Futures Point To A Higher Open
4/21/2005
Â
INTEREST RATES
From the action yesterday it is clear that the
market is aware of the inflation threat but is unwilling to let that track of
thinking dominate daily price action. Even with some economists and analysts
suggesting that the CPI reading yesterday increases the odds of a 50 basis point
Fed rate hike, and others suggesting that the inflation data means the Fed will
hike rates in each of the next 6 FOMC meetings, we suspect that Treasuries will
continue to rise slowly. In fact, to throw off the upward track in prices, could
take a series of better than expected scheduled readings and perhaps even a
better than expected non farm payroll report in early May! Given the action in
energy prices, the slumping action in equities and the slide in the US Dollar,
we hardly have the environment to expect a firming of the numbers! However, one
thing that might have changed since the beginning of the week, is that energy
prices might be losing the near term capacity to rally aggressively and that
could serve to lower some of the macro economic anxiety that seems to have built
up in the marketplace.
STOCK INDICES
The glass is apparently less than half full, as
favorable heavy industry earnings reports from Caterpillar yesterday morning and
better than expect Intel earnings in the same time frame were simply cast aside
by hot US CPI readings. In conclusion, the hope of positive price action from
the earnings cycle seems to be lost, but with an extremely heavy flow of
earnings this again morning, it is possible that the bears temporarily lack the
cover to attack the market straight away. With Treasury analysts convinced that
the Fed will become even more aggressive with the next rate hike decision, oil
prices still a haunting problem and the scheduled economic numbers almost
exclusively disappointing, the bears would seem to control, but with less
anxiety than was present during the session Wednesday.
DOW
With the June Dow forging a new low for the move overnight and the market unable
to recoil away from the aggressive selling on Wednesday, we suspect that the
path of least resistance remains down. With the market almost totally
discounting the favorable Caterpillar earnings yesterday, it would not seem like
the large cap stocks are in a good position, especially since big cap stocks are
overtly impacted by higher interest rates and ongoing high energy prices. We
still think that the June Dow has the potential to slide to the October 2004
lows around 9,744 and that rallies today, off favorable earnings, should be
considered an opportunity to implement fresh short plays. In fact, we see the
June Dow managing a bounce to 10,093 before the buying tapers off and the second
set of scheduled US economic numbers serves to undermine bull sentiment.
S&P
While the June S&P is attempting to reject the prior day’s massive slide in
prices, we are not sure the bull theme can consistently support prices. Some
might expect Federal Reserve Chairman dialogue today, to support equity prices,
as we suspect the Fed will attempt to justify their ongoing inflation battle,
with suggestions that US growth is still entrenched! Aggressive traders should
look to get short on a bounce to 1151.20 but in the event that Fed dialogue
fosters follow through short covering, a trade up to 1152.90 is possible. Since
the market failed to reject the massive downside range yesterday, we don’t even
see much in the way of a technical bottom ahead.
FOREIGN EXCHANGE
US DOLLAR
The Dollar came right back to the 50 day moving
average and we suspect the only thread holding up the Dollar is the idea that
the Fed might be poised to hike rates by 50 basis points in the next meeting. It
is also possible that a Chinese interest rate hike might be tossed around in the
near future and that might actually serve to push the Dollar even lower. We have
to think that the bull camp in the Dollar is significantly disheartened by the
developments this week, as the whole inflation argument for the Dollar now seems
to be lost. Without an inflation argument we have to wonder what issue the bull
camp can dredge up to prevent the Dollar from coming under aggressive attack. In
fact, unless the Fed Chairman alters sentiment in discussions today, we suspect
that the Dollar is headed down to 83.00 and eventually to 82.05. If the early US
numbers today don’t support, we suspect that information released later on will
deteriorate sentiment and possibly result in a rout of the Dollar.
EURO
In addition to the disappointing inflation reaction
in the US Dollar yesterday, the Euro surprising seems to be getting a decent
flow of economic news and that should leave the Euro in an upward pattern. The
June Euro comes into the session today right on a 50 day moving average and
would appear to have the resolve to mount a slow and gradual rise toward the
132.50 level. However, the rally in the Euro probably won’t be fueled by
expectations of a great rate of return but instead, will be fueled by money
wanting to be out of the US Dollar. Therefore, we see a slow grinding rise in
the Euro instead of a flash higher. Italian consumer confidence managed to rise
to 104.8 from 104.2 and that is a positive trend and that probably comes in the
face of disappointing US numbers later this morning.
