Futures Point To A Higher Open
9/30/2004
INTEREST RATES
The combination of a bearish forecast from a
widely followed bond fund manager, concerns of accounting fraud at Fannie Mae,
softer energy prices and a slightly better than expected US GDP reading yanked
the rug out from under Treasury prices on Wednesday. Furthermore, the
expectation of decent scheduled numbers today would seem to leave a negative
bias in Treasury prices for at least another session. We also think that the
massive fund long position in bonds came under pressure yesterday and was
partially forced to liquidate, due to a series of failures on the charts.
STOCK INDICES
The pattern in stock prices over the last three
sessions indicates that the market isn’t totally into the bearish economic view
that was manifest in the early part of September. In fact, the equity market has
shown signs this week of discounting sharply rising energy prices and has been
able to mount a moderate short covering rally without a key bullish headline
type story. Overnight international economic numbers were somewhat encouraging
and with the expectation for more favorable US numbers this morning, there would
seem to be even more bullishness pushed into the equation.
DOW
The December Dow has climbed back above the 40 day moving average and would seem
to be caught in between higher and lower trading ranges. The bottom of the old
trading range is seen up at 10,192, while the top of the old lower trading range
is seen down at 10,092. We think the bias is up but we are concerned about
momentum.
S&P
The December S&P would seem to have three distinct trading ranges from the last
month’s trade. The higher zone is 1120 to 1132, the middle range is 1122 to
1113.90 and the lower range is defined as 1112.90 to 1100. The bias is up but we
are not sure if the market can easily rise above the 1120 pivot point without a
perfect storm of favorable US economic reports and softer crude oil prices.
FOREIGN EXCHANGE
US DOLLAR
The Dollar didn’t seem to get the same bullish
bounce as US equities off the chain of events on Wednesday. Even in the face of
sharp US Treasury market declines, the Dollar didn’t seem to be willing to
upgrade its view of the US economy. However, the Dollar would seem to be poised
to get a solid chain of bullish economic reports today and if that doesn’t
inspire Dollar buying, then the bulls are in trouble. For all intents and
purposes the Dollar trend would seem to be pointing down and only a dramatic
upward revision in the US economic outlook would alter the course. In fact, even
after a widely followed bond fund managed predicted sharply rising yields, the
Dollar showed little strength. Maybe an accounting fraud issue at Fannie Mae is
undermining the Dollar, or maybe the downgrade of the prospects for US
Treasuries has inspired an exodus of capital but something seems to be
countervailing what we see as a slightly improved outlook toward the US economy.
Therefore the path of least resistance is still down but we are really not sure
that the Dollar will fall below 88.00.
EURO
While euro zone inflation numbers came in at
expectations, an up tick in the French unemployment rate serves to hold back the
Euro from what appears to be an upward bias. Pushed into the market we would
have to be long the Euro, even though it is near chart resistance and lacks a
clearly bullish fundamental story. It should be easy for the Euro to rise to
123.83 but a much more difficult task to see the Euro rise above 124.00 without
patently negative US numbers.
YEN
Favorable economic numbers from Japan overnight
should leave the Yen in a better position to rally, especially since the outlook
toward the US is improving and energy prices stand a chance of weakening. With
the METI suggesting that industrial output is in a “mild†uptrend and August
inventory shipments ratio rising sharply, the path of least resistance in the
Yen is pointing up. Near term targeting in the Yen is 91.00 and possibly 91.65.
SWISS
The reason the Swiss isn’t following the Euro
slightly higher over the last 24 hours, is that the flight to quality bulge off
the recent energy price rise is being reversed or tempered. In other words, the
Swiss is without a clear cut fundamental tilt. Expect the consolidation to
continue with the range defined as 79.25 and 79.85.
BRITISH POUND
The Pound sits right on a critical 40 day moving
average and is also seeing the recent flight to quality benefit off rising oil
prices mitigate. In short, we now expect the Pound to slide back down into the
late August and September consolidation zone bound by 175.90 and 178.70.
CANADIAN DOLLAR
An overbought status and a lack of momentum is
robbing the Canadian of buying fuel and with the outlook for the US economy
expected to improve slightly today, we can’t rule out a temporary correction in
the Canadian. Near term downside targeting comes in today at 78.34 in the
December contract.
METALS
OVERNIGHT
London Gold Fix $412.35 +$0.80 LME COPPER
STOCKS 93,550 mt tons -275 tons COMEX Gold stocks 5.12 ml +115,598 oz COMEX
Silver stocks 109.1 ml Unchanged
GOLD
We were a little impressed with gold action on
Wednesday, as it managed to rally in the face of early Dollar gains and weakness
in energy prices. In other words, the market showed long interest without having
flight to quality or economic anxiety issues. While many traders have been
suggesting that physical demand might be behind the general upward track in gold
prices (that started back in early May) there has been little direct evidence to
support that claim.
SILVER
In retrospect, the silver market has managed to post
a steep upward track in prices since the mid month consolidation. So far, volume
and open interest haven’t expanded rapidly, which downplays the speculative
interest in the market. On the other hand, the bulls could argue that the market
still retains a significant buying capacity because volume and open interest
haven’t inflated yet.
PLATINUM
After a significant washout the bulls have to be
wondering what they are missing, as the strike at the Impala mine continues with
production at that facility totally shut down. With January platinum falling
right down to the 40 day moving average we have to think that the market will
find support today, especially if the macro economic outlook avoids serious
decay in the action today. With volume ramping up significantly in the last 10
sessions we have to think that platinum will manage to respect near term
support.
COPPER
Just when it appears that copper prices have run too
far off the supply tightness theme, a strike at a Codelco facility in Chile
gives the market an added boost. Chinese copper prices closed firm ahead of the
holidays and it would seem like the market is going to be left with a bullish
bias, despite the fact that the Chinese might be less active over the coming
week. In the event that the US can post even minor gains in its economic reports
today, energy prices soften further and optimism toward all the metals remains
in place, we suspect that the 140 level will be extremely thin resistance for
December copper.
CRUDE COMPLEX
The energy complex forged a massive range
Wednesday by probing sharply to the downside and then rejecting most of those
losses. However, we have to think that the bull factors are slowly being pulled
from the equation and that the market could soon have trouble justifying the
higher trading range. For instance, during the session Wednesday, the market saw
signs that the Nigerian militia leader might have been prepared to accept a
peace deal.
NATURAL GAS
The natural gas market ramped up sharply even in the
face of an interday correction in crude oil. We suspect that industrial buyers,
hedgers and small specs all jumped into the market, as they realized that
sustained high crude oil prices should drag natural gas prices up to a
commensurate price in terms of BTU. Those with access to our web site product
can now view the daily update of the Crude oil/Natural Gas BTU comparison chart
as that will allow you to monitor the critical relationship closely.