Futures Point To A Lower Open
INTEREST RATES
With a new low probe overnight we would suggest
that Treasuries are hearing footsteps! Those footsteps might be coming from the
FOMC, as the market is confronted with a round of inflation readings over the
coming two sessions. Some are suggesting that soaring energy prices are doing
the work for the Fed, as a number of economists have already tallied the drag on
the US GDP because of the lofty energy price structure. From the estimates it
would seem like the trade expects the initial claims to provide minor support to
Treasuries, but that also sets the market up for a more negative reaction, in
the event that the claims and ongoing claims continue to show improvement.
STOCK INDICES
While the market showed the classical technical
bottoming signal yesterday with a strong rejection of the downside thrust, we
are not sure that the fundamental mix is ready to change its negative views. If
the main argument driving stocks down is the interest rate/discounting of
earnings argument, it would seem that investors are anticipating a wild series
of US rate hikes. We also have to wonder if those deflating values off earnings
projections, are giving any credence to the potential for an expansion of growth
in the future.
DOW
In the Dow it is possible that it will avoid a new low for the move, as it
managed to respect the recent consolidation support zone of 9,950. In fact, if
we were forced to pick an early bottom, we would be a buyer of the Dow, as
opposed to the S&P. Near term support in the June Dow comes in at 10,003 and we
would probably be a buyer of that level, looking to risk to a close below 9940.
S&P
The classical big range down reversal signal yesterday, is the best technical
signal of a bottom that we have seen over the 20 years we have been following
the stock index futures. However, as mentioned before, the technicals call for a
bottom but we are not sure the fundamental mix is being given a fair look. Want
historical examples of the classical big range down reversal emailed, email us
at Hightower@futures-research.com.
FOREIGN EXCHANGE
US DOLLAR
The overnight action in the Dollar is impressive and
with the expectation of inflation numbers this morning, we suspect that more
long interest in the Dollar will be generated off the scheduled numbers. We have
to think that the June Dollar is primed to make a new high for the move, but it
should also be noted that the market expects and demands that the US remain in a
position to see higher rates and anything that deflates that sentiment will
derail the Dollar. Considering the corrective action in the Dollar early this
week, the market should be in a very good position to reach the 92.50 targeting
we suggested last week when we recommended that traders buy the June Dollar at
89.70. With the trade already expecting the initial claims reading to show an
increase, we doubt that the claims report will diffuse the positive overnight
tilt in the Dollar. In fact, it is possible that the claims actually decline and
provide the Dollar with an added lift.
EURO
The Euro looks poised to fall to contract lows in
the coming sessions. In fact, with German tax revenues falling, and the ECB
suggesting that soaring energy prices are becoming a serious threat to recovery
in the Euro zone, we have to think that the ECB is laying the ground work to cut
interest rates. Some might suggest that the market has already factored a cut in
Euro zone rates but the longer the ECB waits, the bigger the growth differential
with the US economy. In other words, no cutting soon adds to the downside
potential is in the Euro, while seeing a cut might provide a greater chance of a
near term low.
YEN
Dismal Japanese machinery order figures and a pretty
big slide in the Nikkei put the Yen right back into a downside mode today. In
fact, if the US numbers keep the Dollar strong, the Yen could easily end up
falling to the 86.00 level.
^next^
SWISS
We are a little surprised that the Swiss hasn’t come
under as much pressure as the Euro but that doesn’t alter our bearish view
toward the currency. In fact, the bottom of the downtrend channel in the Swiss
is seen at 75.64!
BRITISH POUND
While the Pound showed some recovery capacity
against the Dollar this week, the currency hasn’t altered its technical down
trend. From the fundamental camp we just don’t see the numbers that would alter
the down trend. Therefore, look for a bottom of the channel test of 174.18.
CANADIAN DOLLAR
The presence of very impressive trade surplus
figures evidently mean nothing to those willing to press the short side of the
Canadian. Thus far, the ultra strong growth in the US simply means that the
Canadian is discounted. However, we are no longer convinced that the Canadian is
set to slide all the way down to 71.00, as the recent lows of 71.55 might
provide temporary support for prices.
METALS
OVERNIGHT
London A.M. Gold Fix $375.50 -$4.65 LME
COPPER STOCKS 146,500 mt tons -375 tns COMEX Gold stocks 4.32 ml +59,019 OZ
Comex Silver stocks 122.1 ml -407,674 OZ
GOLD
The gold market was apparently being driven more by
the weak Dollar than we expected, as the overnight recovery in the Dollar
resulted in a sharp setback in Asian gold. Some might suggest that the recovery
in US stocks yesterday afternoon sparked the backlash, but we think that
positive stock price action is needed to get gold to transition from a flight to
quality focus, to an inflation focus. In our gut, we understand that the
inflation theme is still too immature to provide direct support to gold and
therefore we realize that the bears have the upper hand.
SILVER
With gold in a washout mode, we suspect that silver
will be in line for a downside failure. While the silver might have a slightly
less overbought long position than gold, it is still very vulnerable to stop
loss selling. Next downside targeting in July silver is $5.25 but we expect to
see the $5.00 level approached at some time in the near future.
PLATINUM
Big range action, with a preference for the
downside, leaves the near term trend pointing down. A critical pivot point is
seen in the July at $778 and solid support isn’t seen until $760. The concern
that auto sales have reached a peak, is part of the bear case in platinum with
the other more significant part coming off the whole Chinese slow down threat.
COPPER
We still think that copper is due for a near term
correction down to the 115 level, as the market will probably have to test the
capacity of the bear camp before a solid technical low can be forged. Before a
fundamental low is forged the copper market will have to see less concern over
rising interest rates, a stronger equity market and some confirmation that
Chinese demand isn’t set to be totally derailed. Chinese copper prices were down
sharply overnight, as the slowdown threat was prominent in that trading session.
CRUDE COMPLEX
The energy market raced to more new highs
yesterday and did so for a number of reasons. The primary reason behind the rise
was ongoing concern for US gasoline supply. With the net draw in US gasoline
stocks in the weekly inventory report providing the real lift in prices
Wednesday, it is clear that the market is not rectifying the shortage condition.
NATURAL GAS
While the market is expecting a reaction to the
weekly inventory report, we suspect that the direction of the regular energy
complex trumps the internal fundamental information in natural gas. Generally
above normal temps in the US should be slightly supportive to prices, but the
small spec long position is massive and will not react well to even a minor
series of support failures on the charts. In short, the BTU relationship between
crude and natural gas is dominating and the expectation of an injection of 50 to
80 bcf is largely a side show event.