Futures Point To A Lower Open
9/22/2004
INTEREST RATES
The Treasury market remains resolute in the
bullish stance even after the Fed floated a barrage of optimistic dialogue on
the market in the FOMC statement. Apparently the Bond dealers and economists on
Wall Street are convinced that Treasury prices are undervalued and that the Fed
actions in the coming months won’t result in a significant slide in prices. With
the US economic report slate empty today, the bull camp would seem to maintain
control over prices but the market could be impacted by a flurry of speeches
scheduled throughout the session.
STOCK INDICES
While the stock market showed an impressive
reaction to the events yesterday, we continue to be concerned about the outlook
for the coming weeks. With the US Fed obviously discounting the impact of
soaring energy prices and the numbers remaining soft, we have to think that the
investing public will be discouraged from throwing itself at this market.
However, it is certainly a positive that the necessary evil of higher interest
rates wasn’t a sentiment damaging development, especially with the Fed promising
to act again in November.
DOW
As we suspected the move to hike rates hit the Dow a little harder than other
sectors of the market. Furthermore, with the Fed talking about even more hikes
in the future and mostly discounting the impact of high energy prices, it seems
like the Fed is wearing rose colored glasses or is simply disregarding most of
the scheduled report flow. The Treasury market even thinks that the Fed is
understating the vulnerability of the US economy and that is keeping some buyers
on the sidelines in the equity market. Therefore, we expect more gradual
declines ahead, with a target of 10,120 in the December Dow.
S&P
The December S&P comes into the session this morning almost exactly at mid range
of the anticipated consolidation pattern. Typically the S&P doesn’t behave
strongly following an extended consolidation and that concerns us. However, in
the mean time the market appears to have enough bullish resolve to hold above
the critical 1120 support level. On the other hand, unless there is something
surprising positive thrust into the spotlight we doubt that the S&P will be able
to rise above heavy resistance at 1130.30.
FOREIGN EXCHANGE
US DOLLAR
After a significant beating, the Dollar has managed
to reject the recent lows. However, we get the sense that the Dollar has managed
the bounce off the impact of the Fed dialogue and that dialogue might begin to
lose its capacity to support the Dollar as the FOMC meeting disappears into the
distance. While some might suggest that higher US interest rates will serve to
pull in capital, due to higher yields, we are concerned that the US Fed will be
seen as having their head in the sand. We suspect that the Dollar will be able
to mount a bounce to 88.72 but then we would begin to entertain the idea of
getting short. The pattern of lower highs on the charts, weak and sloppy US
numbers and consistently firm energy prices would seem to leave the Dollar
poised for lower action ahead.
EURO
The Euro showed signs of making a big upside bid but
in the end the Euro zone lacks the fundamental standing to justify such a move.
In fact, if the Euro zone had any economic standing at all, the Dollar wouldn’t
have recovered off the lows posted Tuesday. With Euro zone Industrial orders for
July posting a 0.6% decline and new orders falling for the second month in a
row, it is clear that the Euro zone economy is faltering. The problem is that
Euro stats are slowing than the UN Peace Process, and the market really needs to
know the current standing of the Euro economy to compare it to the US. In the
near term, expect the euro to fall back to 122.18 support.
YEN
With the Yen seemingly forging a downside failure on
the charts overnight and the US economy managing to weave its way through a rate
hike, it would seem like the Yen is destined to decline. Near term downside
targeting of 90.80 is seen in the December Yen. In the end, a lack of confidence
toward the US recovery, means that a host of export companies in Japan could do
poorly and that in turn slows the Japanese economy.
SWISS
The Swiss has fallen right back to the middle of the
anticipated trading range and could see more minor losses before pivot point
support at 79.19 holds up prices.
BRITISH POUND
The Pound is mired within a consolidation and might
slide down to 177.22 before support manages to hold up prices. As in the other
currencies, there just isn’t a big enough differential to cause a breakout in
either direction.
CANADIAN DOLLAR
The Canadian might have gotten a little overbought
on the overnight pulse up and some suggest that the market has forged a blow off
top. In short, it would not be surprising to see the December Canadian fall back
to 77.35.
METALS
OVERNIGHT
London Gold Fix $407.50 +$2.05 LME COPPER
STOCKS 101,450 mt tons -825 tons COMEX Gold stocks 4.951 ml +16,342 oz COMEX
Silver stocks 109.3 ml -547,052 oz
GOLD
The gold market certainly hasn’t maintained the
bullish attitude seen into and through the US Fed decision yesterday to hike
interest rates. Apparently the Dollar was saved by the fact that the Fed was so
upbeat toward the US economy and so far the market is accepting of the Fed’s
optimistic outlook. In the end, it is really difficult to get overly optimistic
toward gold, with the Fed proactive on inflation, the economy limping toward
recovery and the Dollar showing signs of rejecting the lows posted yesterday.
SILVER
After silver managed an upside breakout on the
charts, it barely managed to hold those gains. We do think that silver found
just enough optimism from the Fed on the economy to maintain a positive tilt,
but we are not sure that gains will be that aggressive. With volume totals
falling for the month of September, it would not seem like the recent rally is
getting broadening support from the trade.
PLATINUM
January platinum appears to be on the verge of an
upside breakout and with the Chinese continuing to show strong interest in
copper, we suspect that platinum will see some spillover support. A big volume
spike on Monday seemed to help the platinum market forge a bottom and therefore
the near term bias is pointing upward.
COPPER
With the Chinese copper market finishing limit up
overnight, it is clear that the market is playing catch up but it is also clear
that US prices have the ability to track even higher than Tuesday’s highs. So
far the market is seeing the potential for even more Chinese demand and that is
driving prices. Even the move to hike interest rates in the US wasn’t a limiting
factor for copper and with the funds willing to throw themselves at the market
following an upside breakout, it is clear they are very bullish toward the
market.
CRUDE COMPLEX
The energy complex continues to show no sign of
halting its upward grind, despite the lack of a dominating bull story. In fact,
given our recent analysis on US gasoline stocks, (they hold an annual surplus
and a surplus to the 12 year average) we would have expected energy prices to
have weakened off news yesterday afternoon that August gasoline demand declined
by 2% versus August of 2003. The bulls can rightly contend that last August the
economy was much slower but we have to think that last August the fear of flying
was much greater and therefore gasoline consumption last August was probably
pretty strong.
NATURAL GAS
The natural gas market is getting support from the
regular energy complex action and because of the continued delay in returning to
full production in areas around the Gulf of Mexico. In the mean time, we would
not be surprised to see an additional pulse up to $6.78 before the market gets
in a position to forge a temporary top. According to sources the US yesterday
was still reporting that up to 22% of natural gas production in the Gulf was
still shut down following hurricane Ivan.