Futures Point To A Lower Open
10/12/2004
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INTEREST RATES
The Treasury market should continue to adjust for
the significant surprise in the Non farm payroll report last week. However, the
Treasury market should also be lifted by increased macro economic concerns that
are fostered by soaring energy prices and talk of significant layoffs at GM’s
European unit. The Treasury market hasn’t been paying too much attention to the
regularly scheduled economic reports, but given the upward pulse in prices
overnight, we have to think that any weakness at all in the numbers this morning
will simply facilitate the upward track in prices.
STOCK INDICES
It will really be a neat trick for the stock
market to discount the negative macro economic developments presented today. Not
only have crude oil prices soared to yet another round of new highs overnight,
but the trade is also being confronted with layoff headlines. Certainly one
might expect to get some support from upcoming earnings reports but for the
first half of trade today, we see little to discourage aggressive selling.
DOW
We at least see a decline down to the September 28th low of 9,970 in the
December Dow and possibly a decline all the way back to the August consolidation
of 9,900. In order to turn the trend back up, the December Dow would have to
manage a rise back above 10,065.
S&P
With a new low for the move already in progress and the small specs holding a
20,000 contract long in the last COT report, we see little to prevent a major
extension of the recent downside action. Near term targeting is pegged at 1110
and possibly 1103.30 if energy prices extend on the upside and earnings reports
fail to offer a countervailing force. About the only positive thing in the
current condition is that volume is really thin and that could minimize the
magnitude of the current washout!
FOREIGN EXCHANGE
US DOLLAR
With all the negative economic expectations swirling
in the US, it is a little surprising for the Dollar to be showing such signs of
strength. However, we suspect that talk of a change in the status of the Yuan is
providing a different focus for the currency markets. It is also possible that
the currency markets are once again giving the Dollar the edge under the rising
energy prices situation. In the end, we are a little surprised that the Dollar
is able to rise off the Yuan situation and off the energy situation. However, if
one keeps in mind the fact that few if any currencies really have an established
trend, then it is easier to marry the direction of the Dollar to the
fundamentals. In short, the currencies have no fundamental theme and the best
one can do is utilize the technicals. In the Dollar it would still seem like the
Dollar is mired in a down trend pattern and that a return to 88.80 should be
sold.
EURO
We are not surprised at the sharp reversal in the
Euro, because the Euro didn’t really have the fundamentals to justify an upside
breakout. In fact, the market thinks that the Euro zone is one of the more
vulnerable economic zones when it comes to soaring energy prices. German ZEW
October forecasts showed a considerable 7 point decline and that should be
enough to aggressively undermine Euro sentiment. Furthermore, with the GM
European division thought to be poised to cut 15,000 jobs and EU officials
already expressing concern over the growth outlook, we see the Euro falling back
to chart support of 122.43.
YEN
The reversal in the Yen is telling and with the
Japanese stock market fretting over rising oil prices, we suspect that the Yen
is poised to fall back below 91.00 and could easily fall all the way down to
90.00. We also have to wonder if the change in the Chinese currency will more
significantly impact the Yen than other currencies.
SWISS
Given the chart failure last Friday and the
subsequent downside reversal, we see a possible decline to 79.00 and possibly to
78.50.
BRITISH POUND
While recent UK inflation forecasts hintED at some
ultra hot numbers, the September CPI rise of only.1% really dampens the rising
rate psychology and that in turn should mitigate the slide in the Pound. Near
term downside targeting comes in at 177.20.
CANADIAN DOLLAR
We suspected that the extreme overbought condition
of the Canadian, combined with thin holiday conditions would undermine the
Canadian. However, given the added kick of a potential change in the Yuan
standing, some even more excessive volatility might be seen in the coming
sessions. Bottom of the down trend channel comes in at 78.88 and then again at
78.60.
METALS
OVERNIGHT
London Gold Fix $418.20 -$3.55 LME COPPER
STOCKS 89,875 metric tons -325 tons COMEX Gold stocks 5.135 ml Unchanged COMEX
Silver stocks 106.9 ml Unchanged
GOLD
The December gold market appears to be well into a
liquidation break this morning and with the US Dollar gapping sharply higher
overnight (off Chinese Yuan rumors), we can understand the need to take gold
prices down. In fact, if the Dollar Index were now capable of managing a climb
back above the down trend line at 88.53, that could give the impression of a
major turn in the Dollar and that could in turn foster something more than
simple technical profit taking. With energy prices once again rising to new
contract highs, we suspect that the inflation issue could resurface.
SILVER
Not to be out done, the silver market has also
forged an aggressive failure on the charts and given the recent rapid increase
in speculative interest, we suspect that even more long liquidation is ahead.
Near term downside targeting in December silver comes in at even numbers of
$7.00 and then again down at a critical pivot point of $6.93. Trend line support
in December silver comes in even lower down at $6.68.
PLATINUM
The platinum market forged an extremely negative
chart formation overnight with a big pulse up that was firmly rejected. With
South African platinum production showing a decline of nearly 1% in the June
through August time frame, one would have expected platinum to have found some
support. However, the platinum market is apparently unable to discount the
overall direction of metals prices.
COPPER
Even the copper market is showing signs of an
aggressive liquidation and that hints at more of a correlation with the precious
metals than has typically been seen recently. However, the market fears a sharp
rise in the Yuan (if it is allowed to float) and that served to sink Chinese
copper prices even in the face of an ICSG deficit projection of 710,000 metric
tons for the January through July time frame. In the short term the market
really has to be concerned about the short term price gyrations in Chinese and
for that reason the market temporarily abandons the bull case.
CRUDE COMPLEX
The energy complex continued to impressive with
another round of new highs yesterday morning and even though prices weakened
into mid session, they eventually managed to rise again in the late action
Monday. The market seemed to weaken slightly off talk from Norway, that oil
prices would weaken in 2005 and in the face of more talk from Saudi Arabia that
OPEC would in fact be able to meet the worlds need for fuel. However, as the
session wore on Monday, it became apparent that a general labor strike in
Nigeria was set to go forward and that increases the chance that Nigerian oil
production might be curtailed.
NATURAL GAS
The natural gas market seemed to be vulnerable from
a technical standing yesterday, but with crude oil prices once again forging
fresh highs we have to think that the liquidation tilt is erased. Apparently on
Monday the natural gas trade was expecting Gulf production to come back to
normal later this week but apparently the regular energy complex has a different
view. Furthermore, while the BTU comparison price between crude oil and natural
gas was pulled back to even late last week, but the divergence Monday and this
morning should provide natural gas market with significant support.