Futures Point To A Lower Open
2/24/2005
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INTEREST RATES
The Treasury market continues to show signs of
respecting the quasi double bottom at 113-16 in the March contract, but with the
IMF coming out with yet another warning on the US current account deficit issue,
we suspect that international rotation will continue to haunt the bull camp. The
IMF suggested that the recent slide in the Dollar should be a wake up call for
the US to address the current account deficit. However, we are not sure that the
US can “do something” or for that matter “do something quickly”.
STOCK INDICES
While the stock market impressed some with the
bounce yesterday, the market has plenty of potential negatives lurking in the
wings. In addition to the fact that nearby crude oil prices are approaching
$52.00, we are also seeing undermining comments from the IMF overnight, which
would seem to fan the flames of disinvestment from the US. The IMF suggested
that the recent decline in the Dollar was a wake up call for the US to address
the soaring current account deficit, and that reiterates the concerns fostered
in a Wall Street Journal front page article from earlier this week, that foreign
investors are looking for ways to spread their investments over a wider
geographical area.
DOW
While the Dow has managed to hold most of the rally off the 10,610 low, we just
don’t get the sense that buyers are waiting in the wings to progressively pay up
for stock. In fact, about the best thing that can be said for the market, is
that concern and anxiety levels have remained relatively low and that has
inspired simple short covering, which is much different than fresh buying. On a
rally back to 10,695 we would become a seller of the March Dow, but we are not
sure that the market has the capacity to forge that kind of rally, unless the US
numbers this morning are shockingly strong and oil prices slide.
S&P
The S&P forged a little stronger rally than we would have expected yesterday,
but we didn’t think that the CPI reading would actually come in a couple ticks
below expectations. Therefore, we suspect that the bear tilt will still
generally control and that traders should continue to sell rallies. In other
words, we think that high energy prices and international diversification fears
will continue to undermine stock prices. Those that manage to get short today
should be looking for an objective of 1188.60.
FOREIGN EXCHANGE
US DOLLAR
It would seem that a game is underway in the world
of Central Banking. The market seems to uncover evidence of rotation away from
US assets, but then officials rush to countervail those concerns with statements
to the contrary. In reality it would seem like a large portion of the world is
working to re-distribute holdings but those involved, understand that an
un-orchestrated rotation could result in one of the biggest currency crises of
the last century. We suspect that the IMF comments overnight will once again
highlight the current account deficit problem in the US, and that is simply
another reason why the US Dollar is probably headed down to 82.00 and possibly
even to the 81.00 level in the coming weeks. In fact, about the only factor
capable of discouraging the Dollar slide, is an ultra strong US economy. On the
other hand, rising oil prices would seem to undermine the US economy more than
others and that would seem to reduce the chance that a strong economy will end
up supporting the Dollar. Look for a minor GDP inspired rally in the Dollar,
away from the early lows today but one should be prepared to sell the Dollar on
that rally.
EURO
The Euro is poised for a return to the 134 level in
the coming sessions, as the EU is set to benefit from the US travails.
Overnight, the market might have seen the Euro dampened by comments from the EU
that the Chinese should begin to move toward a more viable link to global
currency markets. Unfortunately for those that want to get long the Euro, stops
in a long March Euro play probably have to be placed down below the 131.80 level
and that is a big risk.
YEN
The BOJ is apparently duly concerned about Japanese
growth and the central bank is suggesting that they will continue to maintain a
“Super-easy” money policy. Therefore, the trade would like to buy the Yen, but
many are concerned about the fundamental setup and the fact that chart support
isn’t very solid until the 94.66 level.
SWISS
While the flight to quality impetus in the Swiss has
been lost for a couple of sessions, the IMF comments overnight and the fact that
crude oil prices are nearing $52 again, should mean that the Swiss is still
poised to rally off flight to quality. In fact, given the recent consolidation,
the Swiss is now probably in much better technical position to rally, than it
was at the beginning of the week.
BRITISH POUND
While the Pound has forged a series of lower highs
over the last three sessions, we still think that the path of least resistance
is pointing upward. Traders should look to buy the March Pound on a correction
back down to 190.25.
CANADIAN DOLLAR
The Canadian needs to hold above 80.00 today and
needs to see some fresh buying interest return to the equation shortly after a
minimal US number inspired sell off in the Canadian. In other words, the
Canadian should expect to see pressure early but without a recovery into the
close, the bull camp could be in big trouble.
METALS
OVERNIGHT
London Gold Fix $434.75 +$1.50 LME COPPER
STOCKS 53,125 metric tons Unchanged COMEX Gold stocks 5.914 ml -2,411 oz COMEX
SILVER stocks 101.8 ml Unchanged
GOLD
While the Dollar might be showing minimal gains
early today, we are not convinced that anything has changed with respect to the
fundamentals, which have sent the Dollar down sharply from its February highs.
Therefore, we have to think that the path of least resistance is pointing upward
in gold, even if the momentum might be reserved in the near term. However, with
the IMF rationalizing the Dollars decline (in an overnight release) by
suggesting that the weakness is a wake up call to the US current account deficit
problem, the Dollar could easily restart its downside slide and in turn spark
renewed buying of gold.
SILVER
The silver market continues to hold near the recent
highs and to a degree the silver has solidified the higher trading range with a
consolidation of lows and opens around the $7.37 level. Unfortunately the market
isn’t seeing that much outside market help and very little is going on with
respect to physical supply and demand. However, with the exception of a very
steep up trend channel action off the February low, the silver market would not
seem to be overly extended technically, especially since silver balanced its
technicals by consolidating for 8-9 sessions following those very aggressive
gains on February 10th and 11th.
PLATINUM
Given past patterns in the platinum market we might
suggest that aggressive traders look to sell a spike in April platinum to $877,
using a risk up at 881 and looking for a slide down to $851. To run to new highs
Asian demand has to show itself again.
COPPER
The copper market seems to be entrenched in the bull
case and with Chinese copper prices overnight showing some gains, we have to
think that the path of least resistance is still pointing upward. While there
continues to be labor tensions in Chile, the market hasn’t really focused on the
threat against supply in the recent run up in prices. However, given the ongoing
bullish posture in the copper market, almost anything seems to inspire the funds
to buy and so far the combined small spec and fund position hasn’t reached a
dramatically overdone level.
CRUDE COMPLEX
While crude oil prices showed the most weakness
in the action Wednesday, the energy market in general rejected the early
weakness and remained within striking distance of the recent highs. Even more
surprising is that energy prices managed the rally in the face of comments from
the OPEC President, that the cartel would act to stabilize the world oil market
if it was necessary. In other words, the comments Wednesday would seem to have
countervailed the bullish talk from OPEC early in the week, which suggested that
a day’s of supply measurement might be used to determine OPEC production levels.
NATURAL GAS
The natural gas seemed to rise off of arbitrage
buying against crude oil, but we also suspect that a little surprise cold
fostered some renewed interest in the long side. We also think that the May
natural gas market attracted fund buying, in addition to stop loss buying off
the violation of chart resistance. While the cold weather is an issue, we have
to think that the weekly storage readings today will serve to dampen the recent
strength in natural gas, but we also can’t rule out an initial follow through
rally in the wake of potentially supportive declines in heating oil stocks.