Futures Point To A Higher Open

7/29/2004
 

INTEREST RATES

The Treasury market really didn’t recoil much from the recent lows and when one puts the durable goods report in perspective, it is possible to make the report out to be negative to Treasury prices. In a recent survey, Wall Street economists continue to think that the Fed will still raise interest rates and that is another factor that serves to keep bonds under pressure. In looking far ahead, it should be noted that some analysts expect the coming payroll figures to post a rise of 300,000 and that is a big number! Therefore, the US economy isn’t nearly as slow as the Treasury market was factoring and that is the main reason behind the slide off the July highs.

STOCK INDICES

The short covering bias should continue as the market probably got a little too negative toward the economy around the lows this week. Furthermore, with the technical setup in the stock market moderately oversold into the recent low, the market certainly deserves to extend the upside probe. With the earnings reports generally coming in positive over the last two weeks, the outlook for the economy improving and less concern flowing from the energy complex today, the bull camp should be able to control prices.

DOW
Near term pivot point targeting in the September Dow futures comes in at 10,150 and the retracement target of 10,170 might also be seen today. The trade also seems to be a little more upbeat on the prospects of the Dow stocks than on the rest of the market and that could leave the Dow as the strongest sector.

S&P
While the S&P rarely bottoms from a consolidation pattern, that doesn’t mean that the market can’t manage an impressive bounce from a consolidation pattern. Given the oversold readings from the COT report and the quasi spike low formation on July 26th, it is certainly possible that the S&P has forged a temporary low and could see a rally back to 1103. However, unless the macro economic look continues to improve daily, we will become very skeptical of the bull case once the S&P climbs up to 1103.

FOREIGN EXCHANGE

US DOLLAR
The Dollar continues to hold within close range of the recent high and the outlook for the US economy is generally supporting the Dollar. With early expectations already beginning to flow for the August 6th payroll report and the market recently decided to put favorable spin on the flow of US numbers, the bias in the Dollar remains up. Furthermore, if there was a negative impact perceived toward the US economy off the threat of sharply higher energy prices, that impact is reversed today with the news that Yukos will continue to pump oil. We don’t really see the scheduled numbers from the US today providing the basis for an aggressive upside probe in the Dollar, but US stock market action might be enough to see the Dollar attempt to climb into new highs for the move. While the path of least resistance in the Dollar might be up, the risk and reward of buying the Dollar at current levels isn’t that attractive, unless you think that the US is going to see a big number, a week from tomorrow. Critical pivot point support in the Dollar comes in at 89.94, with the trend line support coming in at 89.85.

EURO
While the Euro seems to have found chart support at 120.00, it would not seem like the downtrend pattern is ready to end. With unfavorable economic prospects about European growth lodged by the OECD at the beginning of the week and the outlook toward the US economy improving, the bias in the Euro remains down. In fact, unless the US numbers disappoint, we have to think that the path of least resistance will remain down in the Euro. Near term downside targeting is seen at 119.76 but the market might be signaling a key reversal if it can manage a rise back above 120.33.

YEN
Despite an improved tone toward the US economy, the Yen remains under a liquidation tide. In fact, it would be a neat trick to see the Yen avoid a decline to near term targeting of 89.00. In fact, the best hope of the Yen would seem to be getting the market to an extremely oversold condition, as the improvement in US and Chinese economic outlooks have done nothing to improve the favor of the Yen.

SWISS
Another new low for the move overnight leaves the market pointing down. Near term downside targeting is seen at 78.00 and unless the US economy stumbles somehow, a slide below 78.00 is likely.

BRITISH POUND
A big range overnight resulted in a new low for the move and that injures the charts and gives us a downside targeting of at least 180. If the US outlook continues to improve that could mean that the Pound slides all the way down to the bottom of the June consolidation at 178.97.

CANADIAN DOLLAR
Since the Canadian is rejecting most of the US Dollar strength, we are very impressed and in the process we temper our recent expectation that it is headed down to 74.00. In fact, if the Canadian can respect 74.94 into the close Friday, it is possible that it will avoid a washout altogether.

METALS

OVERNIGHT
London Gold Fix $388.75 +$2.55 LME COPPER STOCKS 89,175 mt tons -325 tons COMEX Gold stocks 4.633 ml +69,695 oz Comex Silver stocks 115.7 ml +363,121 oz

GOLD
With the Dollar within striking distance of the recent highs we suspect that gold will remain choppy and weak. However, with one gold company (Rio Tinto) suggesting that Chinese demand for gold remains strong, while another gold company (Gold Fields) indicated that 4th quarter 2004 gold production shrank from 4.33 million ounces to 4.16 million ounces, one would think that gold would see a little fundamental support under prices. Newmont Mining is also suggesting that second quarter gold output will fall as it typically does, but the company still expects to meet its annual targeted production range of 7 to 7.2 million ounces.

SILVER
The silver market action yesterday has to temper the aggressive attitude of silver bears and that could mean that the $625 level becomes solid support. Exchange stocks have generally increased and that takes a minor fundamental lift away from the trade. Define the trading range in September silver as $625 to $650.

PLATINUM
The market certainly rejected the recent low of $791 and with gold companies suggesting Chinese demand remains strong and the market under the impressive that Angloplats will have a difficult time meeting expansion goals, the bias in the platinum market would seem to be pointing upward. Resistance is now $820.

COPPER
Chinese copper prices were limit up overnight with the Press reporting intense short covering. Therefore, the US copper market should have a moderately bullish tilt today, but only if the Dollar remains subdued. Over the last 2 days a Canadian Mining executive and Rio Tinto have both suggested that Chinese demand for metals is going to remain strong and that is just the tonic needed to take away the threat of periodic aggressive selling in copper.

CRUDE COMPLEX

The energy market exploded on fears that the stop gap supply flow from Russia might be interrupted. It seemed like Putin was intent on gaining control of Yukos and that could have meant that some production flow would be temporarily out of commission. While the market wasn't convinced that OPEC would be able to meet the shortfall created by a sustained Russian problem, the trade was also talking up the idea that soaring global demand will probably serve to eliminate any stock rebuilding expected into the coming winter and therefore it would seem like prices are going to remain strong despite the historically high level of prices.

NATURAL GAS
The natural gas market is being carried by crude oil, as the internal fundamental conditions in natural gas would seem to project lower prices ahead. However, comparative BTU buying from crude oil is providing natural gas with a key underpin and as long as crude remains firm few players will step in and attack natural gas from the short side. Traders might consider purchasing some October natural gas 580 puts for 240 looking for a two week, hold as we think that the US will basically slide past the extreme heat of the summer without even average cooling demand! We also think that the small spec long position is poised to be washed from the market and that a late summer low might end up being an extremely critical buying opportunity ahead of the coming winter.