Futures Point To A Lower Open
10/7/2004
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INTEREST RATES
The Treasury market continues to see between the
lines pressure from the inflation concern, as both energy prices and precious
metals prices are showing significant strength. It is simply amazing how the
market has managed to downplay consistently slack US economic numbers and
embrace the positive dialogue flowing from the Fed. Even after the Challenger
layoff report showed massive increases earlier this week, the market seems
steadfast in its expectation for a decently strong non farm payroll gain on
Friday morning.
STOCK INDICES
The stock market wades into the earnings cycle
today in a generally positive posture, even though scheduled economic numbers
have been disappointing and rising energy prices are fostering concern for
slower growth ahead. In addition to some key earnings from Alcoa today, the
market will also see some retail chain store sales readings and those readings
were likely impacted from the string of hurricanes in the southeastern US.
Costco has already posted better than expected same store sales, while the
Limited saw slightly lower same store sales.
DOW
The December Dow would seem to have critical pivot point resistance at 10,237,
which is also the high price of the last two sessions. Earnings from Alcoa will
set the tone today and since the Dow has been underperforming other sectors
since the September high, the earnings report from Alcoa needs to come in
favorable to keep bullish sentiment in place. According to Alcoa, earnings at
that company are mostly driven by aluminum prices and with aluminum prices
recently reaching a 9 year high, one would expect the earnings information to be
supportive. However, for the Dow to turn long term downtrend patterns decidedly
up, the December Dow futures contract needs to get above the down trend line at
10,285.
S&P
The top of the new downtrend channel comes in at 1143.60, while the old top of
the downtrend channel line has become support down at 1133.80. According to Dow
Theory, the technical setup is calling for a continuation of the upside action
in the market but the bull camp has a significant hurdle coming in the monthly
payroll report. We would remain bullish but the December S&P must not slide back
below the critical pivot point at 1136.40.
FOREIGN EXCHANGE
US DOLLAR
If one uses the argument that US growth is 3-4% and
Euro zone growth is only 1% and you factor in a downward revision in global
growth off rising energy prices, it becomes apparent that the US growth stands
the best chance of remaining in positive ground. However, considering that US
oil production problems might leave US energy prices higher, relative to other
areas, the advantage held by the Dollar is reduced. In order to turn the down
trend pattern in the Dollar up, the December contract needs to climb above the
down trend line at 89.31. In a negative note, it is clear that Dollar open
interest did ramp up significantly into the big September decline and has now
fallen off considerably in the bounce off that low. However, the Dollar seems to
be supported by the fact that US payrolls on Friday easily look to come in
significantly better than the recent readings from Germany and France. In other
words, the US economy isn’t expanding rapidly and is still generally suspect,
but even in the worst case, the US economy is faster than the Euro zone. We
still see the Dollar caught in a range bound by 88.00 and 88.80.
EURO
The general economic view toward the Euro zone
suggests that the recovery track is losing momentum quickly, as recent readings
from Germany, for the month of August, suggest that overall growth is seriously
in question. In fact, with unemployment rising in the Euro zone and the US
poised to post a moderately impressive rise in payrolls, one can hardly be long
the Euro for macro economic differential reasons. On the other hand, some
traders want to be long the Euro because they think the US economy is under more
significant threat to oil prices because of domestic oil production problems.
Near term support in the December Euro comes in at 122.53 and resistance at
123.41.
YEN
With oil prices remaining a problem, it is clear
that the Yen is going to remain near downside breakout points on the charts. The
trade generally expects the BOJ to leave interest rates on hold indefinitely,
while authorities in Japan have filed a criminal charge against a Japanese bank
and that gives the Yen a slightly negative tilt. However, we are not sure that
the Yen will fall below consolidation support of 90.00, unless the US payroll
report on Friday morning is softer than expected.
SWISS
The Swiss has solid consolidation support at 79.00
and so far it just doesn’t seem like the flight to quality aspect is being
fostered, despite the fact that energy prices continue to forge new record
highs. On the other hand, we would not be surprised to see the Swiss manage a
bounce to the top of the consolidation up at 80.00, especially after the US
numbers on Friday.
BRITISH POUND
The BOE left interest rates unchanged in their
meeting today and that was mostly expected. Recent industrial output weakness in
the UK leaves the Pound undermined and vulnerable to more selling. However,
there is solid support down around 176.50, with even lower support seen at
176.19.
CANADIAN DOLLAR
A massive upward thrust in the Canadian overnight
might leave the currency extensively overbought, but there would not seem to be
a fundamental reason to call for an end to the uptrend pattern. The next
resistance in the Canadian comes in on the monthly charts up at 80.70, support
is now 79.23.
METALS
OVERNIGHT
London Gold Fix $417.90 -$0.05 LME COPPER
STOCKS 93,625 metric tons -1,725 tons COMEX Gold stocks 5.12 ml -1,621 oz COMEX
Silver stocks 106.9 ml -437,136 oz
GOLD
While it would appear that gold has lost some upside
momentum, we have to think that the setup in gold remains bullishly biased.
Certainly the oil market remains poised for even more gains, copper and platinum
are sending off positive waves and one can hardly downplay the inflation threat
as long as nearby crude prices are trading moderately above $50.00. Reports that
copper and aluminum prices both hit 9 year highs yesterday should help to foster
the inflationary psychology, but in order to realistically ponder the inflation
question the US economy will have to show something positive in the monthly
payroll reading on Friday morning.
SILVER
The silver market comes into the action today below
the prior day’s low but still holding a generally bullish position on the
charts. While volume and open interest have begun to rise, neither measure has
reached a level that would suggest a near term end to the uptrend. Open interest
levels have yet to even reach a 1 month high and currently stand 30,000
contracts below the March high in open interest.
PLATINUM
While platinum has certainly seen a moderate rise in
daily volume levels, open interest hasn’t risen significantly and that suggests
that the technicals remain pretty balanced. In fact the gains this week came
after a significant correction last week and that should leave platinum is a
pretty good technical setup. However, we are a little surprised that platinum
hasn’t made even bigger gains when one considers that platinum forged a low that
was $64 below the Sept high.
COPPER
The copper market remains firm despite the potential
concern from the macro economic front and the ongoing Chinese holiday. However,
it is also clear that the funds remain very interested in the long side of
copper and with each new high, it would seem like more technical buying is
stirred into action. With Alcoa reporting earnings today, it is possible that
the market will be given even more reason to rise, especially if the earnings
report contains positive dialogue about Asian demand.
CRUDE COMPLEX
There would seem to be no quit in the energy
complex, as the EIA numbers yesterday weren’t that supportive and prices
rallied. By the time the delayed API readings were released, the market started
to rise more aggressively and given the readings it’s understandable that prices
did rally. While crude oil stocks managed to rise slightly in both reports, the
API posted some rather aggressive declines in both gasoline and distillates and
that got the ball rolling.
NATURAL GAS
While natural gas prices slumped slightly in the
face of strength in crude oil, we doubt that prices are going to delink given
the intensifying bullish fundamental condition in crude and distillates. We
doubt that the market will pay much attention to the weekly inventory readings,
as reports suggested that up to 14% of Gulf of Mexico production is still shut
down from the storms. We are also hearing stories about fertilizer demand
spiking sharply because of soaring natural gas prices.