Futures Point To A Lower Open
7/30/2004
INTEREST RATES
The Treasury market should have a greater chance
of a rally today than a big break, as the market has recently corrected (in fact
the market probably holds a net short spec and fund position) and its possible
that the GDP is soft due to some slowing in the last month of the second
quarter. However, sometimes the GPD is a lagging indicator and in this case that
might mean that GDP for the second quarter held together. It is also important
to note that energy prices did see a sharp correction half way through the
quarter but it would seem to us that average crude prices were $32 in the 1st
quarter and were $36.20 in the second quarter.
STOCK INDICES
The stock market continues to show strong
periodic interest and has managed to forge a decent short covering rally.
However, we are not sure that the market can continue to rise, in the current
environment, unless the scheduled numbers begin to generate more optimism. In
other words, now that the market has balanced an oversold technical condition
and to a degree moderated overly negative economic sentiment and now there will
need to be a fresh reason to bid prices even higher.
DOW
While the Dow continues to hold more favor than other sectors, we have to think
that recent gains leave the market vulnerable to profit taking and outright
selling in the event that numbers from the US disappoint. Therefore, consider
buying an August 10000 put for 800 ahead of the report. If the GDP weren’t a
three month figure we would be bearish enough to recommend a short futures play.
S&P
Since the September S&P touched the retracement zone (off the June high to July
low move) and then fell back it, would seem that a significantly stronger number
is needed to take the market up through resistance. Consider buying an August
S&P 1085 put for 950 ahead of the report this morning.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seems to have run into a bit of
resistance on the charts. It also seems like the improving macro economic
outlook toward the US has leveled out and that means the Dollar “needsâ€
something significant from the reports today, to attempt to rise up through
overhead resistance. We suspect that the Michigan numbers will support the
Dollar but that the GDP could go either way. Since the GDP straddles a strong
growth period and a weakening growth period we suspect that the number will be
mostly strong due to the residual effect but some traders might end up with the
conclusion that US growth is indeed slowing. Some might make the additional
arguement that soaring energy prices are poised to make 3rd and 4th quarter
growth even harder to come by. Therefore, we have to think that buying the
Dollar 250 points above the July lows is a very risky proposition. However, the
US economy isn’t a patsy and can surprise economists with its broad based
readings from GDP and Industrial production and for that reason the plan today
isn’t an unabashed short futures play. However, one might consider buying an
August near to expiration (cheap but leveraged) 90 put at the market ahead of
the report.
EURO
Euro zone confidence levels were unchanged overnight
with economists suggesting that Euro zone consumers are just not rising to the
occasion. Therefore, as usual the Euro isn’t getting help from its own numbers
and it will have to rely on disappointment from the US numbers in order to
manage a rise off somewhat oversold levels. Like the Dollar trade suggestion, we
are not compelled toward a futures play but we would consider buying a
leveraged, near term to expiration August 121 Euro call.
YEN
The Yen was certainly oversold around the lows this
week and could well have found a bottom. However, we are not sure that the Yen
has the ability to forge much more than a short covering rally to 90.42.
SWISS
Like the Yen, the Swiss appears to have found a
technical support zone but it also lacks a fundamental reason to rally unless
that reason is provided from the US. A failure to hold above 78.22 following the
report could signal a slide all the way down to 77.70.
BRITISH POUND
It would seem like the July break in the Pound was
almost exclusively prompted by the improved US macro look and therefore a strong
US GDP reading this morning could result in the Pound sliding below the week’s
lows and heading directly below 180. In fact, the odds are decent that the Pound
retests the June spike lows over the coming 6 sessions.
CANADIAN DOLLAR
Today is a major pivot point for the Canadian, as it
mounted an impressive reversal yesterday and has apparently pulled itself off
the rocks. Therefore, unless the US GDP is a real surprise the Canadian could be
set to resume the bull track. However, this market was injured under the surface
and another violation of support at 74.94 could be serious.
METALS
OVERNIGHT
London Gold Fix $389.60 +$.85 LME COPPER
STOCKS 88,450 mt tons -725 tons COMEX Gold stocks 4.633 ml -96 oz Comex Silver
stocks 116.6 ml +844,523 oz
GOLD
This morning the gold market starts out the early US
action with a slightly higher tilt, some of which we suspect is short covering
ahead of the GDP but the real motivation behind the rise is a decline in the US
Dollar. Some traders are suggesting that gold could fall sharply if the US GDP
is stronger than expected, but the Dollar decline is significant enough, that it
would be a little surprising for the GDP to provide such an absolute sentiment
shift. From the fundamental front gold is seeing slightly negative information,
as Ashanti is forecasting a continued gold surplus in 2004, while AngloGold saw
profits tagged due to derivatives losses and that might cause some producers to
rethink their hedge lifting pattern.
SILVER
While silver is showing positive action in the early
going, in order to shift the short term trend back up, the September will have
to manage a climb above $6.50. Since exchange stocks generally increased this
week and the macro economic outlook remains mixed at best, it might be difficult
to see silver rise above the $6.50 pivot point and climb to the July highs up
around $6.76. Gold leadership is very critical to silver today, as is the US
Dollar.
PLATINUM
Over the last two sessions both platinum and copper
seem to have benefited from the improved outlook for Chinese metals demand. In
fact, the optimism toward Asian demand is the primary reason why platinum has
managed to remain in the upper half of the last month’s consolidation zone.
However, unless the GDP reading is strong today, we are skeptical of platinum
prospects.
COPPER
The copper market remains poised at the Thursday
highs but it would seem like the copper market has significant resistance around
130. Shanghai copper stocks declined by 17,614 tons and that combines with the
ongoing declines in LME stocks to give copper an underpin. In short, inventory
levels are bullish but the macro economic demand expectation is lacking.
CRUDE COMPLEX
The energy complex was showing signs of its
overbought status yesterday but the constant threat of a bullish supply surprise
is very difficult to remove from the equation. The trade is somewhat less
concerned about the Yukos situation but some experts think that the threat of a
Russian disruption is still very significant. In fact, many traders think that
the Yukos situation is still a ticking time bomb.
NATURAL GAS
The weekly inventory report showed an injection of
70 bcf and that puts the annual surplus at 235 bcf. In a surprising move
Thursday, the natural gas market managed to remain strong, despite the fact that
crude prices were down and that hints at a slight divergence developing between
the markets. We suspect that the hotter US temps in the near term forecast is
giving natural gas a lift, but that action may not sustain into next week.