Futures Point To A Higher Open
11/3/2004
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INTEREST RATES
The Treasury market fell sharply overnight, with
some traders suggesting that an unfettered continuation of the war in Iraq and a
more aggressive war on terror is sure to ramp up the US budget deficit. We also
have to think that the strong gains in world equity prices might finally be
unnerving the longs in Treasuries and with the election hopefully passing
without a severe legal battle, one should expected US domestic hostilities to
soften a little. We have to think that the fear of the election and the negative
dialogue was robbing the market of positive views, as the country was so divided
that any good news on the economic front was instantly countered and discounted
by a host of political economists.
STOCK INDICES
The stock market soared domestically and
internationally when it became clear that Bush might remain in office. However,
when the Kerry campaign was contracted for a concession, they seemed to indicate
that they might contest the results and that caused domestic and international
stocks to give back part of the stellar overnight gains. We might note that some
stock index measures reached the highest level since early March, and that would
seem to turn many technicals positive, but before a full blown upward thrust
becomes entrenched, the election must be conceded.
DOW
The December Dow is lagging well behind the rest of the market and that might be
the result of lingering concerns over high energy prices. In order to come into
balance with other sectors of the market, the Dow would have to climb to 10,600
from its current December trade of 10,127. In the near term, resistance doesn’t
come in until 10,237 and the market absolutely needs to hold above 10,013 to
keep a firmly entrenched bull view in place.
S&P
The December S&P reached the highest level since March 5th in the overnight
pulse up. However, that pulse was managed under the idea that Bush was a clear
winner and that no recounts would be demanded. We think that 1140 has become
solid support, but as mentioned before, to get another wave of buying, it
certainly wouldn’t hurt to see the outlook for the economy upgraded because
energy prices have continued to soften. Resistance is seen at 1146.50 and
close-in pivot point support is seen at 1140.80 and 1139.90.
FOREIGN EXCHANGE
US DOLLAR
While there is a tendency to bid the Dollar up, most
traders are unwilling to grant that the outcome of the election or even the
passing of the election, is going to alter the existing downtrend in the Dollar.
In other words, the market deserved to short cover, but doesn’t really have the
fundamentals to force a bottom in the Dollar. In the event that the election is
thrown into court, that could prompt some fresh selling of the Dollar. However,
we have to think that the recent decline in energy prices is serving to mitigate
the negative pressure on the Dollar, but in order to really remove the negative
tilt toward the US economy and the US trade balance, we have to see even more
declines in energy prices. Seeing US stocks rise sharply is also serving to
support the Dollar against its downtrend and with US stocks significantly
overbought, that condition could easily change before the close today. We
suspect that aggressive traders should be looking to sell the Dollar at 85.48 or
higher, looking to use a stop up at 86.02.
EURO
The Euro is certainly weakened slightly by the
potential Bush victory and because the Press and a number of European based
analysts are disappointed with the Bush win, we suspect that buyers will
continue to support the Euro against significant declines. However, in the event
that US energy prices fall further, the pressure on the Euro could increase
significantly. While we doubt that Euro zone numbers will be given much
attention, it should be noted that the October Services PMI managed a slight
gain! In the near term, traders should expect solid support at 126.87 to hold
but a decline below that level could set up a slide to 124.00!
YEN
The Yen is behaving very badly following the US
election and with the holiday in Japan, recent buyers of the currency might not
be around to support the currency against a more significant break. Near term
downside support and a target for the day is seen at 93.57.
SWISS
The Swiss is certainly undermined by the decline in
flight to quality anxiety but at the same time most traders are going to try and
hold Swiss longs in the hopes of a US legal battle. Critical support in the
December Swiss comes in at 82.84 and a failure to hold above that level, could
project a slide back down to 81.90.
BRITISH POUND
The Pound seems to have taken the US election as a
positive and that could put the Pound in a unique leadership position versus the
Euro and the Dollar. Since traders aren’t convinced that the Dollar is set to
bottom and are also concerned that the Euro is too expensive, they might decide
to move into long Pound positions.
CANADIAN DOLLAR
The consolidation pattern in the Canadian has taken
on an erosive look and with the political tensions in the US potentially calming
down, the Canadian could see some temporary weakness. However, we doubt that the
Canadian up trend is set to come totally apart. Near term support is seen at
81.30 but we can’t rule out a slide to 80.87.
METALS
OVERNIGHT
London Gold Fix $422.20 -$2.90 LME COPPER
STOCKS 76,400 metric tons -725 tons COMEX Gold stocks 5.333 ml -1,157 oz COMEX
Silver stocks 103.7 ml -865,060 oz
GOLD
Since the gold and silver market washed out prices
ahead of the election, the impact of the election should wane pretty quickly.
However, some news sources are suggesting that the Democrats might challenge the
outcome with calls for a recount and that could return the uncertainty. It is
also supportive that energy prices are a little firmer overnight but in our
opinion the gold market is potentially sitting at an important inflection point,
as persistent equity market gains might signal a better forward look for the
global economy and that in turn could raise physical gold demand enough to
prompt price gains.
SILVER
Trend line support in December silver comes in at
$6.94 and a return to the middle of the old up trend channel up at $7.20 could
now be seen. Like gold, the silver market needs to get away from the flight to
quality correlation and get onto something with more potential, like growing
physical demand or inflation sparked by a forwardly progressive global economy.
From high to low the December silver contract fell by 41 cents and that should
certainly temper the overly long small spec and fund long position.
PLATINUM
Even though China bought soybeans yesterday and the
copper market has generally showed strength, the platinum still looks vulnerable
on the charts. In fact, we wouldn’t be surprised to see temporary probes back
below $820 in the coming sessions. Given the recent deflating of gold and silver
prices, we have to think that platinum will remain under a liquidation watch.
COPPER
The copper market should like most of the turn of
events overnight, as world stock markets are generally higher and so far the
election hasn’t taken an extremely ugly legal track. Some Asian copper traders
suggested that higher energy prices seemed to support copper prices but that is
a curious correlation. With Codelco premiums to Asian users pegged at wider
levels than previously expected, it would seem that the overall bullish track in
copper continues.
CRUDE COMPLEX
Energy prices are higher this morning but we
doubt that is an offshoot of the US election as the market had already decided
that Kerry, if elected wouldn’t have been able to halt the filling of the
strategic reserve. It is also possible that prices are slightly higher overnight
off news that Indonesian production in October actually declined by 4,000
barrels per day instead of rising as many expected. While the energy complex
continued to show weakness yesterday and that has to be wearing the remaining
fund longs down we suspect that many longs will attempt to hold for the
inventory reports this morning.
NATURAL GAS
Apparently a natural gas pipeline damaged in
hurricane Ivan will finally come back on line at the end of the year and that
specific line is capable of 310 million cubic feet per day of flow. Therefore,
it would seem like US supply will remain crimped into the end of the year and
into the beginning of the winter demand period. Therefore, one might expect
natural gas prices to remain generally supported.