Futures Indicate Stronger Open
INTEREST
RATES
OVERNIGHT
CHANGE to 5:28 AM:
BONDS -3 — With
the US creeping closer towards war with Iraq, bonds pushed to fresh contract
highs, overcoming some good economic news, higher stock prices and indications
from Iraq that they may comply and destroy some short-range missiles. We expect
no major topping action in bonds until the war comes to fruition or is
indefinitely postponed. Bonds quickly overcame some early weakness following a
much stronger than expected durable goods report.
STOCK
INDICES
OVERNIGHT
CHANGE to 5:28 AM:
S&P -260, DOW -27,
FTSE +35 — Stocks
were able to stage a recovery helped on a downgrading in the US terror-alert
level, indications that Iraq may comply with Blix’s
demand to destroy missiles and some good economic news. However, the path
towards was has not been diverted or postponed so we doubt the market can
sustain a rally above 850 in the March S&P. Gunmen attacked the US consulate
with automatic weapons in southern Pakistan overnight, and at least four
policemen were injured, which may have contributed to the erosion in the indexes
overnight.
FOREIGN
EXCHANGE
DOLLAR:
While the Dollar was able to forge a minor rally Thursday on relief that the
US
lowered
its terrorist alert, some better than expected economic numbers, and indications
of Japanese intervention, the tide has yet to turn for the currency. The Bush
Administration is determined to enforce a regime change in
Iraq
so war
appears inevitable. News that Saddam has agreed in principal to destroy some
missiles did not impress the
US
and is
a meager effort to comply with UN demands. Therefore, the timetable for a
military attack has not been delayed by Saddam’s latest ploy. We would not think
the Dollar could make a major rally effort until the conflict with
Iraq
is
resolved or it appears that the
US
military is winning the war. Once this occurs, we would expect a sharp relief
rally to ensue. Without the
Iraq
conflict, we do not think the economics justify keeping the Dollar at such low
levels, especially against the Euro whose economy is just limping along. While
it is too risky to buy the Dollar outright, we are in the timeframe where
traders should be looking to buy June Dollar call options as a position play for
a major shift in the Dollar’s direction. March Dollar should run into resistance
at 100.36 then 100.93, with support down at 98.87.
EURO:
With a hefty
US
war
premium embedded in the Euro price, the currency could be in for a major
sell-off once the war commences. The market has been consolidating over the last
month near the highs and appears to be developing a broadening top formation.
Looking beyond the war, there are few reasons to own Euros. Consider buying June
put options for a position play.
YEN:
Indications that Japanese authorities are intervening to slow the yen’s
rise spooked the market and pushed March yen below support at 85. Today’s report
is likely to show that
Japan
has
been actively intervening this past month, which could add additional pressure
to the yen. Soaring energy prices and the strong yen are big negatives for an
export driven economy. However, we would not expect any intervention efforts to
take effect until the Iraqi conflict is resolved.
SWISS:
Swiss authorities also threaten intervention to slow the flight to safety
buying, but until the war issue is resolved, we would expect the Swiss to stay
near its highs. A sell-off may also be limited by the increasing concerns
surrounding
North
Korea
re-starting a nuclear reactor. March Swiss support is at 72.83, resistance at
74.40.
POUND:
Like the Dollar, the Pound is being weighed down by war as well as economic
concerns. However, once the war begins and the situation is under control, the
Pound should regain lost ground.
CANADIAN:
The jump in
Canada
‘s
January CPI to a 4.5% annual rate, the highest since September 1991 adds further
justification for the Bank of Canada to raise rates at their March 4th meeting.
A strong 4th quarter GDP released today would add fuel to speculation of a rate
hike. While
Canada
looks
to be on the verge of hiking rates, the
US
is
leaning toward another rate cut. The widening interest rate differential between
the
US
and
Canada
is a
major factor behind the currency’s rally. 67.40 is the next upside target for
the March contract.
METALS
OVERNIGHT
CHANGE to 5:28 AM: GLD +2.30,
SLV +3.0, PLAT +2.00;
London Gold Fix $347.65,
-$3.65; LME Copper Warehouse
stks
820,950 ton, -1725 tns; Comex
Gold stocks 2.263 ml, Unchanged; COMEX Silver stks
108.1 ml oz, -6,964 oz; OVERNIGHT: The gold market recovered a few dollars of
yesterday’s losses in Asia overnight.
GOLD:
The market responded to a decline in war and terrorism fears but the real
question for holders of gold is “Is this a
temporary easing of opinion on
Iraq
or a
ploy by
Iraq
to slow
the aggression of US and
UK
war
deployment.” Stock and money markets around the world took stock in
Iraq
‘s offer
to destroy missiles. In addition, gold traders took stock in the
US
announcement of a decline in the terrorist threat. Fears
that the weekend Commitment-of-Traders report will show a hefty net long
position by the speculator and news that
Russia
and the
US
have agreed in a telephone conference to try to resolve the dispute over how to
disarm
Iraq
by taking into account the “interests of the world community”.
SILVER:
The silver market is a follower but war or a stock market
revival are both positive forces. Buying support for May silver is at 458
and a close over 465.70 should be enough to confirm a low. Upside objectives
include 480.60 and 517.
PLATINUM:
The platinum market may have the best fundamental story to rally relative to the
other metals. Buying support for April platinum comes in at 662.10 with 713.30
as next upside objective.
COPPER:
May copper quickly rejected the idea of a rally into the 80’s this week but this
could be due to weakness in the other metals and the overbought condition of the
market. Mixed economic numbers and a profit-taking surge out of
Asia
helped
pressure yesterday but the real base of support for copper comes from
Asia
demand,
China
imports
and a decline in
Japan
export
activity. Weekly
Shanghai
stocks
came in at 82,859 tons, up 592 tons on the week.
CRUDE
COMPLEX
OVERNIGHT
CHG to
5:28 AM:
CRUDE -2, HEAT -18,
UNGA +27 — Despite
crude oil’s volatile price swing Thursday, the drumbeat towards war remains very
strong. We would expect April crude to stabilize above $35/barrel and likely
recoup some of Thursday’s losses this session, as it remains too risky not to be
long energies over the weekend.
NATURAL
GAS
While
April natural gas market continues to consolidate within Tuesday’s wide range,
the market should be well supported near-term by further sharp declines in gas
stocks as the weather forecast for early March points to below normal
temperatures. Weekly storage numbers showed a 154 bcf
draw on stocks that were slightly below expectations, but still large enough for
the market to be worried about supply.