Futures Point To A Lower Open
8/3/2004
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INTEREST RATES
The Treasury market posted some poor action
yesterday, as prices could have charged higher off the increased terrorism
threat and the somewhat sloppy US economic report flow, but instead the bonds
acted as if prices were overbought. We can understand the market having some
hesitancy ahead of the coming payroll report, as many would be bulls are aware
of the rather lofty expectations for the report. However, within the recent
numbers there suggesting that the employment report might not be as strong as
expected.
STOCK INDICES
All one can suggest is that the market has
significantly more tolerance of terrorism! In fact, while some of the buying
yesterday was short covering and volume was generally light, it almost seemed as
if some fresh buyers came into the afternoon trade. It is also impressive that
the market took the early economic information and put a favorable spin on it,
especially since the ISM employment Index declined. Some traders suggested that
the stock market was so oversold from the big July decline, that funds and
speculators were simply resetting their positions on the first day of August.
DOW
The trend is down but the market certainly has enough scheduled information
today to turn the trend around. However, as mentioned before, the payroll report
has to head off the concern that the June slowing was the beginning of a pattern
of slowing. Critical near term support is pegged at 10,130 and to turn the trend
up, the Dow must regain 10,179 today.
S&P
We see the S&P trading in an 1104 to 1096 range in the coming sessions. Many
technical traders were expecting to see 1086 on the downside and that shows the
technical crowd is leaning toward the bear case. We think the longs are
vulnerable to 500 to 800 point losses from current levels, but we wouldn’t be
shocked to see prices manage a slow grind higher. If prices declined to 1092 we
would get long for the Friday report, but if the market manages a rise above
1108 the risk and reward of being long is very unattractive to us.
FOREIGN EXCHANGE
US DOLLAR
Like the US stock market, the US Dollar posted a
very impressive trade on Monday. Apparently the market is willing to give the US
economy the benefit of the doubt, as the numbers yesterday could have easily
undermined the Dollar. As it stands, the market is unwilling to pressure the
Dollar and with a little extra help from the numbers today, the Dollar could
attempt to return to last weeks highs. However, traders need to watch the
Challenger Layoff report closely as that could bring about a surprise. Unless we
are about to see evidence that the US economy remains strong and that the June
slowing was temporary, we suspect that the September Dollar will rise but will
be unable to rise above 90.20. The early numbers should foster Dollar gains,
while the second set could prompt selling. In the end, expect the Dollar to
waffle and consolidate into the Friday payroll report. No country appears to
have a significant and distinct economic edge!
EURO
For those long the euro the last several sessions
have to be a major disappointment. In fact, considering the direct terrorism
threats against the US and the poor Euro zone numbers late last week, the Euro
is really not in a leadership posture. In fact, the Euro would seem to be
vulnerable to a downside breakout on the charts. A slide back below 119.90 could
signal a slide to the June lows down around 119.36. Maybe the Al-Qaida arrests
in Pakistan are causing traders to dump Euros and move into the Dollar.
YEN
While the Dollar has shown some recovery capacity
over the last several sessions, the Yen isn’t showing the same weakness as the
Euro and the Swiss off the Dollar action. Therefore, it would seem like the Yen
is benefiting from the slightly favorable developments toward the US economy.
Remember it seemed like the Yen saw the July decline because of deteriorating US
economic predictions and now that the US is skirting negative sentiment off the
renewed terrorism threats, the trade is mostly buying the Yen back. Therefore,
the Yen would seem to have decent support at 90.00. We are not sure the yen can
manage a rise but the downside tilt seems to be thwarted.
SWISS
The bias is down and the Swiss is vulnerable to a
washout. All it would seem to take to put the Swiss out of the formation to the
downside is a series of slightly supportive US economic readings or an extension
of US equity market gains. A slide to 77.70 in the Swiss can’t be ruled out by
the close Friday.
BRITISH POUND
While the Pound is weakened we doubt that the
upcoming developments will manage to press the Pound below consolidation support
just above 180. However, given that the Pound has failed off a significant high
in July, could mean that the market is destined for a more significant washout
ahead.
CANADIAN DOLLAR
Waning momentum off the rally last week, puts the
Canadian in a position where it needs to prove that it can avoid a washout. In
fact a trade below 74.96 today could start the ball rolling and send the
Canadian down to 74.65, where a major pivot point is encountered.
METALS
OVERNIGHT
London Gold Fix $390.60 -$2.65 LME COPPER
STOCKS 86,850 mt tons -750 tons COMEX Gold stocks 4.657 ml Unchanged Comex
Silver stocks 116.2 ml Unchanged
GOLD
In the ebb and flow of the Dollar, the trade sees
the action Monday as a sign that the Dollar can absorb and shake off terrorism
threats and that undermines the gold market. The fact that US equity prices
finished higher largely discounted the minor Dollar slide on Monday and by the
end of the day the gold market really hadn’t seen as much flight to quality or
economic uncertainty as the market was expecting. While we detected slight
weakness within the US ISM reading yesterday (the employment reading declined),
the Dollar was generally lifted from the news and that in turn seemed to knock
the early long interest out of the gold market.
SILVER
Unlike the gold market, silver is holding most of
the recent gains but it can’t help but be restrained by the slightly negative
chart action in gold. The September silver has a critical pivot point at $6.54
but real support might not be seen until $6.445. The silver market continues to
hold above its 40 day moving average and the silver market might get a little
more support from the economic numbers than the gold market.
PLATINUM
The platinum market is holding near its recent highs
and seemed to be lifted aggressively yesterday by expectations of improving
demand. However, seeing the October platinum fall back below $824, could be
damaging to the current bull tilt. Platinum needs to see more talk about
improving Asian demand in order to retest the July high of $834.8.
COPPER
After probing above the July highs, the copper
market seemed to settle back toward psychological support of 130. The 130 level
remains a critical pivot point, with the market leaning to the upside but the
macro economic case just doesn’t seem to foster enough optimism to keep prices
rising above the recent highs. Chinese copper futures were slightly higher but
managed the rally off short covering, instead of fresh physical buying.
CRUDE COMPLEX
Overnight OPEC is suggesting that they may not be
able to produce enough oil to stop the upward track in prices and that has given
the market a positive focus to start the session out. However, Saudi Arabia did
suggest that they could still “immediately†increase output and that is
tempering the optimism this morning. The energy complex certainly displayed
evidence of an overbought condition early Monday but didn’t really throttle down
in the wake of news that Yukos had possibly won a minor victory in court.
NATURAL GAS
Natural gas prices failed miserably Monday and did
so because of deflating supply concerns in the crude oil market and because of a
generally mild temperature forecast for a large portion of the US. While we see
the $575 area as a value zone, we can’t rule out a slide to $560 or 550 if the
regular energy complex decides to washout at the same time that natural gas
prices decide to wash out the small spec long in an end of summer liquidation.
We have to think that cooling demand expectations are now weighing on the
market, as the heat forecasts are mitigated by intermittent rain events and
cooler temps at the end of the 6 to 10 day forecast.