Futures Point To A Lower Open
8/2/2004
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INTEREST RATES
The gap up action overnight certainly suggests
that the new terrorism warnings will be supportive to US Treasuries. With the
market buffeted last week by conflicting but generally weak economic readings,
it is clear that the US recovery is vulnerable on several fronts. In addition to
the recovery being called into question off the “June slowingâ€, the US economy
is also being held back by soaring energy prices and with the addition of
specific and credible domestic terrorism threats, we have to think that
Treasuries are going to return to the July highs.
STOCK INDICES
All things considered the stock market seems to
be discounting the weekend terror threats decently in the overnight action.
However, the stock market was already a little overbought from a short term
technical condition and is therefore vulnerable to the negative psychological
tilt. In fact, unless the numbers early this week provide a countervailing
influence to the domestic terrorism threats, it wouldn’t be surprising to see
prices return to the July lows.
DOW
With a gap down overnight slide, the September Dow would seem to be headed to
10,048. However, the Dow was net spec short as of last Tuesday and it shouldn’t
take long to bring the spec position down to a moderately liquidated standing.
We suspect that the September Dow is poised for a 2-3 day slide with an initial
target of 10,000.
S&P
We see the scope for a slide all the way down to 1082.20 and possibly new lows
for the year. While we think that the terrorism threats will be mostly
discounted, we would have been primed to short this market without the weekend
terrorism warnings. In fact, last week we were thinking that the 1103 level was
a point that the market would see the short covering wane and a place where
fresh selling would surface. Until the September manages a rise above 1103
assume that the trend is down.
FOREIGN EXCHANGE
US DOLLAR
Prior to the new terrorism warnings directed at the
US, it seemed like the Dollar was going to shake off the negative economic
readings seen late last week. In fact, the US Dollar managed a fairly impressive
close last Friday in a move that was against the tide of information. However,
with the addition of the terrorism threats lodged directly against the US, it is
clear that the Dollar has an added burden to carry. With a slide below 89.50 the
Dollar could come under aggressive attack and unless the US numbers this morning
provide something positive, we have to think that the Dollar is poised for a
downside thrust. In the past, the US stock market and the Dollar have been able
to discount terrorism windows but this time around the macro economic outlook
was already in question. Those that bought the 90 Dollar puts last week should
look to a slide to 89.00 early this week to take profits on those options. We
see the Dollar sliding lower early this week and then either short covering
ahead of the payroll report or short covering after the US payroll report is
seen. We can’t rule out a slide down to 88.75 in the coming sessions.
EURO
So far, the Euro hasn’t responded to the uncertainty
in the US. In fact, we are really surprised that the Euro hasn’t managed to come
out of the recent consolidation to the upside. Therefore, it is clear that the
market isn’t totally absorbed in the bull tilt. One probably has to favor the
upside in the Euro but the risk and reward of a long play goes against our gut
feeling. In fact, if the September Euro doesn’t manage to hold above the 120.26
level that could be a very significant undermine of the bull track.
YEN
It is surprising that the Yen is firm in the face of
such concerns toward the US but recently the Yen had seen the trade take down
its value because of the US economy and therefore that argument might already be
factored into prices. It is now possible that the Yen finds favor because the
world sees the Asian markets as much less vulnerable to terrorism. In fact, we
could see money moving aggressively toward Japan and China, if the terrorism
chatter becomes loud. Near term support is 89.92 and the Yen would seem to have
a near term target of 91.00.
SWISS
Like the Euro flight to quality buyers are not
rushing into the Swiss. In fact, the Swiss seems to be fighting the upward tilt
and would be considered in a bad technical posture if it falls back below 78.45.
BRITISH POUND
The Pound looks to be the currency with the most
favor. With the overnight pulse it appears to have the upward tilt and might see
a rise to resistance of 183.44. However, like the rest of the currencies today,
a failure to hold above 181.53 could be extremely damaging. Give the Pound some
time to rally but be skeptical of the upside potential.
CANADIAN DOLLAR
A light upward tilt is in place but the proximity to
the US economy might hold the Canadian back. Critical support at 74.90 must hold
in order to keep the trend pointing upward. In fact, in order to give the bulls
favor, the Canadian must probe above 75.39 today.
METALS
OVERNIGHT
London Gold Fix $393.25 +$3.65 LME COPPER
STOCKS 87,600 mt tons -850 tons COMEX Gold stocks 4.657 ml +23,849 oz Comex
Silver stocks 116.2 ml -349,002 oz
GOLD
The gold market finds support off the new terror
warnings and without those warnings the direction of the market today could have
been much different, as the Dollar appeared to shake off the disappointing
numbers last Friday afternoon and managed a close near the week’s highs. As it
stands, the specific targeting of the US applies pressure to the Dollar and that
in turn supports gold. We have to think that the economic information has turned
in favor of the bull camp in gold, as softer scheduled numbers can be made worse
by soaring terrorism fears.
SILVER
Given the upward probe in gold and the positive
technical progression in silver since the late July low, it would seem like
silver is poised to return to the $6.76 high. The weekly COT report showed the
combined spec position to be 62,000 contracts and that figure declined by just
over 5,000 contracts in the latest week. The strong upward action last week in
silver should send a message to the bear camp and in turn attract some
additional light buying.
PLATINUM
Until the July high of $834.8 is taken out, we
assume that the big picture trend is pointing down. However, given the positive
leadership in gold this morning, we suspect that platinum will have an upward
bias early this week. In fact, given a flight to quality tilt, a rally all the
way back to the June high of $841 shouldn’t be ruled out in the early part of
this week.
COPPER
It would seem that copper is opening the week strong
with Chinese and overnight LME price action pointing higher. We are a little
surprised that copper has managed to discount the sloppy macro economic readings
of the last two weeks but with Chinese and LME supplies still declining, the
whole shortage theme seems to be entrenched again. In the near term, the copper
appears to be in favor even above the 130 level and that is a little surprising
to us.
CRUDE COMPLEX
The energy complex finished last week ultra
strong and that would seem to leave the market firmly entrenched in the bull
swing. The weekly COT report showed the crude oil to be net spec long only
64,000 contracts but that positioning is understated given that crude oil prices
closed $2.00 above the level where the COT report was measured. The unleaded
market was net spec long only 22,000 contracts but the unleaded closed Friday
700 points above the level where the COT report was measured.
NATURAL GAS
While natural gas prices managed to rise last week
in the wake of sharply rising crude oil prices and the expectation of warm US
temps it would not seem like the market is in as bullish of a position as it was
for most of last week. Certainly the market raised some expectations with the
return to the $6.25 level but the rally last week still leaves the market with a
pattern of lower highs. However, as long as the regular energy complex is up in
the air over the Yukos situation, a general upward bias should remain in place.