Futures Point To A Flat Open

5/25/2005
 

INTEREST RATES

The Treasury market started out weak yesterday but didn't extend the weakness in the face of US economic information that came in better than expected. In other words, the general bias in the Treasury market is remains bullish, with the market still embracing growth concerns and still convinced that inflation is fully under control. Yesterday the FOMC meeting minutes suggesting that the Fed was unanimous in its view that additional rate hikes were needed but with several Fed members also expressing concern that the rate hikes were in fact hindering the economy, the net spin from the release seems to have been positive.

STOCK INDICES

We suspect that the market is entering the 2nd day of a 2-3 day temporary technical correction. However, the fact that GM was downgraded by another "ratings agency" yesterday rekindled the credit risk concern and with the Fed reiterating its desire to hike interest rates even further, we can understand the concern for future growth and earnings. In fact, several Fed members in the last FOMC meeting minutes, worried over the fact that the rate hike process was in fact hindering the recovery we can understand the renewed concern for future growth! The Fed was also concerned about the ongoing impact of high oil prices in that last meeting but they continued to be confident that the slowdown off oil would be temporary.

DOW
The June Dow contract appears to have made a negative chart trade in the overnight action and with slightly disappointing economic numbers this morning and higher oil prices, we might see the June Dow make a run at consolidation support down around the 10,400 level. While the June Dow might be able to respect closer-in support of 10,462, we just don't get the feeling that the market is poised to suddenly reverse the downward drift, without some headline type surprise. Therefore, short term traders should remain lightly short, while position players should simply hold longs.

S&P
The S&P is also in a slightly vulnerable posture into the opening today but there would appear to be decent pivot point support around 1189.20 basis the June. However, we still can't rule out an eventual probe down to 1185.80 in the current 2-3 day corrective pattern. The stock market is simply in need of a positive fundamental jolt and we are not sure if the numbers today can provide that type of information. In the short term, traders might have to risk fresh long plays to 1180 and that would seem to leave buyers on the sidelines for at least another session.

FOREIGN EXCHANGE

US DOLLAR
While the US Fed was still generally upbeat on the US economy and clearly maintained the desire to hike rates further, the positive buzz seen in the Dollar around the middle of the month is still missing. We do think that recent Chinese currency dialogue is providing some support to the Dollar, as the Chinese continue to be entrenched in a go very slow mode. However, we doubt that the US is going to be patient and therefore we expect something aggressive from the US Treasury Secretary very soon. Considering the slackening of US equity prices, the potential for slightly higher oil prices and slightly disappointing US economic numbers, it would seem that the Dollar is in the process of making a fresh decision on its near term trend. Certainly seeing the German IFO head call for a reduction in Euro zone interest rates is supportive of the Dollar and certainly the failure to see a compromise on the Yuan situation is supportive, but the trade for some reason is balking at buying more Dollars above the 86.50 level. Unfortunately it would seem like the Dollar will be capable of rising above the recent highs but could do so without a direct correlation to economic reports or outside market action. In other words, the bull trend in the Dollar seems to control even if one has trouble justifying the continued rise.

EURO
The Euro is vulnerable and a new low for the move would not be that surprising. As mentioned before, it would seem like the Euro zone economy is falling backward toward recession and that has prompted the head of the German IFO to call for the ECB to cut interest rates. In short, if one can't get positive toward the US economy, then the Euro zone outlook is extremely suspect. Therefore, we suspect that the Euro will see a new low for the move, unless the US numbers are extremely disappointing. On rallies back to 126.36 we would suggest that players look to resell the June Euro. We might add that the concern for the coming EU Constitutional votes, has mitigated slightly and that would seem to diffuse some of the aggressive selling interest that was present around the middle of the month.

YEN
The pattern of lower highs continues and the down trend pattern in the Yen would seem to remain in place. The ongoing Nationalistic debates between Japan and China would seem to be a minor negative to the Yen and without signs of a change in the yuan, we can't rule out a near term slide back to the recent lows of 92.50. However, at the current time it would seem to be a little difficult to justify a full downside breakout in the June Yen.

