Futures Point To A Stronger Open
INTEREST RATES
12/03 OVERNIGHT CHANGE to 04:03 AM:BONDS-2 The
bond market comes into the session today with an ongoing bearish tilt in prices.
Not only has the market had to contend with some extremely strong manufacturing
readings but the recent layoff report suggests that the week ending payroll
report might come in a little stronger than many would expect. Furthermore,
there is a growing sense that the FED is going to end up changing its stance on
holding rates steady for an extended period of time.
STOCK INDICES
12/03 OVRNIGHT CHG to 04:03 AM:S&P+110, DOW10,
NIKKEI -83, FTSE+23 The stock market continues to get a steady diet of
supportive macro economic reports and the mood on Main Street is pretty
positive. In fact, it would seem that expectations for the monthly payroll
report Friday are calling for a moderately impressive addition of jobs. However,
because this market has been prone to dig for the negatives, we have to wonder
if the bear camp won’t try to use fears of a coming interest rate hike, as a
counterpoint to the improvement in US numbers.
DOW
After the high Monday, the Dow futures have settled back and might have
corrected most of the short-term overbought condition created by the recent run.
However, as mentioned before we don’t detect a change in conditions and
therefore we would suggest fresh buys on a decline to 9,857 today, looking for
another new high for the year in the coming 2 sessions.
S&P
Buying support in the December S&P comes in at 1066.10 but the 1064.40 level is
another critical support zone that should hold up prices. We should begin to see
a build up of volume and open interest into the December triple witching timing
later this month and that should favor the existing up trend pattern. Therefore,
buy minor breaks until something changes.
FOREIGN EXCHANGE
US DOLLAR
Another new contract low in the Dollar comes shortly
after even more confirmation that the US economy is strong. In fact, given the
Euro zone 4th GDP forecasts of a paltry +0.2% to +0.6% it is clear that the US
economy is head and shoulders ahead of the EU. Even more surprising is the fact
that the Dollar continues to slide despite the fact that the US Treasury market
is moving to factor in a rate hike sooner than recent expectations seemed to
project. In other words, the Dollar slides on good numbers and the prospect of
higher rates and that suggests to us that the US Administration is fostering the
Dollar down in a direct challenge to China. We are not even sure how the US
Administration is forcing the Dollar down but we do know that usual fundamental
indicators in the Forex markets are suggesting that the Dollar should be
stronger and it isn’t. Therefore, the trend is down until something very
significant changes the landscape. In fact, the trend is so entrenched that one
should not expect the change that eventually turns the Dollar, to be anything
but a front page headline.
EURO
With the new highs overnight the Euro continues to
ride a wave of long interest that is not derived from solid macro economic
principles. However, as mentioned in the Dollar comment, one can hardly stand on
fundamentals and stand in the way of the upside in a trending market. The euro
zone GDP for the 3rd quarter was +0.4 and the expectation for the 4th quarter is
for a minor expansion of +0.5 to +0.6% and that is simply anemic to the numbers
already posted by the US for the 3rd quarter. In fact, we think US 4th quarter
GDP will be 4 or 5 times the growth rate seen in the Euro zone. In the end, the
pace of the respective economies doesn’t matter, the Euro is part of a big
picture development. Next upside targeting in the Euro is 123.04.
YEN
As mentioned in several other currency comments this
morning, internal fundamentals are unimportant in the near term scheme, as it
would appear that the Dollar is firmly entrenched in a downward spiral and is
doing so in the face of very impressive US numbers. Therefore, the Yen can’t
avoid being lifted and since the US Dollar could be going into a rapid decline,
the Yen probably manages a run to the old highs against the efforts of the BOJ.
SWISS
We suspect that the volatility in the currency
market is pushing some players into the Swiss and with the gold market showing
signs of strength and the prospects high that a trade war between the US and
China will erupt, the Swiss looks to ride a tide of buying up to levels above
78.50.
BRITISH POUND
For some reason the Pound has begun to lag behind
the other currencies and is doing so in the face of strong economic readings.
Maybe the current sentiment at work in the currency markets simply discounts
those currencies with strong economies. In other words, the current action seems
to defy fundamentals but also doesn’t look to be ready to reverse.
CANADIAN DOLLAR
A nice rejection of the recent correction,
re-confirms that the Canadian still has bullish potential. Near term upside
targeting comes in up at 77.46 today.
METALS
OVERNIGHT
GLD-0.20, SLV-1.00, PLAT-0.80 London A.M.
Gold fix $403.30 +$2.25 LME COPPER STKS 461,025 tons -3,925 tons COMEX Gold
stocks 3.06 ml +100 oz Comex Silver stocks 124.4 ml oz -37,627 oz
GOLD
With gold managing to consolidate prices above $400
and the Dollar tracking into new low ground again this morning, the upward bias
in gold continues. Chinese gold prices ended the session at a new record high
setting an initial positive tone for the US session. The news Tuesday that
Barrick gold was continuing to reduce their hedge book was partly supportive but
in a big picture sense, seeing one of the largest hedgers with 71 million ounces
of unhedged inventory, compared to 16 million still hedged, means that they are
nearly de-hedged.
SILVER
While silver hasn’t been able to improve on the
high-posted Monday, it has to be seen in a positive light considering the action
in gold and the US Dollar. However, silver doesn’t seem to have the same type of
interest as last week and might need a bigger correction to balance the market
and forge a solid support zone. Maybe March silver needs to slide down to $541,
instead of the $545 support projected yesterday.
PLATINUM
Until there is a specific change in the pace of
platinum export flow from Russia and as long as gold remains in favor, one
simply can’t argue against the bull case in platinum. Demand continues to expand
and supply flow is apparently stagnant. Certainly prices are historically
expensive but until there is a definitive reason to get short, the bull trend
should dominate prices.
COPPER
Chinese copper prices were limit up overnight,
setting a positive tone against the backdrop of a short-term overbought
technical condition. With the overnight Press trumpeting Chinese buying, about
the only negative is that Codelco has actually started talks with its Unions and
that might at least delay a strike impact on prices. With the highest prices
since October of 1997 there would appear to be little resistance until 1.00 and
maybe the market won’t find resistance until 104.
CRUDE COMPLEX
12/03 OVERNIGHT CHG to 04:03 AM:CRUDE-8, HEAT-16,
UNGAS-8 Energy prices seemed to get a lift from ideas that Iraqi production in
November declined by 200,000 to 300,000 barrels per day but we also think that
some specs were jumping into crude oil because they expected the weekly
inventory reports to show another moderate decline. Libya might have added to
the slight upward tilt by suggesting that there was no excess supply on the
market. After the close or late in the afternoon Tuesday the market might have
become aware of Iranian desires to seek a higher production quota in the
December meeting and that could be the reason why prices are coming into the
session this morning mostly flat.
NATURAL GAS
We continue to think that natural gas is seeing
continued short covering by the funds and thus far only light small spec buying.
Certainly the weather is fostering some of the gains in natural gas and with the
weather threatening “arctic air” next week one can hardly argue against making
fresh buys under the current technical and fundamental setup. In our opinion,
natural gas pricing could easily rise to $6.15 even without a significant
weather threat.