80.00 today.
BRITISH POUND
A pattern of lower highs seems to leave the Pound in
a downward posture. UK Inflation readings overnight actually contracted and that
is another negative for the Pound in the short term. The Pound would also fall
below a couple critical moving averages with a decline below 122.50 today!
CANADIAN DOLLAR
The recent action in the Canadian depicts a market
without concentrated bull interest. However, the pattern is still generally
pointing upward but longs now might have to risk positions to at least 75.25 in
order to weather the current correction.
METALS
OVERNIGHT
London Gold Fix $399.05 +$.45 LME COPPER
STOCKS 82,650 mt tons -400 tons COMEX Gold stocks 4.713 ml unchanged COMEX
Silver stocks 111.5 ml -2,117,277 oz
GOLD
Due to recent gold market action it is clear that
the FOMC meeting has caused some minor losses in gold in the lead up to the
meeting today. It seems that a number of traders think that higher interest
rates are possible and that higher interest rates will cause increased forward
selling by producers. However, the really important impact off the FOMC meeting
will be what happens to the US Dollar.
SILVER
The silver market bounced off the moving average
yesterday and continues to maintain a positive bias. A significant decline in
exchange stocks puts the total inventory at the exchange down to 111.5 million
ounces and that is getting close to a level that should begin to foster some
bullish dialogue. However, the silver market won’t be able to rise in the face
of a rising Dollar/slumping gold move.
PLATINUM
A double top at $838 is thin resistance to a market
that has an upward bias. The next upside target comes in at $841. Asian traders
showed interest in the long side overnight and that might be enough to push
platinum into an upside breakout.
COPPER
Chinese copper prices were down sharply overnight
and that action apparently put pressure on already thin trading conditions at
the LME. With the recent macro economic inspired slide in copper prices, the
technical vulnerability in copper has been reduced. Slightly favorable platinum
price action hints at increased Chinese interest and that could help to underpin
the copper market.
CRUDE COMPLEX
The combination of Iraq and Russian problems
fueled the market to another round of new highs Monday. Seeing southern Iraqi
oilfields shut down (or even partially shutdown) due to insurgent threats seemed
to carry more weight than the Russian financial situation. The Yukos situation
continues to waffle back and forth, but at times it would seem like the large
Russian oil company is managing to extend its future with some entities
suggesting that they have paid for transportation until the end of August.
NATURAL GAS
Finally the natural gas market responded to the
perpetual gains in the crude oil market. In other words, natural gas was dragged
upward by the BTU price spread or the anticipation of arbitrage between the two
energy markets. While October natural gas might be able to rise back to the 625
level, without the constant and aggressive support from crude oil, natural gas
prices would probably be closer to $5.50 than to $6.00.