Futures Point To A Flat Open
1/27/2005
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INTEREST RATES
The Treasury didn’t seem to be damage that much
by the talk that the Note auction yesterday was disappointing, but the market
was in general weakened by the events on Wednesday. In addition to the concern
that foreign central banks are beginning to step back from purchasing US
government securities, we suspect that slightly lower energy prices, a higher US
equity market and a slight up tick in the US economic numbers yesterday, put
some additional pressure on Treasuries. This morning the trade is a little pent
up for a decent to strong, US durable goods report and possibly expects a
minimal gain in the Chicago Midwest manufacturing Index.
STOCK INDICES
While the market is emboldened by the 2 day rise
in prices, there would seem to be a significant amount of uncertainty ahead and
only a cursory improvement in the current macro economic outlook. We suspect
that the market will continue to get support from the corporate earnings front
and the bulls might even see some temporary support from the scheduled US
economic report slate this morning, but we also think that the looming threat of
violence in Iraq will persistently serve to mitigate the upward bias. The market
might be cheered on by rumors of another major merger/buyout between SBC and
ATT, but even that optimism might be offset by concerns of the Microsoft
earnings report due out after the close today.
DOW
After making a rather impressive bounce and giving the impression of leadership,
the Dow might be poised for a little back and fill action on the charts.
However, a favorable Dow Chemical earnings report would seem to give the market
an early positive to work off of, but we just don’t see the Dow forging more
gains unless the durable goods report manages a gain in excess of 1% or more!
Longs should probably begin to run profit stops, while those on the sidelines
should wait for a correction back to 10,442 to get long the March Dow.
S&P
While the S&P isn’t nearly as overbought as the Dow, (from a short term
perspective) the index won’t avoid selling in the event that durables are
disappointing. We would give a near term upside targeting of 1177.30, but at
that level we would suggest that longs bank profits in futures and shift any
long exposure to calls, for the coming weekend/Iraqi election window! Seeing the
election carried out successfully could end up being a major positive, but the
uncertainty in the coming two sessions is very concerning.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to chop around in a 100 point
range but the dialogue from central bank sources and US Treasury analysts would
seem to dredge up the concern of disinvestment from US assets and that is a
negative to the Dollar. We also suspect that a wave of insurgent attacks will
surface and that anxiety toward the US position in Iraq will provide some
selling pressure to the Dollar but that the US economic numbers will provide an
offset to the selling. The question becomes will enough Iraqis vote to
legitimize the election and in turn allow the US to pullback. We suspect that
sentiment will expect the worst and in the process push the Dollar down and
possibly below the 83.08 critical support zone but that the Dollar is still
poised for an upside breakout in the March Dollar futures over the coming two
weeks.
EURO
Slightly supportive Italian economic readings didn’t
appear to give the Euro much support overnight. In fact, even with the Dollar
drifting down to critical support, the Euro doesn’t seem to be in a position to
breakout to the upside. In other words, the Canadian and the Pound might be
poised to get more of a benefit from the coming Dollar weakness than the Euro.
We see the near term Euro trading range as 131.17 and 129.55. We don’t think
that the Euro is ready to discard the downtrend pattern in place since the
December high.
YEN
The Yen remains caught in an extremely wide near
term trading range. The general bias remains up, because of the Chinese currency
effect but we also think that the Yen has massive overhead resistance and could
find it extremely difficult to climb above 98.00 in the coming week. In fact, on
a rally to 98.10, we would consider purchasing some puts.
SWISS
After an attempt to breakout to the upside
overnight, the Swiss seems to have lost buying interest. Like the Euro, we
continue to think that the path of least resistance in the Swiss is down and
that prices will soon return to levels below 84.00. However, in the coming two
sessions we would not be surprised to see the March Swiss temporarily rise above
85.10.
BRITISH POUND
The Pound has managed a quasi upside breakout on the
charts and might be the odds on favorite to get the most out of near term
weakness in the US Dollar. With the BOE warning of higher inflation in 2005, the
Dollar vulnerable and the Euro not showing leadership, it might be possible to
see a March Pound trade of 188.60 in the coming 48 hours.
CANADIAN DOLLAR
The Canadian economy has evidently disappointed the
marketplace and with the Canadian drifting down toward critical chart support, a
possible downside breakout is possible. However, we continue to fear short side
plays in the Canadian below the 81.00 level!
METALS
OVERNIGHT
London Gold Fix $426.30 +$2.60 LME COPPER
STOCKS 44,700 metric tons +950 tons COMEX Gold stocks 5.915 ml -47,369 oz COMEX
SILVER stocks 102.3 ml Unchanged
GOLD
The gold market saw quite a heavy flow of supply
news overnight with Peter Hambro Mining indicating that gold production rose by
60,000 ounces, with AngloGold output rising by 430,000 ounces. Adding to the
negative implication of rising production, were reports that AngloGold had
reduced its hedge by up to 2.2 million ounces in the 4th quarter but some might
spin that into a positive by suggesting that in effect lower hedging action
reduces the float of supply in the marketplace. We see lower hedge books as a
potential wave of selling lurking on the sidelines.
SILVER
The silver market continues to see what appears to
be periodic concentrated buying interest on minor price weakness. In other
words, it appears that the funds are moving in and out of silver. Therefore, we
see silver catching some support from gold and the funds over the coming two
sessions.
PLATINUM
Strong technical action overnight would seem to
leave the bull camp in control but we also have to mention that platinum has
shown a pattern of spike up rallies that failed to hold at current price levels.
While the April contract could quickly rise to $880, we think long risk is too
high.
COPPER
The copper market comes into the action this morning
right on the recent highs and supported by news that Chinese copper prices were
higher overnight. The Press and trade continue to highlight strong cash market
action in China and that would seem to leave the trend pointing higher. We
suspect that the US economic information this morning will be slightly
supportive but we are not sure that global macro economic sentiment is going to
be that supportive against the uncertainty of the Iraqi election.
CRUDE COMPLEX
The energy complex showed that the $3.50 rally
off the mid January dip was largely overdone, as the weekly inventory reports
was on the face mostly bullish, but yet prices weakened in the wake of the
report. While some might suggest that the weekly crude stocks changes were
offsetting, (between the API and DOE) while others might suggest that the big
gasoline stocks decline was less made important due to the time of year, that
the declines took place. On the other hand, the decline in distillate stocks
should have been enough to lift the market.
NATURAL GAS
The natural gas market continues to hover near the
upside breakout point on the charts, despite the fact that the regular energy
complex weakened in the face of bullish inventory data. While we don’t see the
fundamental cause for an upside pulse from the weather, we have to respect the
potentially bullish action in the regular energy complex into the coming Iraqi
election. Interestingly enough, the 100 day moving average in April natural gas
comes in at $6.558 today, but we just don’t see the information that would push
the market up to that level.