Futures Point To A Lower Open
INTEREST RATES
The Treasury market is suddenly convinced that
the rising energy price situation is threatening the recovery. With the steep
global equity market losses overnight, rising inflation anxiety and general
uncertainty off the geopolitical situation, there would seem to be some cause to
inflate Treasury prices. However, it is a slippery slope to include the threat
of inflation in a bullish theme for Treasuries, as that could eventually
backfire and cause Treasuries to come under extreme pressure.
STOCK INDICES
Late last week, a number of technical measures
were signaling the most extensive oversold condition of the last 4 years.
However, given the fundamental track of information this morning, it would seem
like the technicals are going to become even more oversold in the coming
sessions. In a word, the stock market doesn’t like uncertainty and right now
uncertainty abounds.
DOW
With the Dow failing to hold critical support and inflation fears yanking the
legs out from under the international markets overnight, we suspect that the Dow
is headed to significantly lower levels. The next big area of support in the Dow
comes in all the way down at 9,800 but the bottom of that consolidation pattern,
is all the way down at 9,600. In fact, we are not sure if there is a single
silver bullet that could turn this market around quickly.
S&P
A critical failure takes place with a slide below 1078.50 today. The negating of
a classical reversal bottom formation could bring about a full liquidation of
the small spec long position, which was still net long 59,000 contracts as of
last Tuesday. In other words, the S&P remains vulnerable and with renewed
inflation concerns, rising interest rates fears and geopolitical issues dogging
the market, one can’t rule out a slide to the 1070 level. Failing to hold above
1080 on a close basis, could now mean that the June S&P is headed to the bottom
of the December consolidation down at 1059.
FOREIGN EXCHANGE
US DOLLAR
We are not sure what happen to the Dollar over the
weekend, as the hope for higher US interest rates seemed to be supporting the
Dollar into the close Friday but into the opening this morning, inflation
appears to have undermined the Dollar. It is also possible that the killing of a
top Iraqi Official is seen as a sign that the US won’t be able to turn over
control of Iraq at the end June. We also think that the market is beginning to
discount the ultra strong US economy because of the rising threat that energy
prices will derail that recovery. In the Euro zone, there isn’t as much growth
to derail so there isn’t as big of an impact on the currency. We also think that
the markets could be down grading the prospect of rising interest rates in the
US, because of the steep energy price function. In other words, rising energy
prices could be doing the Fed’s job and that could mean steady interest rates in
the US in the near term. Therefore, the Dollar is under profit taking attack and
might see a slide to channel support of 90.15.
EURO
Detracting from the potential upside in the Euro,
are comments from the Bundesbank that self sustaining economic growth in Germany
is not in sight yet. With the Euro zone March Industrial production coming in
down 0.2%, a little better than anticipated it would seem that the weak numbers
have been turned into a net positive for the Euro. In conclusion, the Euro is
getting an unusual benefit. We would not expect the Euro to rise above the long
term down trend channel at up 121.23, but a rally to that area should be
considered a sell.
YEN
While the Japanese economy has historically been
ultra sensitive to rising oil prices, the Yen was so oversold versus the Dollar,
that it is getting a lift today on short covering. With the Nikkei getting
hammered overnight and macro economic concerns rising, we don’t see the Yen
managing to rise sharply. Near term resistance is seen at 89.04.
^next^
SWISS
In a massive overnight spike, the Swiss has thrown
off the bear tilt and is poised to test resistance on the charts up at 78.42. We
really don’t see the flight to quality tilt becoming a dominating issue but in
the near term, the state of the world favors the bull camp in the Swiss.
BRITISH POUND
While the charts are still pointing down, we would
not be surprised to see the Pound get a short covering bounce. Near term down
trend channel resistance comes in up at 178.57. The down trend pattern in the
Pound is pretty entrenched and we are really hesitant to alter out bearish
opinion on the currency.
CANADIAN DOLLAR
The Dollar has been tripped up and the Canadian,
being extensively oversold, is a prime benefactor of the sudden shift in
psychology. However, we are not sure there is a fundamental justification for a
sustained rise in the Canadian. Therefore, on a rise back above 72.60, traders
might consider buying a July Canadian 71 put.
METALS
OVERNIGHT
London A.M. Gold Fix $380.80 +$7.30 LME
COPPER STOCKS 145,950 mt tons +325 tns COMEX Gold stocks 4.267 ml -60,355 oz
Comex Silver stocks 120.7 ml -787,301 OZ
GOLD
Surprisingly the gold market is finding support from
significant equity market duress and growing concern for inflation. The
overnight rise in gold must be more closely tied to the slide in the Dollar than
the inflation buzz, as gold and silver failed to respond last week to direct US
inflation evidence. However, soaring energy prices is beginning to get the
attention of economists who previously discounted the inflation potential.
SILVER
While the silver charts looks to have forged a
rounded bottom formation and the market is getting positive leadership from the
gold market, we are not expecting a significant upside follow through. However,
with leadership from gold, the July silver market could easily see a rise to the
May high of $6.175. The weekly COT report showed the net spec long to be 61,000
contracts, which is a decline of 7,600 contracts from the prior week.
PLATINUM
The platinum market managed a massive overnight rise
as if the platinum market is coming back into strong favor. The spec and fund
long in platinum was under 1,000 contracts which means that the platinum market
was mostly liquidated and in a position to form a strong bottom. Apparently the
Chinese situation is no longer keeping platinum down and with the rising
inflation/flight to quality premium, we would not be surprised to see platinum
lead the way because of its stellar supply and demand fundamentals
COPPER
With world equity markets consistently falling,
energy prices rising and geopolitical concerns spiraling out of control, the
macro economic impact on copper is negative. Chinese copper prices were down
again and with Chinese copper output figure rising 29% in April and the January
through April output rising by 20%, the net impact off China is negative. We are
actually surprised that July copper isn’t already trading down to 115.00 and we
would expect a new low for the move early today or early this week.
CRUDE COMPLEX
The energy complex made a series of new contract
highs last week and managed to close within close proximity to contract highs.
In other words, the market is poised to factor in more uncertainty toward supply
in the coming sessions. Some might suggest that the market has effectively
factored a tremendous amount of tightness, but at the same time few players can
offer up a firm opinion that the fundamental problems will be solved.
NATURAL GAS
The natural gas market comes into the week with a
number of analysts suggesting that inventories are adequate and that prices
should be at current lofty levels. With the net spec and fund long at 51,000
contracts it is still a long way from the historical record of close to 79,000
contracts. So far, the natural gas market has managed to rise in the face of
bearish weather in the US and very little direct terrorism implications.