Futures Point To A Lower Open
7/23/2004
INTEREST RATES
The action this week makes it seem like the old
consolidation zone is set to contain Treasury prices. We do think that a weak
uptrend tilt remains in place but that the bull sentiment toward Treasuries was
tempered by the Greenspan testimony to Congress. It is clear that the market
accepts the inevitability of higher rates ahead but we are not sure that the
market totally buys into the Fed’s view that the June slowing is a short lived
scenario.
STOCK INDICES
So far we see no sign of a coming low in stocks.
The economic outlook is disjointed, energy prices are rising and the 9/11 report
is simply a blow to sentiment. In short, investors see plenty of reasons to
remain on the sidelines, despite the fact that many stock prices are within
relative proximity to the lows of the year.
DOW
The technical setup in the Dow is much more bearish than the outlook in the S&P.
The September Dow did find some minor support off even numbers overnight, as the
cash Dow did yesterday. However, we doubt that the September Dow will avoid a
probe down into the May consolidation. We still think that the low targeting in
the September Dow futures will be 9,981.
S&P
While the S&P did forge a classical reversal signal yesterday, we didn’t get the
sense that the low yesterday was a total exhaustion of the downside effort.
Furthermore, we don’t see the fundamental force to facilitate a sustained
recovery in prices. In fact, the market could forge a recovery bounce, like it
did early in the week and then fall back to new lows for the move. However, the
bias early today could remain positive, unless the September falls below the
pivot point at 1090. Those that got long on our suggestion at 1085.80, should
bank a profit and look to reset that position at an even lower level.
FOREIGN EXCHANGE
US DOLLAR
The rise in the Dollar must be mostly technical in
nature, as we see little fundamental rationale for the rise. In fact, if the
outlook toward the US was positive, we would have expected the US stock market
to be rising in the face of mostly favorable corporate earnings. Furthermore, if
the trade was truly upbeat on the US economic forecast, we would expect the US
Treasury bond market to be showing some weakness. In other words, the Dollar
rally seems to defy gravity. Maybe the world is completely enamored with the
confidence of Greenspan but we are unwilling to buy the Dollar on the current
macro economic setup. However, one can’t fight what appears to be a short term
trend of favor toward the Dollar. If the July low in the Dollar ends up being a
critical and sustained low, it is possible that the world sees the US getting
away from the quicksand in Iraq or that the US corporate earnings were the real
story on the economy.
EURO
Make no mistake about it, the Euro has forged a
significant technical failure overnight and could be headed down to 121.25.
German inflation numbers should have been a little supportive, as they showed a
minor and controlled rise. As suggested before, the trade must be buying into
the view offered by Greenspan that the US slowdown in June was temporary. We
also think that many traders are expecting the Euro zone to follow the US June
slowing with signs of slowing in July. In other words, the European economy
normally lags behind the US by 1 month and therefore some in the trade are
expecting a downturn in the European numbers in the weeks ahead. We have long
been uneasy with the Euro rise against the Dollar and therefore a return to 120
isn’t unwarranted.
YEN
The rise in the Dollar is even more surprising
against the Yen, as the Asian economic activity could have insulated the yen
against near term selling. However, in the overnight action, a decline in
Japanese business activity of 0.7% was significantly off the expectation of a
+0.2 rise. Therefore, it seems like the Japanese economy is seeing a lagged
impact from the US slowing in June. Even the technical setup in the Yen leaves
it vulnerable to a further slide. Near term targeting is seen down at 90.79.
SWISS
The technical undermine in the rest of the currency
markets is also being seen in the Swiss this morning and without an economic
story to offset, we suspect that more declines will be seen ahead. Near term
targeting is seen at 79.40.
BRITISH POUND
The Pound is under slightly less pressure than the
Euro and the Swiss but with the UK GDP reading for the second quarter, coming in
slightly lower than expectations, there would not seem to be a fundamental
deterrence to even more selling. A GDP reading of less than 1% certainly pales
in comparison to the US growth rate and that could be why the trade has turned
on the Pound. The Pound should still be the strongest currency against the
Dollar relative to other currencies, but apparently the Pound can’t stand up to
the Dollar.
CANADIAN DOLLAR
With the BOC moving to a tightening bias it is
possible that the Canadian Dollar could have come under pressure but that hasn’t
been the case over the last 24 hours. It was also possible that strength in the
US Dollar over the last 24 hours could have weighed on the Canadian, but that
also hasn’t happened. Therefore, the longs seem to have control but it could be
difficult to get back above 76.17.
METALS
OVERNIGHT
London Gold Fix $393.85 -$2.15 LME COPPER
STOCKS 91,525 mt tons -400 tons COMEX Gold stocks 4.539 ml +68,067 oz Comex
Silver stocks 114.3 ml -777,583 oz.
GOLD
The gold market remains under pressure and with the
Dollar managing a rise above the prior sessions high, it would seem that the
short term trend continues to point down. If the Dollar manages to take out this
week’s high of 88.98, that could prompt yet another liquidation in gold.
Apparently the funds aren’t currently interested in buying gold, even though
prices are the cheapest since the beginning of the month.
SILVER
With the decline in silver exchange stocks
overnight, the silver market sees stocks at the lowest level since October of
2003 but that news isn’t providing any support to silver this morning. The
downdraft in the gold prices, sparked by the rise in the Dollar is probably
pulling silver down and given the overnight failure of near term chart support,
we know see September silver falling to the top of consolidation support at
$6.265. If the funds aren’t interested in buying dips in silver, the market
probably doesn’t have the ability to quickly shut off the pulse down in prices.
PLATINUM
A failure on the charts overnight puts the platinum
market in the same position as gold and silver. A critical pivot point in
October platinum comes in today at $813, but even lower support could be tested
down at $808.7. Apparently platinum is no longer concerned with the threat of
strikes and at the same time the trade doesn’t seem to be that upbeat on the
Asian demand outlook.
COPPER
Even the copper market is under pressure this
morning, which suggests a broad based negative attitude toward all metals. With
copper prices in Singapore falling to the lowest levels since early in the month
overnight, that should leave the market with a negative tilt into the US
opening. Chinese weekly copper stocks declined by 6,924 tons, which is a slight
countervailing force.
CRUDE COMPLEX
In the early going this morning prices seem to be
getting more support from concerns that the Yukos situation will result in a
disruption of oil flow to the world. We also think that the regular energy
complex was fueled higher yesterday by two separate domestic terrorism threats
and that issue will probably play again in the action later today. The market
made the gains yesterday in the face of potentially negative news from OPEC, as
they suggested that investment would eventually increase the cartels capacity by
2.5 to 3 million barrels per day.
NATURAL GAS
The natural gas market was certainly lifted by the
strength in the regular energy complex, but the real driving force of the rally
yesterday was the fact that the weekly inventory data was patently supportive.
With the weekly injection coming in much lower than expected at 15 bcf and the
annual surplus narrowing significantly to 189 bcf, the market certainly sees
some renewed support for the bull case. However, we doubt that natural gas
prices are going to rise straight away, as US temps are already cooling down
after only a couple days of high heat.