Futures Point To A Weaker Open

September
05, 2003

INTEREST
RATES

OVERNIGHT
CHANGE to   4:15 AM :BONDS +7
We have to think that some funds liquidated short positions this week and were
prompted to liquidate again yesterday off Fed statements and the slight up
tick in US initial claims data. With the Fed telegraphing a veiled promise to
cut interest rates again if the job situation remains weak, the Treasuries
should have managed a rally. We have to wonder if the Fed laid out the idea of
lower rates because they know the numbers today will be soft! While many of
the economic reports this week have been better than expected, the trade
can’t seem to get away from dissecting any report that contains a jobs
component.

STOCK
INDICES

OVERNIGHT
CHANGE to 4:15 AM:S&P-200 DOW -26 NIKKEI +3.8 FTSE -10 Today the
stock market encounters a significant fundamental crossroads! While we think
that investor and consumer sentiment has improved enough to discount a weak
payroll number, the market is certainly overbought technically (more so in the
S&P than in the Dow) to see significant pressure if the numbers are really
disappointing. However, with a significant increase in US productivity already
registered this week, one could make a case that corporations are carving out
profits without hiring back a significant portion of the work force.
Furthermore, the Fed seemed to address the jobless recovery issue in the
action Thursday, by suggesting that they would be prepared to act, if the jobs
picture didn’t improve along with the economy.

FOREIGN
EXCHANGE

Dollar:
The Dollar comes into the session this morning back on its heels. In fact, the
Dollar is very close to forging a downside breakout on the charts. With a much
stronger than expected German Industrial production report already out today,
the Dollar could be facing an uphill battle. In other words, the US economy is
going to have to show that it is stronger than other areas in order to stem
the near term liquidation trend in the currency. It is also possible that the
US attempts to get Pacific Rim countries to strengthen their currencies is
adversely impacting the Dollar. In other words, for the US to take action
against an undervalued Yuan it would seem that some dollars would have to be
sold and some Yuan buying! The 97.92 level becomes a critical pivot point and
right now it would seem that the Dollar is poised to break out down, unless
the payroll numbers impress the trade in some way. 

EURO:
While the Euro is showing some positive action, it is disappointing to the
bull camp that more gains aren’t being made off a German economic reading
that came in 5 times stronger than expected. The July German Industrial
production reading came in +2.4% and that is a massive number if it is
correct. Critical support in the September Euro comes in at 108.78, with
resistance coming in at 110.11. The euro might bounce but we really don’t
get the sense that a move above consolidation resistance is expected, unless
the US numbers are really bad. In other words, aggressive traders should look
to sell the Euro, if the US numbers are in the ballpark of the estimates.

YEN:
We are not sure what affect the dialogue from the APEC is going to have on
Japanese intervention efforts, as US attempts to strengthen the Yuan would
seem to lift the Yen. A strong Japanese indicator reading would seem to give
the BOJ confidence to pressure the Yen but the trade is picking up on the
theme that the BOJ might be changing its intervention tactics. Minor downward
track exists early but we fear a Dollar slide will lift the Yen as the session
progresses. However, if the US numbers are strong, the BOJ might really jump
on the Yen.

SWISS:
The overnight highs were rejected, suggesting that the Swiss doesn’t have
significant buying interest on the sidelines. However, the Swiss will be a
following market today, instead of a leader. A trade below 97.92 in the Sept
Dollar lifts the Swiss, whereas a Dollar rally above 98.30 pulls the rug out
from under the Swiss.

 

POUND:
An upside breakout overnight points the Pound up today. However, the Pound
seems to have massive overhead resistance above the current trade and also
lacks a recent pattern of favorable economic readings. Therefore, any rally
might be muted and unsustainable. CANADIAN DOLLAR: The technical action in the
Canadian is certainly favorable. In fact, if the Canadian can hold above 72.70
for the first two hours of trade, it is possible that a wave of buying will
lift the Canadian up toward 74.00 next week. However, considering the number
of false starts, longs should carry an Oct 71.50 put as protection.

METALS

OVERNIGHT
CHANGE to   4:15 AM:GLD-1.00
,SLV+0.5  ,PLAT+2.90, CP +15 London
Gold Fix $371.00 -$2.00 LME Copper Warehouse stks 614,450 tns -3,275 tons
Comex Gold stocks 2.727 ml oz Unchanged Comex Silver stks 105.8 ml +1,275,612
oz OVERNIGHT: Quiet directionless action seen in Asia but sellers had a minor
edge.

GOLD:
The gold started the session out soft yesterday and didn’t rally manage to
shut off the downside drift. However once the Dollar fell 100 points off its
highs the gold market managed to recover and that could help gold respect near
term support on the charts at $370.7. We mention the Dollar/gold relationship
because the Dollar comes into the session sitting right on critical support
and is showing signs of failure.

SILVER:
A critical pivot point is seen in the December silver at $4.99 this morning
and like the gold market, the silver market will have to contend with an
overly long COT report after the close today. It would not seem like silver is
getting a lift from higher equities prices, which is concerning especially
since silver prices need to prove that the break early in the week was merely
a technical reaction and not a fundamental let down. Under a breakdown the
December silver could easily fall to consolidation support of $4.92,
especially with open interest so high at 102,357.

PLATINUM:
While momentum has slowed on the upside there would not seem to be a tight
correlation between platinum prices and the outlook on the US economy.
However, with open interest extremely high and platinum close to a technical
failure, a little selling could result in a moderate decline. The last
correction in platinum was roughly $20.00.  

Chinese
copper prices were lower overnight, as the trade there took its cue from
weakness at the LME and decided to exit some longs. COPPER: Shanghai copper
stocks declined by a significant 9,719 tons and that should have lent some
support to the Chinese copper price action overnight. In general, the
fundamental condition in copper remains strong but the technicals were a
little overdone and needed to correct.

CRUDE
COMPLEX

OVERNIGHT
CHG to    4:15 AM  
:CRUDE -28  ,HEAT-62 
,UNGA-33 After what appeared to be a massive technical failure
Thursday, energy prices managed to recoup and close above the mid point of the
range. Regardless of the finish the bulls had to be disappointed with the
inventory readings, as they failed to fan the fears of tightness.

NATURAL
GAS

The
weekly natural gas injection came in at 70 bcf and the annual deficit narrowed
slightly to 392 bcf. Considering the weakness in the regular energy complex
and the downgrading of the most recent tropical storm (in Florida) we are
impressed that natural gas managed to close firm.