Futures Point To A Higher Open
1/7/2005
INTEREST RATES
The Treasury market has coiled tightly into the
payroll numbers and it would seem that sentiment for the number is all over the
board. Standing against the odds of a big number, were a series of second tier
quasi jobs readings this week that were soft. On the other side of the coin,
economists continue to stand by lofty expectations, with some suggesting that a
seasonal benefit will help raise the numbers.
STOCK INDICES
The stock market is showing signs of a bottom but
the action isn’t what we would call the most reliable. While prices have managed
to bounce off the significant low posted early in the week, we haven’t seen a
clear cut shift in sentiment. While the upgrade in US holiday retail sales was a
very helpful development, it would not seem like sentiment managed to shift
squarely back into the bull camp off that issue.
DOW
So far the 10,600 level has been decent chart support, but we can’t rule out a
temporary slide to 10,522 in the first hour of trade. In fact, unless the
payroll numbers fail to come in above the prior month’s job gain of 112,000, we
would be looking to buy dips today.
S&P
The March S&P did manage to forge a quasi double bottom on Wednesday and
Thursday and that should provide decent support today. Unfortunately, our
favorite type of bottom comes after a big spike down move is rejected! On a
surprise break to 1179 this morning we would jump into the market with both
feet.
FOREIGN EXCHANGE
US DOLLAR
The Dollar has certainly forged a significant short
covering rally over the last 5 sessions and it would seem like the bulls will
have to pay the piper today. In other words, the Dollar might not actually
extend gains today on an as expected US payroll report, but we are pretty
convinced that a disappointing payroll report will smash the Dollar. Therefore,
traders can expect some massive volatility today and a wise decision might be to
throw on two long February Dollar Index 82 puts against a long futures. Whenever
the Dollar seems to get everything positioned for a major turn, something seems
to derail the turn and the biggest disappointment is that the US economy will
more than likely come away from the readings today with incontrovertible proof
that its growth is in a different league than the Euro zone but yet that might
not be enough for the marketplace. In other words, the Dollar should rally from
a fundamental perspective, but the trade is heavily vested in the opposite
outcome.
EURO
The Euro has had to digest a series of disappointing
economic reports this week and now the focus shifts toward the US numbers. It
should be noted that German Manufacturing orders for November, managed a
significant decline of 2.3% and that is yet another major charge against growth
in the Euro zone. With the Euro also short term overbought, the trade can demand
a pretty strong reading from the US. We have been suggesting multiple out of the
money put plays in the Euro for three weeks and stand by that position because
the pain of being wrong today is defined and limited and the potential reward of
being right could exceed that of a short futures play. Maybe not today but at
some time in the first quarter, the world should realize that the Euro is too
expensive at 133-135.
YEN
The Yen has decent chart support at 96.10 but the
formation isn’t that impressive. We suspect that the Yen will end the session
today higher than where it started the session.
SWISS
While the Swiss chart remains extremely bearish, the
market has managed to consolidate above the low posted early this week and that
will at least provide temporary support to the Swiss. However, we assume that
the trend is down and that recovery bounces back to 86.30 today can be sold.
BRITISH POUND
The Pound might be able to forge a bounce today, but
we would look to sell a rally to 188.20 with an eventual target of 185.00.
CANADIAN DOLLAR
Canadian employment increased by 33,500 and the
jobless rate fell by a surprising.3% and that will serve to discourage a selling
attack on the Canadian in the face of the US numbers. In fact, as we suggested
yesterday, the play might be to sell the Canadian but we want no part of selling
the March Canadian at 81.45 or lower.
METALS
OVERNIGHT
London Gold Fix $423.15 -$1.65 LME COPPER
STOCKS 48,375 metric tons -125 tons COMEX Gold stocks 5.864 ml +129 oz COMEX
SILVER stocks 103.3 ml -266,699 oz
GOLD
Given the aggressive slide in the gold since the
late December high, we suspect that the small spec and fund long has been
significantly reduced but the market will not avoid additional liquidation in
the event that the non farm payroll report comes in at or above expectations.
However, in addition to the expectations being pretty lofty, information leading
up to the report today would seem to hint at a non Farm payroll gain of only
110,000 to 125,000 instead of the 175,000 trade estimate. In fact, given the
massive run up in the Dollar, it would almost seem like the market has
overreacted and now nothing short of a fantastic reading will justify more
Dollar gains.
SILVER
As suggested earlier this week, we suspect that
March silver will be able to diffuse some of the selling that might be seen in
the event that gold falls to yet another lower level off an extension of the
Dollar rally. However, the silver market is behaving a little more like an
industrial commodity and that could be a benefit in the event that the US
economy shows strength today in the numbers. On the other hand, a disappointing
reading this morning shouldn’t prompt selling interest.
PLATINUM
The April platinum market continues to have a rather
discouraging chart setup, with a clear cut pattern of lower highs. We think that
traders should be looking for the opportunity to get short April platinum on a
rally back to $855, as we don’t get the sense that the old tightness issue is as
dominating as it was in 2004. In our opinion, seeing copper choppy, suggests
that Asian demand for platinum is also becoming a little more suspect.
COPPER
The copper market continues to show signs of
recovery, but with some major US economic information due out today, we suspect
that copper will see a macro economic knee jerk reaction. Chinese copper prices
were slightly higher overnight and that is surprising considering that Shanghai
copper stocks posted an increase of 5,315 tons in the most recently weekly
reading, with the total stocks now standing at 37,000 tons. Fortunately for the
bull camp, the copper market is not that reliant on favorable macro economic
conditions and therefore, a general upward bias in prices looks to continue
after the morning fireworks.
CRUDE COMPLEX
The energy complex roared higher and at times
seemed to be rising off exclusively technical factors. We suspect that gasoline
demand forecasts from the US government and predictions of higher US 2005
gasoline prices, than were seen in 2004 inspired the buying. We also think that
OPEC commentary provided a basis for some of the buying, as they suggested that
prices were beginning to reflect fundamentals and to some, that meant that the
excess premium might now be extracted and many longs see that as a sign that
further aggressive long liquidation risks have declined.
NATURAL GAS
With the regular energy complex managing to climb
above near term consolidation resistance and moving up into the gap area, we
suspect that the bears have been temporarily discouraged. However, the weather
doesn’t seem to be cold enough to spark much more than a simple but deserved
short covering bounce. The weekly inventory readings showed a draw of 151 bcf
and that appeared to be more bullish than it really was, because the annual
surplus dropped to 79 bcf off a statistical shift in the prior inventory reading
and not because of an actual tightening.