Futures Point To A Lower Open
8/6/2004
INTEREST RATES
The Treasury market continues to factor in a
slightly soft reading from the July payroll report. The problem is determining
where the real sentiment of the market stands. With early estimates whispering
about a +300,000 number and the trade consistently lowering its expectations, we
are not sure exactly where sentiment stands as we come into what might be one of
the most critical reports of the year.
STOCK INDICES
Just like the bond market, the action over the
last two weeks would seem to make it very difficult to trade into the payroll
report. However, considering the magnitude of the slide ahead of the big report,
we have to think that the bull camp has a slight edge. While we suspect that the
market will attempt to shake off a soft report, it will not totally discount the
report in the event that the payroll gain is less than +140,000.
DOW
The best thing the Dow has going is the fact that prices have already deflated
significantly and would seem to be factoring in very little if any growth!
Certainly the Dow futures are hugely net spec short but that won’t prevent a
further slide in prices if the fundamental track even hints at an extension of
the June slowing. This market is vulnerable, so traders should consider buying
August S&P calls, instead of being long futures.
S&P
Those that bought the August 1090 puts yesterday should consider banking a
profit ahead of the report and possibly buying a 1095 call for the day. While we
think the odds are slightly higher that payrolls will disappoint, prices have
already factored in moderate disappointment. We also tend to lean toward the
Greenspan view, when the economic outcome is too close to call.
FOREIGN EXCHANGE
US DOLLAR
While the Dollar sits perched on the top of a rather
surprising rally off the July lows, it is clear that some longs are moving to
sidelines ahead of the report today. In a big picture sense, the Dollar stands
poised in the middle of the May high to July low range and is clearly set for a
major reading. Something made the Dollar rally sharply off the July low and from
the economic report slate it is difficult to justify the climb. However, it is
possible that the market is sensing a slowdown in the Euro zone and other areas
just as the US began to see in June. Sometimes the market takes the view that
the US might still be slowing down a bit, but that the US is also probably going
to hook back up just as the Euro zone begins to see the effects of the US June
slump. Several times over the last two weeks, the US Dollar has managed to
completely avoid a major washout off patently weak US numbers and that could
happen today. However, the monthly payroll report is a little more difficult to
discount, as a second tier number might be and therefore any number outside of
+120,000 to +230,000 could have a profound impact on the Dollar. We still think
that at the money August Dollar Index 90 puts and 90 calls offer an interesting
play for the session today.
EURO
Something is wearing on the Euro and that something
gives a minor edge to the bear camp today. However, the September Euro has
managed to respect consolidation support on the charts and it is possible that
the Euro manages to hold above support at 119.90, unless the US payrolls rise by
more than +220,000. We don’t think that getting short futures is wise simply
because the market is so far below the July highs. In fact, we are not sure the
Euro has a major downside move in it and that seems to leave the trade with only
a counter trend play, of buying a call or staying on the sidelines.
YEN
The Yen appears to have a downward bias and with the
US stock market sliding into the US report today we have to think the trend is
down but a good US number could change the trend in the Yen.
SWISS
We suspect that the Swiss could easily slide to
chart support of 77.95 on a decent US report but we are not sure that the Swiss
manages a breakout down unless US payrolls rise by more than 225,000. However,
an upper end number certainly justifies an eventual return to the April lows.
BRITISH POUND
The Pound has surprisingly managed a series of
slightly higher lows and would seem to have taken its medicine with the recent
rate hike. However, for the Pound to soar, the US payrolls will have to
disappoint. The path of least resistance does seem to be up in the Pound.
CANADIAN DOLLAR
Favorable Canadian payroll readings apparently
weren’t enough to inspire early buying even with the unemployment rate falling.
It seems that the jobs added, fell short of expectation and were almost
exclusively in the part time category. In short, the Canadian has a big test of
the bulls resolve, as the numbers weren’t impressive for a currency that has
mounted a solid run lately.
METALS
OVERNIGHT
London Gold Fix $392.25 +$.45 LME COPPER
STOCKS 84,025 mt tons -650 tons COMEX Gold stocks 4.713 ml Unchanged Comex
Silver stocks 113.6 ml -610,208 oz
GOLD
While the gold market is apparently fixated on the
outcome of the US payroll report it isn’t clear what the market is looking for
in the report this morning. By most measures one would think that ultimately the
direction of the Dollar is the dominating issue for gold. Therefore, it might
take a much softer than expected reading this morning to undermine the Dollar
and in turn give gold some support.
SILVER
The silver market comes into the session today with
a minor upward bias. With exchange stocks declining again, the trade could begin
to speculate on continued supply tightening and that could help the silver avoid
a directionless trade. The silver market would seem to be caught between two
forces today, as a strong payroll reading supports the Dollar, which in turn
pressures gold.
PLATINUM
Like gold, platinum is coiling and in search of
leadership. We suspect that platinum needs a solid payroll gain in order to hold
and extend the gains forged since the late July low. It is a little discouraging
that platinum has so far failed to take out the July high, as that level seems
to offer significant resistance up at $834.8.
COPPER
Chinese copper prices were lower overnight and with
the US payroll looming this morning, we are not surprised that prices are weak.
We think the copper market is vulnerable to an extension of the downside even
though copper has mostly discounted the macro economic demand impact over the
last two months. However, copper has already corrected 455 points off the recent
high and that should partially insulate the market from a slightly softer than
expected US payroll report.
CRUDE COMPLEX
It was clear from the action Thursday that the
influence of Russian supply flow remains very critical to the world supply
mechanism. With the Russian government refreezing Yukos Bank accounts, the world
was once again concerned about a disruption in supply flow. With an EU
Commissioner calling for EU leaders to get together in an effort to control
soaring energy prices, we suspect that the IEA will be forced into action.
NATURAL GAS
While the regular energy complex action pulled
natural gas prices up, we suspect that the sagging macro economic view and
unusually cool weather are restraining long interest. The weekly inventory
report showed an injection of 83 bcf and that reading served to expand the
annual surplus tally. While the near term bias in energy prices might be
pointing upward, we seriously doubt that the natural gas market has significant
upside potential, without the direct benefit of soaring prices in the regular
energy complex.