Futures Point To A Flat Open
2/1/2005
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INTEREST RATES
Treasury market simply won’t be deterred from the
upside tilt, even in the face of mostly bearish macro economic information from
the US. However, traders seemed to mostly discount the Personal Income and
Spending readings from the US yesterday and were possibly looking to the
slightly disappointing new home sales readings as the most important report of
the day. On the other hand, in looking at the expectations for the economic
readings this morning, it would seem that the trade is expecting softer readings
and that should give the Treasury market a firmer tone.
STOCK INDICES
While the market eventually pushed moderately
higher on Monday, the market simply lacked the zing that would normally have
been present under the combination of bullish fundamental information seen
Monday morning. In fact, given the favorable outcome of the Iraqi election,
sharply lower energy prices, favorable US economic information and supportive
corporate news, the market should have posted a massive upside adjustment. Even
with the prospect of more merger and buyout activity and decent earnings
reports, this market feels like it is running on only a few cylinders.
DOW
While other Index measures managed a positive start to the week, the Dow
couldn’t even manage a rise to last week’s highs. In fact, the March Dow managed
to respect a pattern of lower highs yesterday and will now have to forge a rise
above the even numbered 10,500 level today, just to temper the bearish tilt. We
suspect that the March Dow will see a low of 10,399 sometime this week and
perhaps even lower pricing, if the US Fed actually hikes interest rates on
Wednesday. In order to turn off the negative attitude, we suspect that the March
Dow will now have to climb back above an old gap at 10,519 to 10,529.
S&P
The S&P certainly has a more impressive technical pattern to start out the
current week than does the Dow. In fact, the S&P might manage to shift the trend
upward today, if it can manage to rise above an old gap up at 1183.00 to
1183.20. However, we are little less impressed with the potential for a bull
pattern, given the apparent divergence between the Dow and the S&P. A failure
for the bull camp takes place with a minimal slide below 1176.50.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to coil in a tight pattern but
also seems to have a minor upward bias. On the other hand, it is a little
disappointing that the Dollar didn’t zoom higher on Monday, in the wake of the
Iraqi election, better US economic numbers and initially lower energy prices.
Maybe the market is waiting to see if the US Fed is going to hike interest rates
but the bulls have to be somewhat disappointed with the action Monday. In fact,
it is now clear to us that the US Dollar needs a perfect storm of favorable
information just to hold up above the 83.50 level. Some traders might be
posturing ahead of the coming G7 meeting and some players have expressed concern
that lots of dialogue is too be expected on the Asian currency valuation
question at the G7 meeting, but yet nothing is going to change. China is now
working toward a goal of manufacturing cars and then importing the cars into the
US. In short, China is destined to hold the currency edge in manufacturing until
the world is nearly bled to death! On the other hand, the US Administration has
failed to follow up with it plan to reduce the budget deficit and that would
seem to leave the Dollar undermined. Traders should expect the Dollar to waffle
in an 83.00 to 84.10 range, with a slight downside bias.
EURO
While the Euro zone is showing more contractionary
inflation readings from the German zone, we doubt that the economic information
is capable of sending the Euro out of an even tighter range of 129.82 and 131.08
basis the March contract. On the other hand, a set of slightly weak US economic
readings are expected this morning and that could give the Euro a slight upward
lift. In the end, we suspect that the anticipation of a US rate hike on
Wednesday will discourage the Euro from too much upside action. Therefore,
aggressive traders might buy the March Euro down at 130.13 for a short term
bounce to 130.98.
YEN
The Yen once again showed a negative overnight
technical trade on the charts, but then recoiled from the breakout point back
into the consolidation zone. In other words, the market simply lacks the
definitive information to drive the Yen down. We suspect that the coming G7
meeting will also provide the Yen with near term support and therefore we
suspect that the Yen will at some time prior to the weekend, trade up to 97.67.
SWISS
We suspect that the Swiss is smarting from the
decline in uncertainty off the Iraqi election results, but since the Dollar has
failed to capitalize on the development, we doubt that the Swiss is set to forge
a downside breakout. In fact, aggressive traders might consider buying the Swiss
on a slide to 84.04 and using tight stop of 83.80.
BRITISH POUND
The Pound has the tightest consolidation or coiling
pattern of all the currencies, with critical support at 187.38 and resistance
seen at 188.54. However, the inability to hold above 187.50 on a close basis
today could signal a slide down to 186.25 into the US FOMC rate decision on
Wednesday.
CANADIAN DOLLAR
While we are still not inclined to sell the
Canadian, we now suspect that the currency is destined for a 48 hour dive down
to 79.90, but aggressive traders might be poised to buy the March Canadian late
Wednesday afternoon or on Thursday morning.
METALS
OVERNIGHT
London Gold Fix $421.15 -$2.65 LME COPPER
STOCKS 45,350 metric tons +675 tons COMEX Gold stocks 5.982 ml +11,954 oz COMEX
SILVER stocks 102.3 ml -3,004 oz
GOLD
The supply news in gold overnight was mixed as
Russian production supposedly rose by 2% in 2004, while Mexico reported a 3%
decline in November gold production. Combined, the net impact of the Russian and
Mexican supply news, hints at slightly higher overall gold supply. The Chinese
gold market was lower overnight and the US Dollar was giving off very little
early direction and that would seem to leave the general bias in the gold market
pointing to the downside.
SILVER
A pattern of lower highs in silver suggests more
near term weakness, with critical pivot point support seen at $6.68. While we
suspect that funds will show interest in slightly lower prices, we can’t rule
out temporary declines to $6.62. Mexico reported a decrease in silver production
in November of 1.2% and Mexico remains the world’s largest producer of silver.
PLATINUM
A major upside adjustment in platinum leaves the
rest of the metals flat footed. Apparently the platinum market is being lifted
by favorable currency movements, which has allowed major Asian car producers to
deflect part of the rising cost of platinum. Overnight April platinum prices
reached a contract high and would seem to be benefiting from an improved global
economic outlook and specifically from the expectation of improved Asian
physical demand.
COPPER
The copper market performed poorly in the wake of
mostly favorable macro economic developments on Monday. The market really seemed
to be let down off the idea that Chinese copper market activity was slackening
ahead of the coming holiday. Overnight Chinese copper prices were softer again
and that would seem to leave the bears with a slight near term advantage.
CRUDE COMPLEX
The energy complex simply rejected the early
weakness yesterday and therefore the lows Monday might now be considered a solid
low, at least until the market sees more evidence of US supply rebuilding in the
weekly numbers. We are a little surprised that the market managed such a solid
rejection of weakness early Monday morning, especially when one considers that
the Iraqi election seems to have temporarily diffused the concern over Iraqi
supply flow. We are also surprised that prices were able to rise in the face of
mild weather that would seem to stretch into mid February.
NATURAL GAS
The natural gas market was saved by the reversal in
the regular energy complex, as the combination of sharply lower crude oil prices
and mild weather could have resulted in a massive small spec long liquidation in
natural gas. In fact, considering the last COT report reading, we are really
surprised that more small spec longs weren’t blown out of positions on the early
break Monday morning. Near term critical pivot point support in April Natural
gas comes in at $6.23, but many traders want positive confirmation of the
bullish action Monday in the action today and that will require a strong close
today.