Futures Point To A Lower Open
8/4/2004
INTEREST RATES
The Treasury market continues to grind higher, as
the regularly scheduled numbers continue to cast doubt on the strength of the
upcoming US payroll report. However, it should be noted that the Wall Street
Journal reported strong auto sales readings for July and some economists are
still suggesting that the June payroll disappointment was an anomaly. However,
we are really concerned that the “July†Challenger layoff report showed an 8%
increase in layoffs and that both the Chicago purchasing managers and the ISM
manufacturing employment readings declined.
STOCK INDICES
The stock market acts like it wants to discount
the fear that the US economy is softening but the combination of terrorism
threats and soaring energy prices is simply too much to totally discount. At any
other junction, the stock market would have been supported by the news from the
Wall Street Journal that US July auto vehicle sales rose over June and that the
July 2004 figures were better than July 2003. However, the market is just not
convinced that economic prospects are brightening and that is pushing investors
to the sidelines.
DOW
Near term downside targeting in the September Dow comes in at 10,013 and then
again down at 9,949. If the US payroll report disappoints in the slightest way,
one can expect to see the September Dow slide to 9,898.
S&P
The failure to hold above 1095 overnight clears the way for a slide to 1089 and
then to 1086. Soaring energy prices, extremely political mudslinging over the
recent terrorism alert and sagging expectations for the economy, leave the bears
in charge of prices.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is magically avoiding significant
pressure in the face of disappointing economic readings! The US Dollar is also
avoiding protracted weakness of the direct terrorism threat. Maybe the market is
sticking with optimistic projections for the Friday monthly payroll report and
that is providing the Dollar with such surprising support. Technical traders
sometimes suggest that a market that won’t go down, is a market that is ready to
rally. In the end, something fundamentally is providing the Dollar with support
and that something must be international respect for resiliency in the US
economy. Overnight the Wall Street Journal reported a surprisingly strong US
July auto sales report and that is just the type of report to discourage the
sellers. We still think that the September Dollar will find it hard to climb
above 90.15 and therefore we feel the risk of being long the Dollar is too high.
Yes the payroll report Friday could save the day and throw the Dollar up to a
new breakout on the charts, but it won’t take much of a disappointment in the
numbers to see the September Dollar fall sharply below 88.80.
EURO
While the Euro hasn’t managed to take advantage of
the weakness in US numbers, it also hasn’t totally violated consolidation
support on the charts. Therefore, the longs should not give up on the Euro yet.
However, given the ultra strong Euro zone retail sales gain of +1.8 for June, we
are very surprised that the Euro hasn’t rejected the overnight sell off. In
conclusion, something is preventing the Euro from regaining speculative buying
interest! Technical traders might suggest that a market that won’t rally on
positive developments is a market entrenched in a down trend!
YEN
Despite the favorable US auto sales readings
sentiment toward the Japanese economy is apparently lacking and the Yen is
destined to at least test the July low of 89.00.
SWISS
The Swiss is just barely hanging onto support on the
charts. In fact, even with stellar Euro zone economic readings this morning,
there is virtually no spillover support. Therefore, one can’t rule out a slide
to the chart pivot point at 77.95 but we are still not sure that a downside
breakout is ahead.
BRITISH POUND
The Pound is another currency unwilling to avail
itself of a rally opportunity at the expense of the Dollar. Therefore, expect a
drift down to chart support of 180.76.
CANADIAN DOLLAR
The thrust higher yesterday is a clear signal that
the Canadian wants to respect the uptrend pattern in place since the May low.
Maybe the Canadian sees the US economy recovering just enough, that its economy
will enjoy favorable spillover benefits but also doesn’t see the Dollar poised
to strengthen so much that the Canadian is pressured. In other words, the
Canadian is getting just the right mix of economic activity to facilitate a
return to the July highs.
METALS
OVERNIGHT
London Gold Fix $392.70 +$2.10 LME COPPER
STOCKS 85,375 mt tons -1,475 tons COMEX Gold stocks 4.657 ml Unchanged Comex
Silver stocks 117.3 ml +1.08 ml oz
GOLD
Despite recent data that could have undermined the
US Dollar and in turn supported gold prices, the gold market continues to be
soft. Apparently minimal gold price declines overnight were enough to force some
recent longs from position. We have to wonder what the impetus in gold will be
if the US Dollar avoids weakness on patently weak US numbers.
SILVER
So far, the silver market has managed to avoid
weakness radiating from the gold market. Fortunately there isn’t an overpowering
negative tilt toward metals but we are beginning to get the sense that
deflationary type sentiments are creeping back into the metals. However, given
the recent aggressive thrust higher in silver, the shorts are not totally
comfortable jumping in and pressuring prices.
PLATINUM
While platinum showed signs of testing the mid July
highs on the overnight opening probe, it has since backed down and might be set
to decline with the rest of the metals. With some economists suggesting that
soaring energy prices are reducing consumer spending patterns it’s not
surprising that platinum finds it more difficult to extend the rally from the
late July low. In the near term October platinum has critical resistance at $834
but might not have support until the market slides back down to $817.
COPPER
While the copper market has managed periodic rallies
this week, it has also managed to forge a pattern of lower highs and seems to be
working prices downward. Chinese copper futures were higher overnight but again
what buying was seen, was reported to be short covering and not fresh physical
buying. With the Press talking up reduced consumer spending, off ultra high
energy prices, we have to think that copper is being held back by macro economic
considerations.
CRUDE COMPLEX
The energy complex started the session out
yesterday by adjusting prices higher off talk from the OPEC President, that the
cartel might not be able to avert even higher price adjustments ahead by
providing oil quickly to the market. Saudi Arabia tried to diffuse the latest
pulse up in prices by suggesting that they could instantly provide 1 million
barrels per day of additional oil. However, in the end the assurances of Saudi
Arabia were met without deaf ears and crude oil managed to forge another new
high close.
NATURAL GAS
The natural gas market remains vulnerable to
liquidation even in the face of new highs in crude oil prices and that clearly
highlights the negative fundamental structure in natural gas. In fact, if the
regular energy complex were weak, we would have expected an even quicker slide
to the mid April consolidation low around 575 in the October contract.
Surprisingly the natural gas market is closer to a significant oversold
technical condition than many would expect but we doubt that the market is so
oversold that additional selling is discouraged.