Futures Point To A Lower Open
10/8/2004
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INTEREST RATES
The Treasury market comes into the session this
morning injured by the 3 point decline off the September high but at least
partially supported around the 111 level (basis December bonds) by the prospect
that hurricane influences might provide a surprise in the 7:30 cst report.
However, expectations call for a moderately impressive gain in payrolls
(compared to European counterparts) and that would seem to have been at least
partially factored by the events of the last couple weeks. Some traders suggest
that most of the recent break in Treasury prices were the result of Fed rate
hike mentality and not because of a more favorable view on the economy.
STOCK INDICES
Favorable earnings from GE give the market a
positive boost into the critical monthly payroll report release this morning.
Even oil prices are showing some early weakness and that is a minor, but more
than likely temporary condition. Undermining bullish sentiment slightly are
reports of terrorist bombings and suggestions from US oil experts, that US oil
production in the Gulf of Mexico could remain crimped until next year.
DOW
While we are generally upbeat on the near term prospects of stocks, the Dow
chart doesn’t look very encouraging. In fact, the chart shows a pattern of lower
highs and considerable overhead resistance. Therefore, the December Dow might
have to get above 10,169 in the first hour of trade, or the market might be
headed down to 10,092. We would suggest that traders sell a December Dow at the
market ahead of the report and at the same time buy 2 November Dow 10,200 calls
for 350-370 points. Selling futures and buying 2 calls is a volatility play,
with a slightly bullish tilt.
S&P
While the December S&P chart looks vulnerable, this market has consistently
plowed through negative fundamental developments. However, the December S&P has
a critical pivot point at 1133.60 this morning. For those that want to be long,
buy a December futures and buy a December S&P 1130 put. The market seems like it
wants to continue the upside tilt in place since the August low, but make no
mistake about it, the report today is an extremely critical junction!
FOREIGN EXCHANGE
US DOLLAR
The Dollar gapped sharply lower overnight as
European currency traders have put their money on the forecasts that US numbers
will fail to live up to expectations. One European analyst suggested that US
numbers would be “weakish†but it would seem that the world is requiring the US
economy to be much stronger than the rest of the world. After all, European
payrolls are more than likely contracting, while the US Dollar could well be
forced lower because it didn’t produce 140,000 jobs in a month, where hurricanes
wreaked havoc on the US economy. Unfortunately, the Dollar might not even get a
benefit from a good number, as the market hasn’t been tracking the macros. In
other words, US rates are on the rise (thereby giving the Dollar the interest
rate differential edge) and US growth, in the worst case, is still expected to
be twice as strong as Europe (thereby giving the Dollar the economic
differential edge). Overnight an EU study predicted that GDP growth in 2004
would be only 1.8% and that is probably only a little better than half of the
growth rate expected in the US. However, the market has the ability to press the
Dollar down to consolidation support of 88.00 but being short the Dollar, is
going against too much information!
EURO
We just can’t get bullish toward the Euro even if it
is capable of rising to 124 in the coming 2 hours. Some might suggest that the
charts have a clear pattern of higher lows and therefore an uptrend is in
effect. However, a little thing called risk and reward suggests to us that the
longs might not get enough reward to risk seeing the December Euro fall back to
122.00 by mid afternoon. For our money we would buy a November Euro 122.50 put
for 100 and plan to hold into next week.
YEN
We think the overnight action in the Yen is
indicative of the ultimate outcome of the payroll report this morning. In other
words, the Yen thinks that the US is going to show good growth, which in turn
would seem to improve the prospects for Japanese exports. Therefore, unless
there is a shockingly negative reading from the US, the 90.00 level is a solid
low and the Yen might be poised to rise toward 91.90.
SWISS
If the US number is even in the ballpark, we suspect
that the Swiss find it difficult to add to the gains forged off the lows this
week. In fact, aggressive traders might consider getting short the Swiss into
the report this morning, but one must keep in mind that the currency markets
really don’t present a solid trend reading.
BRITISH POUND
We have to think that the Pound is destined to run
out of upside momentum after a minor attempt to rally today in either direction.
However, if the Pound manages to rise above 178.20, we would abandon our mostly
negative view toward the currency.
CANADIAN DOLLAR
Given that the Canadian economy produced 43,200 jobs
and saw its jobless rate decline, we have to think that the bull trend is set to
continue. In fact, the only thing capable of derailing the Canadian would be a
much stronger than expected US payroll and that shouldn’t be ruled out.
METALS
OVERNIGHT
London Gold Fix $418.05 +$0.15 LME COPPER
STOCKS 92,000 metric tons -1,625 tons COMEX Gold stocks 5.12 ml Unchanged COMEX
Silver stocks 106.9 ml Unchanged
GOLD
A number of bomb attacks in Egypt and Paris sparked
some flight to quality buying overnight and with the Dollar also showing signs
of weakness, the bulls are given a minor edge. With the US monthly non farm
payroll report coming on top of what seemed to be a coordinated wave of terror
attacks, we have to think that volatility could be drastically expanded. In the
event that the US payroll readings are disappointing it is possible that the
Dollar comes under aggressive pressure and that in turn could lift gold.
SILVER
Surprisingly December silver has not lifted up
toward the previous days high, despite the fact that Chinese gold, copper and
aluminum prices were sharply higher overnight. The Press was suggesting
yesterday that silver was overbought and apparently some longs are uncomfortable
holding positions through the reports this morning. It is surprising that silver
is weak this morning as a number of outside indicators seem to be positive for
the market this morning.
PLATINUM
Surprisingly the platinum market is falling into the
weaker category today, despite what appears to be a generally favorable post
holiday lift in Chinese gold, copper and aluminum action. Dow Jones news
predicted that platinum could strengthen, while palladium could weaken because
of divergent fundamental conditions in the two markets. Critical chart support
in January platinum comes in at $837 and then again down at $831.
COPPER
The Chinese returned from holidays in a buying mode
and that was all that was needed to propel copper prices into new high ground.
Adding to the bullishness were reports that Shanghai copper stocks declined by
2,882 tons to stand at 20,493 tons. The funds continue to buy the market and
that is also giving the market an additional push higher.
CRUDE COMPLEX
We are not sure if the fear of lost production
from Norway off a strike was the main reason behind the extension of the rally
on Thursday, but given the current setup almost any supply threat is cause for a
strong rally. While we suspect that the COT report after the close today will
show a significant small spec and fund long, we doubt that the figures will
manage to leap to a record level. In other words, the market is getting
excessively overbought but probably hasn’t reached a historically long position.
NATURAL GAS
While natural gas prices slumped slightly off the 81
bcf injection on Thursday morning, prices quickly threw off that information and
charged sharply higher. Part of the rise in natural gas prices is coming from
the Gulf outage, part is coming from talk of a cold winter, part is coming from
the relative BTU price comparison with crude and lastly part is coming because
of soaring speculative buying from the industrial use sector of natural gas. The
annual surplus in natural gas narrowed to 188 bcf and that combined with cold
weather forecasts, have fostered a new wave of buying.