Futures Point To A Weaker Open
INTEREST RATES
12/05 OVERNIGHT CHANGE to 04:05 AM:BONDS+4 Early
in the week it seemed like the bond market was poised to factor in a strong
employment report but the market flatly rejected the lows this week and then
crawled back to the weeks highs off supportive initial claims readings. Some in
the trade are suggesting that a one time impact off some California layoffs,
might make the payroll number this morning look a little worse than it really is
and with the mostly positive tilt in Treasury market sentiment and suspicions of
a moderately large fund and small spec short position, that could push prices
higher than many would expect. In the end, a rally today in the Treasuries is
still a rally in a bear market.
STOCK INDICES
12/05 OVRNIGHT CHG to 04:05 AM:S&P-240, DOW-14,
NIKKEI -56, FTSE-16 In prior weeks the stock market seemed to disappoint with
its response to current developments, but this week the stock market might have
outperformed versus the economic information. For the stock market to simply
discount the disappointing initial and ongoing claims data yesterday, suggests
that investors are becoming a little more confident with respect to the
recovery. While we think that the numbers this morning will show a positive
progression of the recovery, we are a little concerned at the short term
overbought status of the stock market and the idea that volume is expected to
tail off due to the coming holidays.
DOW
It would seem to be a little discouraging that the Dow has climbed within
striking distance of the 10,000 level and might have to back and fill before
charging through that level. However, the Dow hasn’t been as affected by the
scheduled numbers (as the S&P 500) and therefore it might avoid corrective
action today. In fact, unless the numbers are very disappointing, we see the
December Dow managing to hold above support of 9,870. Remain long futures, but
look to buy a December 9,800 put as that might help one ride through the action
today without too much anxiety.
S&P
Until we see confirmation that the small spec long in the S&P has climbed above
110,000 contracts, we are not ready to call an end to the current uptrend.
Certainly the S&P will need to see a payroll gain of at least +130,000 to
continue higher but that is supposedly a strong possibility. However, because
the initial claims were disappointing and there are rumors of a one time 50,000
job impact on the November numbers, we suggest that longs buy a December S&P
1055 put against futures. Critical support today is 1064.30, while an upside
pivot is seen with a trade back above 1070.50.
FOREIGN EXCHANGE
US DOLLAR
The Dollar appears to have found some support off
the idea that the US dropped steel restrictions and that in turn could reduce
the chance of a trade war with China. Some traders might have been pressing the
Dollar on the short side because they expected to see a trade war and therefore
the pressure on the Dollar might subside. However, seeing the December Dollar
Index slide back below 89.63 could signal a resumption of the downside. In our
opinion, the only way the US payroll numbers directly impact the Dollar today,
is for the numbers to be shockingly strong or shockingly weak. We have to
continue to favor the downside, as that is the trend but if the US payrolls come
in with a gain in excess of 150,000 that could combine with the reduced trade
war threat, for a bigger short covering bounce in the Dollar. Until something
more significant surfaces we have to conclude that rallies in the Dollar are
still rallies in a bear market.
EURO
Apparently EU officials are suggesting that the rise
in the Euro is going to dampen price and inflation pressures and that would seem
to suggest that the ECB is going to tolerate even more gains in the Euro. Maybe
the Europeans are happy with the fact that the Euro is capable of deflecting
some of the higher energy costs that are facing some regions. We suspect that
the current correction in the Euro will run its course soon and that prices will
remain above 120.37 unless the US numbers are simply out of this world. Recently
the Dollar and the Euro haven’t track directly off scheduled numbers!
YEN
The Japanese stock market was slightly weaker
overnight and Japanese household spending declined but as a countervailing
force, Japanese jobs readings improved. Therefore, from internal fundamentals
the Yen is given a minor boost in the action today. However, the overriding
factor in the trend decision will be whether or not the Dollar resumes its
recent downside track. In order for the Yen to rise to the top of the uptrend
channel, the Dollar has to fall back below 89.54. The Yen comes into the action
today within the upper quarter of the expected trading range and could rally to
93.05 and remain in the consolidation pattern. If the Dollar comes out of the
numbers today, with a rise above 90.00 that could mean pressure on the Yen.
SWISS
The Swiss is vulnerable today and a trade under
77.37 could be very damaging to the trend. The trend is still up but risk and
reward for the longs is unattractive at current levels.
BRITISH POUND
The Pound has been rounding off a top type pattern
for the past week and it would seem that today is a major pivot point. In fact,
a trade below 171.62 today could spark a more significant liquidation. Expect
the bull trend to hold unless 171.62 fails.
CANADIAN DOLLAR
The 76.00 level should be solid support and the
Canadian enters the session today in good technical condition. In fact, unless
the US manages to post a very impressive number today, the Canadian looks to be
a buy. Be long but become concerned if the US payroll gain is in excess of
150,000 jobs.
METALS
OVERNIGHT
GLD-2.10, SLV-3.20, PLAT-3.40 London A.M.
Gold fix $402.00 -$.40 LME COPPER STKS 455,850 tons -2,225 tons COMEX Gold
stocks 3.058 ml Unchanged Comex Silver stocks 123.8 ml oz -600,586 oz
GOLD
The gold market would seem to have a weakened bias
again this morning. In fact, unless the Dollar Index manages to fall back below
its critical pivot point of 89.57 its action will probably keep a lid on gold
prices. Dow Jones Newswires carried an article this morning that suggested
“consensus†gold price predictions among gold analysts for 2004 would be 9%
below current levels.
SILVER
The silver chart looks a little vulnerable but with
gold respecting close in support, we doubt that silver is primed for a major
washout. Critical support in March silver comes in at $5.348, whereas a critical
upside pivot point would be regained with a trade above $5.505. A minor decline
in Comex silver stocks countervails the recent upward track in supply at the
exchange but a pattern of declines is needed to stir any long interest.
PLATINUM
Prices look to setback slightly after an aggressive
rally off the December low. Even the Asian trade showed some interest in banking
some profits off the recent sharp rise but little seems to suggest that the up
trend is near completion.
COPPER
A minor downward bias is seen in copper, as Chinese
copper prices were slightly lower. Even in the face of a possible strike at a
Chinese copper facility and a decline of 4,445 tons in Shanghai copper stocks it
would seem that copper prices are exhibiting weakness at the end of a week where
prices forged a rally of 765 points from the prior weeks close. However, all the
hallmarks of a bull market remain in place with Chinese officials expecting less
trade tensions between China and the US and predictions of continued strong
Chinese demand for aluminum and copper.
CRUDE COMPLEX
12/05 OVERNIGHT CHG to 04:05 AM:CRUDE-20,
HEAT-12, UNGAS-5 Surprisingly, the energy complex failed to show initial
strength off early OPEC dialogue. However, with OPEC promising aggressive
compliance efforts, that seemed to shift the bias back to the upside Thursday
into the close. It is possible that the talk of surpluses in the second quarter
2004, discouraged buyers early in the session Thursday but the market evidently
overcame those qualms into the close.
NATURAL GAS
The natural gas market reacted aggressively to a 59
Bcf draw in U.S. inventories. Despite the recent rally the net fund position is
probably still lightly short, while the small spec long has expanded rapidly.