YEN
As expected, the Yen has failed to capitalize on the
travails of the US Dollar and is probably seeing some light selling off the
Chinese flap and the concern that Japanese exports to the US are expected to
tail off. The bottom of the recent up trend channel in the June Yen comes in
today at 93.47 and the top of the up trend channel presents significant risk up
at 94.10. Minor losses ahead in the yen, but a weak Dollar limits the downside
action.
SWISS
Another new high for the move overnight clearly
shows that the Swiss is coming into favor. However, the rate of gain in the
Swiss isn’t expected to be that impressive, especially with both volume and open
interest falling off on recent gains in the currency. In other words, the trend
is pointing up but the trade doesn’t appear to be ready to whole heartedly
support the uptrend.
BRITISH POUND
Either the Pound is short term overbought or the UK
retail sales figures simply altered short term sentiment. With March UK retail
sales declining.1% and that figure significantly below expectations, we can
understand a near term profit taking let down. In fact, we can’t rule out a
temporary slide down to 189.86 but we would certainly be inclined to buy the
Pound on that type of washout. Unfortunately the 50 day moving average is all
the way down at 188.84 and consolidation support isn’t seen until 189.20.
CANADIAN DOLLAR
The coiling continues in the Canadian, with the
middle of the range (80.55) seen as near term support and a target. Until there
are two closes above 81.00 we have to assume that the trend in the Canadian
remains down.
METALS
OVERNIGHT
London Gold Fix $433.40 +$1.15 LME COPPER
STOCKS 54,725 metric tons +1,875 tons COMEX Gold stocks 6.047 ml oz +112,461 oz
COMEX SILVER stocks 103.5 ml +10 oz
GOLD
The gold market must now consolidate the recent
gains and attempt to hold above the $435 level, with less than perfect macro
economic conditions confronting the market. While the favorable Chinese growth
news yesterday initially provided support, this market needs to see further
confirmation of improving Indian demand to get a real physical demand focus in
place. In the near term, overnight Chinese gold and copper prices did see some
profit taking off the idea that the Chinese government might have to act to cool
growth.
SILVER
Like gold, the silver market is positively biased
but it will probably have to climb a wall of worry with respect to the US
economy. We suspect that the $7.25 level has firmed up as support and from the
action this week, it would seem like the funds have renewed interest in the long
side. The top of the current up trend channel in July silver comes in at $7.452
but unlike gold, there isn’t much in the way of supportive physical supply
information.
PLATINUM
While platinum hasn’t held all of the recent gains,
the market would still seem to be bullishly biased. However, we can’t rule out a
correction back to $870 support, in the event that world equity prices generate
some anxiety. We suspect that aggressive traders can sell rallies to $875 as the
auto industry is back on its heels, the outlook for the US is troublesome and
perhaps most importantly,` some players are beginning to talk up the prospect of
a Chinese interest rate hike to slow excessive growth in that country.
COPPER
We think the copper market is headed back down
toward the April lows. In addition to overnight concerns about rising Chinese
interest rates (as a measure to slow aggressive growth) we also take the 15.4%
decline in 1st quarter Chinese refined copper imports as a bearish indication.
Keep in mind, the lower import tally comes on top of a 17% increase in 1st
quarter Chinese copper production.
CRUDE COMPLEX
While the energy complex showed some signs of
extending the recent upside bounce yesterday in the wake of supportive weekly
inventory data, it is possible that significant declines in the US equity market
will simply rekindled concerns of slumping energy demand. We saw the weekly
inventory reports as mostly bullish, with the rise in the refinery operating
rates the only issue that the bears could embrace. EIA crude stocks fell -1.8
million barrels but are now 22.7 million barrels above year ago stock levels.
NATURAL GAS
The natural gas market faded quickly Wednesday in
the wake of a failed rally in crude oil prices. With the weather turning
slightly negative and the charts showing little support until the $7.00 level,
we have to give the bears a slight edge in the action today. Heading into the
weekly inventory report, US Gas storage stands at 1,293 bcf, which is 246 bcf
above year ago stock levels and 229 bcf above the 11yr average.