Futures Point To A Lower Open
1/19/2005
INTEREST RATES
For the near term, the threat of foreign
disinvestment in Treasuries seems to be mitigated, as the Dollar has apparently
consolidated its January bounce and the US government released data yesterday
that showed foreigners were actually increasing their purchases of US Government
debt in the most recent measurement. Even more surprising is the fact that
foreign investments of US equities also increased and that would seem to suggest
anything but disdain for US Dollar denominated instruments. When one adds into
the fixed income scenario, the fact that US inflation remains muted, one has to
give the bulls an edge.
STOCK INDICES
Surprisingly the earnings reports turned the tide
of sentiment around yesterday and that reversal was made in the wake of much
weaker than expected New York Fed manufacturing data. The bull camp was also
helped by the reversal in energy prices yesterday morning, which started the
holiday shortened US week out on a strong note but then faded significantly. In
fact, energy prices dove off market rumors suggesting that OPEC might not cut
production in the January 30th meeting.
DOW
In the near term, we suspect that the March Dow will attempt to retest the mid
January high of 10,635 but that the market will run out of buying fuel around
that level. Those that get short the March Dow should probably not risk those
positions beyond 10,660.
S&P
If the March S&P fails to rise above the prior sessions high, in the wake of
another mostly bullish wave of earnings reports, we are not sure what catalyst
the bulls expect to see in order to feed the rally. As suggested before, the
bulls will need to see something special from the ongoing claims report, in
order to entrench the recent bounce. Therefore, aggressive players might get
short around 1195.50, but one should also use tight stops of 1197.90.
FOREIGN EXCHANGE
US DOLLAR
The Dollar action is really fickle, as the Dollar
rallied last week in the wake of mostly disappointing US economic information
and this morning the Dollar is apparently weak in the wake of news yesterday,
that showed foreign investment in US government instruments and US equities to
be on the rise! In other words, the near term driving force in the Dollar seems
to be the ebb and flow of US economic numbers, instead of the recently
dominating concern over disinvestment from the US! While the overnight slide in
the Dollar shouldn’t be given too much importance, a slide below 82.83 could be
very significant. We suspect that the CPI reading this morning will undermine
the Dollar, but that ongoing claims could surprise the trade and end up
supporting the Dollar. Therefore, we can’t rule out a short term slide in the
Dollar down to 82.90, but we suspect that the overall near term trend will be
sideways to higher in the Dollar.
EURO
While the ECB continues to look for somebody else to
do the heavy lifting on the undervalued Asian currency situation, it would seem
like the Euro has found solid support around the 130.00 level. In the near term,
we suspect that the March Euro will manage to rise to 131.32, before significant
resistance is encountered. We might add that the overall trend in the Euro
remains down until the pattern of lower highs is violated with a rise back above
132.25.
YEN
The BOJ continues to fight the buzz for higher Asian
exchange rates, but in the near term there would not seem to be enough
intervention dialogue to prevent the Yen from returning to 98.64 in the near
term.
SWISS
Like the Euro, the Swiss probably has the capacity
to rise toward consolidation resistance of 86.15. Also like the Euro, the Swiss
will remain in a down trend pattern, until the pattern of lower highs is altered
with a trade back above 86.20.
BRITISH POUND
A significant upside probe overnight in the Pound
would seem to give the currency near term recovery capacity of 188.65. A
partially favorable UK employment report overnight seems to add to the bullish
technical setup from the overnight action and that means the Pound is poised to
take advantage of any Dollar weakness today.
CANADIAN DOLLAR
Slightly hotter than expected CPI readings from
Canada would seem to give the Canadian a lift this morning, but the buying
interest in the Canadian is lagging behind the rest of the currencies overnight.
We suspect that the March Canadian will manage to rise toward 82.37, but that
the trend hasn’t totally shifted back to the upside.
METALS
OVERNIGHT
London Gold Fix $424.10 +$1.55 LME COPPER
STOCKS 43,525 metric tons Unchanged COMEX Gold stocks 5.934 ml -16,702 oz COMEX
SILVER stocks 102.6 ml -307,011 oz
GOLD
Despite the fact that Chinese gold was slightly
weaker overnight, we suspect that support under gold will be a little more
prevalent this morning, as the Dollar is showing some signs of weakness.
However, if the March Dollar Index were to fall below 83.00, that could
psychologically inspire even more gold buyers to come back into the market,
after the recent fund liquidation. The April gold contract continues to coil in
a $420 to $430 range but until the pattern of lower highs is violated with a
rise back above $430.5, we have to give the bear camp a slight edge.
SILVER
At times the silver market appears to be divorcing
itself from the daily gold market action and could be attempting to tie its fate
to the industrial metals. With copper and zinc rising sharply overnight and
favorable Chinese dialogue surfacing again, the best hope for the bull camp in
silver is to play up the physical demand link. However, we would be a little
surprised to see March silver manage a rise above $6.775, but we concede that
the path of least is now pointing up but we are not sure that momentum will be
that impressive.
PLATINUM
Just when it seemed like platinum was vulnerable to
a further corrective setback, the market reverses course and breaks out to the
upside. We suspect that the renewed interest in base metals and talk of rising
Asian demand is propelling platinum upward. It seems that jewelry demand is on
the rise in Asia and that is a fresh bullish development.
COPPER
The copper market has already forged some impressive
overnight action and seems to be poised for an upside extension. With zinc
prices forging new highs overnight and platinum players talking up soaring Asian
jewelry demand it is clear that copper is getting a lift from demand
expectations. A story out overnight suggests that Chinese imports in the first
half of the coming year might fall short of demand and that could mean that
Shanghai copper stocks are taken down to almost nothing.
CRUDE COMPLEX
The energy complex flopped around on both sides
of unchanged to start the week out yesterday but the market was buffeted by
changing fundamentals. Early in the session Tuesday the trade was lifted by very
favorable supply and demand projections from the IEA, but that bullishness was
dashed around mid session by a rumor that OPEC wasn’t inclined to cut production
with recent prices holding in an expensive zone. The Saudis are reportedly being
very mum on the question of a coming production cut, with some players thinking
that the Saudi’s might continue to preempt or act unilaterally, as they have
seemingly done so over the last two months.
NATURAL GAS
The natural gas market mounted a massive trading
range on Tuesday but finished sharply lower in the wake of a sudden setback in
the regular energy complex. We suspect that part of the long liquidation
yesterday was the result of more moderate temps ahead, but the main component of
the washout came from OPEC statements, that discounted production cuts in the
month ending meeting because oil prices continue to hover at expensive levels.
In other words, the alternative BTU pricing of crude and heating oil declined,
and that in turn pulled the rug out from under the natural gas market.