Futures Point To A Higher Open
11/17/2004
INTEREST RATES
Despite some minor initial declines following the
ultra hot PPI report on Tuesday, the Treasury market wasn’t really undermined by
the threat of inflation at the producer level. It still seems like the Treasury
market is being supported by the lower Dollar action, but at some point that
situation could become extremely damaging to the Treasury market. We suspect
that retail inflation price readings today will be a little less inflationary,
than the PPI report, as we don’t see the same pricing power at the retail level,
as is being seen at the wholesale level.
STOCK INDICES
The stock market was knocked down by a number of
forces yesterday, with the technical posture of the market turning negative and
the sharp rise in the PPI facilitating the washout. Even after Home Depot posted
some positive earnings readings, the key bellwether stock came under pressure
and that more than anything suggested that the market was simply in a position
take profits. However, there continues to be a general positive undertone, with
the outlook for the economy helped by a series of Fed comments yesterday
afternoon.
DOW
The Dow sees a slightly improved tone this morning, but could encounter some
initial resistance at 10,532 with key support coming in at 10,500. The path
appears to be pointing up but we are a little uncomfortable with the sharp angle
of the rise in the Dow since the October low. As we suggested before, the market
needs constant bullish fodder in order to mount more near term gains.
S&P
We suspect that the Tuesday low will be solid and that the December S&P should
be able to regain a critical pivot point up at 1180.50 without much fanfare.
Given the recent break, we suspect that the market is setting up to rise to
another new high before the end of the week. Favorable corporate news,
potentially more declines in oil prices and adequate macro economic readings
simply give the bulls a slight edge in the coming trade.
FOREIGN EXCHANGE
US DOLLAR
Despite more cheerleading from the US Treasury
Secretary overnight and periodic hints of intervention, the Dollar has managed
to dive to another new low. It continues to be clear that the US Dollar is
finding no support from favorable Fed dialogue on the US economy, it also isn’t
finding support from the Fed’s talk of higher US interest rates and even
progressively lower energy prices aren’t supporting the Dollar. Therefore, the
trend is down and until some coordinated intervention is threatened, we doubt
that the decline will slow. The Fed did suggest that a lower Dollar, combined
with world growth would eventually benefit the US export sector but until that
big picture argument is backed up, with some real numbers, few traders are going
to buy into that scenario. Therefore, the Dollar looks to decline slowly or even
more aggressively if US numbers are the slightest bit anemic. Near term
targeting in the December Dollar comes in down at 82.00.
EURO
The Euro has already reached a new all time high
against the Dollar overnight and there would seem to be little to stop the
current trend. Top of the up trend in the December Euro comes in up at 130.95.
The trend is up and intervention threats might come, but probably not until even
more significant gains are posted. The market isn’t even concerned about the
slowness of the Euro zone and their inability to raise interest rates to battle
inflation.
YEN
The Japanese Yen would seem to be in a favorable
near term situation but we have to wonder when the sharp decline in the
Dollar/Yen exchange rate is going to become critical to Japanese export
companies. In the near term, it would not seem like the trade issues are going
to derail the rally in the yen. However, we suspect that the Yen will be the
first market to dredge up the idea of intervention. In the mean time, expect the
Yen to manage a rise to 96.70.
SWISS
A sharp decline in the Dollar and a sharp rise in
gold would seem to telegraph a wave of flight to quality buying toward the Swiss
currency. In fact, in the near term the Swiss is probably headed to 86.60.
BRITISH POUND
The UK labor readings this morning weren’t as good
as expected but that has only partially deflected the upward thrust in the
Pound. Right now, the currency markets are not driving off economic numbers,
they are driving off emotion and the slide in the Dollar looks to at least
underpin the Pound. However, it is telling that the Pound has failed to rise to
new highs, like the rest of the key currencies.
CANADIAN DOLLAR
The Canadian appears to be poised to come out of the
recent consolidation to the upside. However, we get the sense that the rate of
gain in the Canadian has slowed somewhat. Top of the channel now comes in at
84.40.
METALS
OVERNIGHT
London Gold Fix $444.50 +$6.55 LME COPPER
STOCKS 65,325 metric tons -1,800 tons COMEX Gold stocks 5.348 ml -4,147 oz COMEX
Silver stocks 101.5 ml -604,760 oz
GOLD
With the US Dollar into another new low (and on
another aggressive decline) it is not surprising that February gold is showing
an early gain in excess of $4 an ounce. We are not sure, but it is entirely
possible that something big is building in gold, as the decline in the Dollar
seems to be unrelenting, inflation could be on the way back (the October PPI was
the highest reading since 1990) and investment interest in gold is ratcheting
upward. The important thing to note, is that investor interest is rising off a
number of arguments, one of which is the old mainstay of diversification and yet
others are suggesting that gold has truly become a hedge again.
SILVER
The silver market is rising in concert with the
gold, but is being held back slightly by the uncertainty in the copper and
platinum markets. Top of the up trend channel in December silver comes in today
at $7.696 and it is a little disappointing that volume hasn’t expanded as the
market rose this week. In the near term, one can’t argue against more gains but
we think that silver will begrudgingly rise, as we are not seeing enough signs
of increased physical demand to round out the bull case.
PLATINUM
The platinum market was sharply lower in the
overnight action but then managed to reject all of the losses and climb back
above the prior day’s close. Apparently the Johnson Matthey report wasn’t as
supportive as some expected, as the report suggested that Asian demand for
platinum might slow due to ultra high prices. However, the private forecast was
still generally favorable but really doesn’t put the supply and demand situation
in a position to push prices upward.
COPPER
The copper market has managed to regain some of the
ground lost yesterday in the wake of the Chinese sales threat. With the Chinese
market showing minor gains, the near term threat of supply flowing onto the
market appears to have abated, but certainly hasn’t disappeared. While there is
some spillover buying coming because of the interest in gold, the copper and
platinum markets are both a little off balance due to slightly disappointing
dialogue toward Asian demand.
CRUDE COMPLEX
While the energy market managed to bounce back
toward the prior day’s highs yesterday, the market failed to hold all the gains
into the close. While the market attempted to rally early, it was clear later in
the session Tuesday, that players were attempting to work into short positions
ahead of the weekly inventory report. While the expectations for the report
don’t seem markedly different from last week, there seems to be underlying
concern that distillate stocks might rise.
NATURAL GAS
The natural gas market also remains in a negative
technical posture. We have to think that natural gas will be directly influenced
by the inventory reports on crude oil and heating oil this morning. As mentioned
early this week, we suspect that the small spec long position is still in
liquidation posture and until the January contract manages a slide down to
$7.40, we would wait to enter the long side.