SWISS
With the June Swiss potentially seeing solid chart support at the 81.00 level, we suspect that the daily ranges in the Swiss will narrow. However, if the negative dialogue toward the coming EU votes begins to surface, that could result in the Swiss falling below critical support. While we suspect that the Swiss will hold relative to the Euro over the coming sessions, we are not inclined to spread the Swiss against the Euro at current levels.

BRITISH POUND
The UK GDP readings continue to foster some concern toward the UK economy, especially since the numbers were deflated by specific weakness in the manufacturing sector. The big problem with selling the June Pound is that the market is closing in on extremely critical longer term historical chart support level, derived off a consolidation back in November of 2004. Pushed into the market we would sell the June Pound on rallies back to 183.10.

CANADIAN DOLLAR
The 7 day corrective pattern, against the existing down trend channel has probably run its course and now the Canadian would seem to be poised to return to levels around and below the 79.00 level. However, we will be watching the Canadian closely for signs that the currency is correlating positively with the Dollar, especially in the event that the Dollar manages an upside breakout, as that could diffuse part of the potential selling interest in the Canadian.

METALS

OVERNIGHT
London Gold Fix $418.50 -$1.75 LME COPPER STOCKS 49,225 metric tons -1,000 tons COMEX Gold stocks 6.069 ml oz -67,766 oz COMEX SILVER stocks 105.6 Unchanged

GOLD
The gold market continued to under perform the rest of the precious metals markets in the action Tuesday. We have to think that the net shake off the release of the FOMC meeting minutes undermined gold, as that suggests that the Fed remains poised to keep inflation under control and in the process they recognize that they are hampering economic activity. While gold might see some benefit from a Dow Jones news story of rising teenage jewelry demand in China, the market just isn't playing off the expectation for rising physical demand.

SILVER
Apparently the silver rose sharply at times on Tuesday off unfounded rumors that an exchange traded fund was going to be launched on silver. Certainly seeing a more direct investment line into physical silver could firm up the price structure but we are not sure that ETF's are going to be a near term influence. It would appear as if existing fund interest is present in silver as it has periodically outperformed gold on a daily basis, off action that seems to be emanating from fund interest.

PLATINUM
Just when it appears that platinum is poised to fail, it manages to post a higher high and keep bullish sentiment alive. However, in order to see July platinum prices run back up to the consolidation highs around $875 to $880, there will have to be a much more optimistic view toward Chinese and Asian demand. In the near term, traders can't rule out a temporary slide back to $860 support.

COPPER
The copper price action of late has been very impressive, especially since the gains came in the wake of slack equity market action and news that the US Fed remains on track to hike interest rates further. Even more surprising is the fact that copper prices this morning are higher again in the face of calls for the ECB to cut interest rates (because of the slowing threat in the Euro zone). Chinese copper prices managed a minimal gain overnight but in general attitudes in China remain positive toward copper.

CRUDE COMPLEX

The energy complex appeared to manage a quasi upside breakout on Tuesday and that was action impressive considering that the market was presented with some bearish information during the session. In addition to Venezuela suggesting that their oil production levels were steady throughout the 1st qtr or 2005, the Saudi Oil Minister continued to echo prior suggestions that OPEC didn't need to cut production in the June meeting. However, we suspect that some shorts decided to exit positions ahead of the coming weekly inventory data, as the report today might be the last clearly bearish weekly rebuild figure, before the summer demand season begins to eat into supply more aggressively.

NATURAL GAS
The natural gas market managed to hold most of the gains forged on Monday, but didn't exactly rise in tandem with the crude oil market. Slightly less supportive near term weather forecasts, combined with less optimism toward the global economy seems to diffuse some of the the bullish sentiment that managed to lift natural gas prices off the May lows on Monday. However, we suspect that many natural gas players are concerned about getting in the way of an inventory inspired decline in crude oil today.