Futures Point To A Lower Open
8/11/2004
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INTEREST RATES
The Treasury market seemed to read between the
lines following the FOMC decision to hike interest rates. In other words, the
trade saw the Fed dialogue hinting at an economy that is poised to regain
strength once the burden of ultra high energy prices is removed. However, we
have to wonder what series of events will be needed to effectively deflate
energy prices and leave them low enough that the consumers actually see a
windfall.
STOCK INDICES
We are a little surprised that the short covering
rally in stocks began to unfold prior to the actual FOMC decision yesterday.
Consequently the stock market got an additional short covering lift off the
dialogue from the Fed, which was characteristically optimistic. Certainly the
stock market was excessively oversold and due for a relief rally, but we are
pretty convinced that the market hasn’t finished the downside tilt.
DOW
Following the technical bounce in the Dow, aggressive traders should look to get
short for a minor slide lower, but we have to think that the 9,800 level will
provide pretty solid support in the near term. We still don’t see the
fundamental or technical reasoning to call for a major low. Traders should be
comfortable selling even minor rallies in the near term.
S&P
Now that the market has corrected the severe oversold condition, it would seem
to be a little safer to get short, looking for a return to the 1065 level. In
order to turn the trend away from the downside we need to see significantly
optimistic fundamental headlines or a couple closes in the September S&P above
1077.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is getting a solid measure of short
covering and a minimal amount of fresh buying off the optimistic Fed dialogue.
However, we are not sure that US numbers are going to provide enough strength to
perpetuate the upside in the Dollar. Certainly the Dollar is given a measure of
support off the fact that other economic zones are starting to show signs of
softening. Overnight the BOE suggested that the UK was set to see growth rates
soften and that lowers the macro economic differential bar and makes the US
anemic growth seem attractive. However, once the short covering tilt runs its
course, we suspect that the Dollar interest will wane. Therefore, aggressive
traders might get short the Dollar but a risk to 89.50 might be necessary. There
really isn’t a dominating force in the currency markets and that could mean that
the technical condition holds more sway over prices.
EURO
In order for the Euro to have risen sharply and
managed an upside breakout, the US needed to stumble badly. Following the Fed
decision to hike rates and the subsequent flow of favorable dialogue, it is
clear that the US isn’t going to come under fire from recent events. Therefore,
the Euro is probably set to correct back to chart support of 122.00 but that
level could easily be respected.
YEN
According to Dow Jones, Asian Central banks are
hoping they can avoid moving rates in direct relation to the US Fed and that
could be a slightly supportive development for the Yen. In fact, seeing the BOJ
leaves rates accommodative for as long as possible, would seem to give the Yen
some support. However, the US rate hike damaged the Yen on the charts and could
result in the Yen testing lower support of 89.52.
SWISS
While near term support of 79.28 might hold, we
would not be surprised to see the Swiss slide down to 78.94 in the coming
sessions.
BRITISH POUND
The Pound is under a light liquidation tilt, as the
negative economic outlook floated by the BOE simply causes a downgrade of the
Pound. It would also seem like the economic information released from the UK
overnight is pressuring the Pound. Apparently the jobs figures overnight leave
the market disappointed with the UK economy and that could mean a slide to the
bottom of the late July and early August consolidation of 181.20.
CANADIAN DOLLAR
Like the Pound and Yen, the events of the last 24
hours seem to have undermined the Canadian. Therefore, traders should expect a
correction back down to chart support of 75.25 and possibly a decline down to
even numbers at 75.00.
METALS
OVERNIGHT
London Gold Fix $396.25 -$2.80 LME COPPER
STOCKS 81,750 mt tons -900 tons COMEX Gold stocks 4.713 ml unchanged COMEX
Silver stocks 110.9 ml -579,740 oz
GOLD
We still get the sense that gold is being negatively
influenced by the threat of global slowing. With the US hiking interest rates
yesterday and the BOE downwardly revising growth and calling for a sharp
slowdown in housing prices, the chance for inflation is seriously reduced. In
fact, as we have said a number of times over the last year, it is unlikely to
see inflation unless the market progresses through a period of sustained
economic growth.
SILVER
The negative tilt in gold is weighing on silver but
another decline in exchange stocks of 579,000 ounces leaves that key supply
measure as a key supporting item for silver. With exchange stocks dipping down
to 110.9 million ounces, it would appear that a pattern is developing and that
could spark a strong recovery bounce, once the negative influence of gold has
run its course. In the near term, we would wait for a correction down to $6.54
to get long September silver, using an objective of 703 and a risk of $6.44.
PLATINUM
The platinum market seems to have lost some of its
upward momentum and is possibly being negatively influenced by the gold market.
We also think that the slightly negative macro economic tone present in the
market this morning is tempering the expectation for solid forward demand in
platinum. Critical downside support in October platinum comes in today at $835.
COPPER
The copper market managed to absorb the decision to
hike rates in the US without a negative price reaction. Chinese players were
buying overnight and that provided the market with support. Evidence that
Chinese copper prices rose 6.4% in July would seem to reconfirm that demand for
copper remains high and that the supply of Chinese copper is at least somewhat
tight.
CRUDE COMPLEX
The energy complex did manage a slight new high
before settling back down into the close yesterday. The energy complex
supposedly softened off news that Iraqi export flow had resumed. During the
session the market appeared to weaken off reports that some type of deal was in
the works in southern Iraq, which would result in a resumption of production
from that area.
NATURAL GAS
Apparently the threat of supply disruptions in the
Gulf of Mexico sent prices soaring early in the session Tuesday, but the market
was unable to hold those gains into the close. As we expected, the natural gas
market was capable of forging a temporary rally above $6.05, but the cool
weather outlook and the lack of a sustained bullish fundamental setup means that
constant hurricane threats are needed, just to discourage downside pressure.
Since we are beginning to sense a temporary pause the upward track of the
regular energy complex, we aren’t as concerned about the BTU/arbitrage support
that has been flowing from crude oil.