Under Pressure

• July 31, 2002
• Greg Che

The underlying market has turned from flat/mixed
to being under pressure following the weaker than expected GDP report released
by the government.

This morning has had its share of positive news,
however, as positive comments and some upgrades have balanced things out, but
the futures are clearly disappointed in Q2 numbers and downward revisions by
several companies for Q1.

Wednesday’s pre-opening outlook:

2002

INTEREST RATES

OVERNIGHT
CHANGE to   4:15 AM :BONDS +6 The bonds did not get sustained support from the
consumer confidence numbers Tuesday and with the stock market behaving itself,
the bond bulls are questioning their positions. The numbers this morning
probably provide some support but given the response to the numbers this week,
we expect only a minor rise in bond prices. Before mid session the market will
see the quarterly refunding announcement, which is expected to increased sales
of mid maturities, primarily because of the growing deficit spending spree.

STOCK INDICES

OVERNIGHT
CHANGE to

4:15 AM:S&P-100
NIKKEI -125 FTSE +92 The overnight international equity market action turned
around after the Nikkei closed and in time for the

London
and European markets to respond. The market is very impressive with its upside
string, as most traders expected the market to bounce for a couple sessions and
then for profit taking to send prices down. However, it is clear that investors
are no longer negatively impacted from weak

US
numbers, as attitudes seem to be looking forward to better

US
growth.

FOREIGN EXCHANGE

Dollar: Just like the


US
equity market, the Dollar is shaking off negative economic news and that shows a
slight sentiment shift. European stocks were strong enough this morning that the
Dollar won’t have a direct rise without some decent numbers. However, the bias
is pointed upward with a critical breakout being seen on a move above 108.00. 
Traders might be aware of the US Fed Beige book release, which might be a little
more optimistic than many would expect and that could rekindle long interest in
the Dollar. If the central banks were smart they would intervene while the
Dollar is already rising and in effect give would be sellers a little warning.
Just like the equity market the Dollar has mounted enough of a rise that sellers
are no longer ultimately confident in their position.

EURO: A
move below 97.49 could spark some longer-term stop loss selling in the Euro.
While we don’t think the up trend is over in the Euro it is stalled and could be
called into question if the

US
employment situation is found to be stronger than expected over the next three
trading sessions. Inflation numbers from the Euro zone showed a rise but right
now inflation will probably not change policy. More downside action is possible,
with a low seen around 97.40.

YEN: A
significant decline in June construction spending and a decline in single-family
housing numbers simply undermine the Yen and might foster a downside breakout.
In fact, the numbers were soft enough to expect the Yen to fall to 83.13 in the
near term.

SWISS:
There is simply less anxiety in the market and the optimism toward the

US
is improving enough, that the Swiss might fall all the way down to 66.86.

POUND:
The CBI reported very strong retail sales readings for June, and they expect
even more aggressive improvement in August and that should make the Pound a
little stronger than the rest of the currencies against recent strength in the
Dollar. In fact, the Pound probably finds support close in at 155.66 or at worst
down at 155.20.

CANADIAN:
If the Canadian is any good, it should rise in the near term. In fact, we
suspect that the Canadian might rise back above 64.00 before the end of the week
and make the 64.00 level solid support from which
prices can work consistently higher. 

METALS

OVERNIGHT CHANGE to 4:15
AM:GLD+1.30 ,SLV+3.2  ,PLAT+3.80  London Gold Fix $305.50 +$2.45 LME Copper
Warehouse
stks
884,100 tns +6,775 tns Come
Gold stocks 1.839 -86,344 oz COMEX Silver stocks 106.1 ml oz -657,299 oz
OVERNIGHT: The Japanese continue to buy gold, providing solid support in
Asi

GOLD: It
would appear that gold prices are going to open higher today with the recent low
looking more and more like a solid bottom. The fact that the Japanese have
turned consistent buyers provides the groundwork for a low, while statements
from Anglo Gold also lend support. Anglo Gold suggested that they continue to
wind down hedge activities because the outlook for gold prices is strong.

SILVER:
The market would appear to have thin resistance around 469.5. It would seem like
the silver has defined two trading ranges, a higher range bound by 480 to 510
and a lower, partially deflationary range of 470 to 450. In order for silver to
rise back toward the higher range, the equity market will have to continue to
claw higher, or we will have to see another severe denigration in US economic
conditions.

PLATINUM:
Coiling in platinum continues and until we actually see more news flow on the
Russian PGM liberalization process, we might see platinum correlate with the
stock market. However, the chart pattern in platinum isn’t that impressive with
lower lows and lower highs seen in July. Be a seller of 527 and a buyer of 508
basis the October contract. We prefer the sell side
to the buy side.

COPPER: A
big range with a poor close suggests that copper won’t be easily pulled back
into the bull posture. However, there were some reports of Asian buying
overnight, supposedly off a value theme. The equity market will continue to
impact intraday copper prices, but a large overnight build in LME stocks is
damaging to copper, especially with its weakened chart pattern.

CRUDE COMPLEX

OVERNIGHT
CHG to  

4:15 AM  
:CRUDE +17  ,HEAT+53  ,UNGA+58  Supply concerns took
hold of the energy complex to drive markets sharply higher. Increasing concern
that the

US
is moving closer towards a military action against

Iraq
may be enough to provide a solid floor under the market.

NATURAL GAS

The
oversupply of natural gas & a lack of a sustained heat wave continue to pressure
the September contract. A weak cash market added to the bearish sentiment.

Today’s Program Numbers

Buy

Sell

Fair Value

 

1.92
-1.66	0.73

 

Today’s Futures Pivots

S&P

Nasdaq

R2	926.83	Â	R2	1020.17
R1	916.17	Â	R1	1000.33
Pivot	899.83	Â	Pivot	976.17
S1	889.17	Â	S1	956.33
S2	872.83	Â	S2	932.17