Futures Point To A Lower Open
10/5/2004
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INTEREST RATES
The Treasury market has managed to recoil away
from the lows forged early Monday morning and that could certainly be the result
of renewed strength in energy prices, but it could also be the result of an
ongoing pattern of softer than expected US economic numbers. Overnight German
economic readings came in soft and that in an indirect way provides minimal
support to US Treasury prices. With the Challenger Layoff report and the ISM non
manufacturing Index both due out this morning, we have to think that Treasuries
will continue to get support from the fundamental condition of the US economy.
STOCK INDICES
The market continues to maintain a generally
positive bias, despite the fact that US economic information and energy prices
are dampening investor optimism. Apparently housing stocks and software
companies provided long incentive Monday and with the Fed emphasizing the
important of the housing sector in judging the health of the economy it might be
easy to maintain bullishness for at least another session. However, it would
seem like the market is expecting a contraction in the US durable goods report
this morning and it is also possible that the Challenger Layoff report shows
increased job loss and the Challenger Report might be given added importance
today because of the week ending monthly payroll release.
DOW
The bias is up in the December Dow, with near term critical support targeted at
10,192. An upside pivot point (and near term resistance) is seen at 10,247 and a
rise above that level could foster another wave of buying in the market. Seeing
steel makers come into vogue Monday would seem to be counterintuitive to the
softness in the regularly scheduled reports but it is clear that the market is
willing to bid up large cap stocks in the Dow on any thread of fundamental hope.
It is also possible that the funds are bidding up the Dow in an effort to keep
it in relative value to the S&P.
S&P
The upward bias continues even though the December S&P would seem to be limited
by the highs posted Monday. In our mind, it is clear that the S&P is leading the
market higher and that high energy prices and soft US numbers are only a minor
detriment to the bull tilt. The path of least resistance is up but we think that
longs are discounting a significant amount of potentially bearish information!
FOREIGN EXCHANGE
US DOLLAR
The Dollar deserved to recoil away from the low last
week but we are pretty convinced that the Dollar hasn’t thrown off the overall
downtrend pattern that has been in effect since May. In fact, if it were not for
the favorable Fed dialogue, we would have trouble finding fundamental support
for the Dollar. With energy prices rising back to new highs this morning and US
numbers remaining soft we have to think that the Dollar could become a sell
later this week. In fact, on a rally to 88.77 today we would suggest that
aggressive traders look to get short the Dollar for the Friday morning payroll
report. It does seem like the Fed’s insistence on the rate hike stance is
providing the Dollar with support, but that issue might already be priced into
the equation.
EURO
While the Euro is on the technical rocks this
morning, we are not sure that the currency deserves to continue the declines
seen over the last two sessions. Certainly the Euro was disappointing by the
weakness detected in the German monthly payroll readings, which showed an
increase from 10.6% to 10.7%. The German economy actually saw the jobless level
rise by 27,000 and that would seem to lower the bar for the US report on Friday.
In short, we can’t argue against more minor declines, but like our opinion in
the Dollar, we expected a reversal in the Euro later this week.
YEN
If the US economic outlook slumps and energy prices
soar again, it would seem like the Yen will be thrust right back into the same
position that was present during the September washout. In other words, we
suspect that the Yen is poised for a slide back to support of 90.20 but we also
can’t rule out a new low for the move, in the event that the US payroll report
on Friday is disappointing.
SWISS
We suspect that the flight to quality longs have
already been extracted from the Swiss and now that energy prices are ramping up
again, it might be time for the flight to quality longs to re-enter the Swiss.
Critical support in the Swiss is seen at 79.16 and that level might be bought
for a 3 to 4 day hold.
BRITISH POUND
The Pound has fallen through critical support
overnight and would seem to be headed down to 176.93. However, we suspect that
Dollar strength will melt away into this coming Friday and that the Pound could
be a buy in the coming 3 sessions.
CANADIAN DOLLAR
The correction in the Canadian certainly undermines
the technical setup in the Canadian but unless the outlook for the US economy
really deteriorates, we don’t expect to see the Canadian Dollar bull trend break
apart. Therefore, aggressive traders should be a buyer of the December Canadian
today at 78.41.
METALS
OVERNIGHT
London Gold Fix $414.25 -$4.60 LME COPPER
STOCKS 97,625 metric tons -2,525 tons COMEX Gold stocks 5.12 ml Unchanged COMEX
Silver stocks 107.3 ml -295,587 ml oz
GOLD
Apparently the Dollar is being driven in part by
energy prices as early weakness in crude oil prices Monday seemed to foster
strength in the Dollar and weakness in gold. With crude oil prices managing to
rise back to $50 in the overnight action, the Dollar seems to have weakened and
that would seem to have put gold in a slightly better position into the US
opening. It is still disappointing that the sharp rise in equity prices didn’t
spark expectations of increased physical demand for gold.
SILVER
Even though silver fell below channel support on the
charts, we don’t get the sense that the market is poised to slide aggressively.
The next lower trend line support in December silver comes in at $6.635 today
but a closer in critical pivot point is seen at $6.665. It is really
disappointing that silver failed to get a positive reaction off the recent rise
in global equity prices, but with copper and platinum showing weakness, it would
seem like the base metals market fundamentals are more important to silver than
the flight to quality financial aspect that typically dominates gold.
PLATINUM
While the January platinum market temporarily
violated extremely critical support on the charts of $819 yesterday, it is clear
that the market bounce backed and established the $825 level as a fundamental
support zone. Apparently there is no progress being made on the labor impasse at
the Angloplat mine and Dow Jones is reporting the potential for more down time
at the Impala mine and that would seem to give technical support levels a big
assist in propping up prices in the coming sessions. While we are not sure an
aggressive buy is in order during the Asian holidays, we do think that January
platinum could be considered a buy on dips to $825.
COPPER
The copper market continues to waffle just under the
recent highs and if it were not for the strength in equity prices and the
potential for lost production off labor issues, prices might be exhibiting more
weakness. The bulls are certainly glad that LME stocks didn’t post another
significant build, as was seen Monday morning, as that could have caused a more
aggressive liquidation. Apparently China continues to hold talks with a Chilean
copper concern, despite ongoing talks to purchase Noranda and many might take
that as a sign that China is interested in large volumes of copper in the
future.
CRUDE COMPLEX
The energy complex continues to hover around the
recent highs and might have been lifted Monday by talk from Venezuela, as they
once again pointed out that OPEC has VERY little spare capacity. While the IEA
and the G7 have asked OPEC to do whatever is possible to bring down oil prices,
it would seem like Venezuela is still content to keep the hype alive and in turn
keep the speculative bubble in energy prices alive. Venezuela did suggest that
OPEC was currently producing up to 2 million barrels per day above the existing
quota.
NATURAL GAS
One has to be impressed with the action in natural
gas because the market showed only minimal vulnerability in the wake of crude
oil weakness Monday morning. However, we have to think that natural gas will
continue to show significant daily price volatility in the days ahead, partly
because of the lofty flat prices standing and partly because the direction of
crude oil prices is more uncertain now than it has been in months. Apparently
Gulf production problems are not being solved as quickly as the market would
like and that is keeping the commercial buyers on the market.