Futures Point To A Lower Open
9/1/2004
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INTEREST RATES
The Treasury market continues to push upward and
with the recent flow of economic information, one can’t argue against the price
action. While the numbers released yesterday were subjective second tier
readings, the magnitude of the declines can’t be discounted. In fact, with two
separate entities reporting significantly weaker economic conditions, Treasuries
are doing their fundamental job by plowing into a higher trading range.
STOCK INDICES
Given the consistent rise in US Treasury prices
this week we would have expected the stock market to knuckle under, but it would
seem that the recent correction (off the August high) was enough to balance the
technical condition and instigate some bargain hunting buying. However, with
volume so low, one might be careful drawing too much of a conclusion from recent
stock price action, especially since scheduled US economic readings are showing
signs of more significant slowing. It is clear that energy prices declines have
lost their ability to directly support equity prices and with the potential for
a near term (but temporary) rise in energy prices, it will interesting to see if
the market experiences any selling off higher energy prices.
DOW
We suspect that the Dow will manage to track between 10,200 and 10,192, but a
slide down to 10,123 wouldn’t be surprising just under a meandering type effect.
As mentioned before, the stock market has managed to discount the economic
slowing but it won’t be able to continue discounting the slowing if the payroll
report Friday gives the slightest cause for concern. Therefore, the risk of
being long seems to easily outweigh the benefits of being long. In fact, the
path of least resistance should allow the September Dow to fall to lower support
of 10,080 in the coming sessions.
S&P
The S&P actually managed a really aggressive technical balancing off the late
August high and that might allow the market to shake off negative macro economic
developments of the coming three sessions. Near term downside support of 1102.10
should be able to hold, unless energy prices soar, construction spending or auto
sales contract sharply, or analysts begin to circulate much weaker expectations
for the Friday morning payroll report.
FOREIGN EXCHANGE
US DOLLAR
The Dollar deserved the pounding it saw on Tuesday
but we are not sure that it will slide directly to the August consolidation lows
down around 88.00 unless the week ending payroll report comes in below
expectations. In the end result, US economic numbers continue to soften and that
should take away the buying interest from the Dollar. Therefore, we don’t see
much of a bounce in the Dollar and a bounce to 89.05 might be a place for
aggressive traders to re-sell the Dollar. Reports that manufacturing activity
might actually post a decline (instead of a minimal gain) would be just the type
of development to rekindle the selling in the Dollar. There is the chance that
energy prices will firm again temporarily but we doubt that they are set to rise
enough to provide the Dollar with the support it saw into the middle of last
month. In conclusion, the Dollar appears to be headed lower, as the burden of
its economy weighs on its pricing structure.
EURO
The Euro continues to ride on the back of a
disappointing US economy. Without an ultra disappointed view toward the US
recovery, the euro zone would simply not have the fundamental case to pull in
consistent buying waves. However, anytime the US economy stumbles, the Euro will
get an offsetting benefit. Critical resistance in the September Euro comes in at
the moving average of 122.10 today and traders might want to wait for a slight
correction to 121.53 before re-entering fresh long plays.
YEN
After a significant upward pulse, the Yen does seem
to have encountered resistance around 92.00. We have a hard time buying the Yen
so close to the upper end of the last two months trading range, especially since
the economic outlook in Japan is in question. Sell 92.00 and buy 91.08 in the
September Yen, as there is little definitive trend action in place.
SWISS
Unlike the Euro and the Yen, the Swiss seems to have
an upside breakout underway. However, the Swiss also has significant overhead
resistance off the June, July and August consolidation pattern that could serve
to limit gains. Fresh longs might enter the Swiss on a dip to 78.91, risking
positions to a tight stop of 78.75.
BRITISH POUND
Wild volatility in the Pound could end up being a
sign that the trend is down, as the market mounted a massive recovery attempt
but in the end couldn’t seem to get out of the late August consolidation. A
breakout in the Pound comes with a trade outside of 179.83 and 178.84.
CANADIAN DOLLAR
The big range action in the Canadian Tuesday, might
be a bottoming signal and a trade above 76.31 might spark a wave of fresh
buying. The Canadian currently needs a lower US Dollar to rise and that could
easily be in the cards in the coming three sessions.
METALS
OVERNIGHT
London Gold Fix $408.00 -$0.10 LME COPPER
STOCKS 111,325 mt tons +6,375 tons COMEX Gold stocks 4.880 ml +56,433 oz COMEX
Silver stocks 109.3 ml Unchanged
GOLD
It is clear that the weak Dollar managed to support
gold, as the extremely weak US economic information released Tuesday, could have
undermined gold from a deflationary theme. However, while the US numbers were
weak, the markets are not totally ready to embrace the idea that the US economy
is set to slow precipitously and that means that the Dollar avoids an all out
washout. In addition to the recent Dollar support, we also suspect that gold
will garner some support from the new terrorism activities in Russia.
SILVER
While silver remains in an upward bias, trend line
support comes in relatively close to the current market at $6.62. In a negative
note, Mexico reported an 18.9% gain in silver output in June, with 278,022 kilos
produced. Mexico is the world’s largest silver producer so a pattern of
increases in monthly production could end up capping the bull trend.
PLATINUM
The platinum market seems to be partially undermined
by the Amplats projection of a 125,000 pounce 2004 surplus but the market might
discount those projections due to recent output problems at the company. While
we seriously doubt that the Russian terrorism issue is set to influence the
already reduced Russian platinum output, the prospect shouldn’t be ruled out. In
the near term, one can’t fight the trend, but one needs to be aware of the
overbought technical status.
COPPER
Copper prices continue to get support from the Peru
strike, as workers have stopped operations at two facilities. With the strike
influence the market simply discounts the sagging macro economic condition and
other bearish supply considerations. For instance, rising Mexican copper
production in June (up 17%) and a 6,300 ton increase in LME stocks overnight
could have undermined prices but instead the strike threat mitigates the selling
pressure.
CRUDE COMPLEX
The energy complex started out weak Tuesday but
managed to respect the prior day’s lows. Eventually energy prices managed to
recover into the close and that left some traders to speculate on a near term
low. We suspect that some buyers were moving in ahead of the weekly inventory
reports due out this morning, while other saw the terrorist actions inside
Russia as a possible threat against supply flow from that region.
NATURAL GAS
The natural gas market continued to press lower and
initially did so off the spillover pressure coming from the regular energy
complex. Traders are probably right in assuming that injections will continue to
build the annual surplus and that prices will continue to slide. However, we do
think that the technical condition of the market is approaching a significant
oversold condition and with a decline to $5.69 basis the November contract we
would expect the net spec positioning to reach a level that will prompt us to
begin looking for a critical cyclical bottom.