Futures Indicate Stronger Open
INTEREST
RATES
OVERNIGHT
CHANGE to
4:15 AM:
BONDS
-7 — While the economic numbers last week were anything but stellar, they
generally beat the street’s estimates, which suggest the economy is not quite as
weak as was thought. While geopolitical concerns remain the central focus of the
bond market, a better outcome in this week’s key reports amid no new
developments on the war front could set in motion some profit taking in June
bonds. However, we would not suggest getting outright short just yet as we think
the top is likely to occur once the war commences which may not be for a few
weeks.
STOCK
INDICES
OVERNIGHT
CHANGE to
4:15 AM:
S&P +450,
DOW +13,
FTSE -70 — The upside in stocks will remain very limited until the war
with
Iraq
commences. However, even a post war rally may not gather too much steam since
the economy is on shaky footing and there is no certainty that a post-war
economy will recover quickly. The economic reports over the past two weeks show
the economy limping along at best, but we do think that bearish sentiment is
beginning to push against the upper limit since the market was able to put a
positive spin on last week’s data.
FOREIGN
EXCHANGE
DOLLAR:
The dollar appears to be building a base from which to move higher as we expect
it will once the war issue with
Iraq
is
resolved. News that the Turkish Parliament rejected a vote to allow US troops to
base on its soil may throw a wrench in the
US
‘s war
timetable and may be mildly supportive to the dollar. The dollar has been deeply
discounted due to the Iraq/terrorism threat and once it becomes apparent the
US
is
succeeding to disarm Saddam a major burden will be removed and a rally is likely
to ensue. If the war anxiety is lifted and on purely economic grounds, the
dollar is definitely under valued since the
US
economy
is in a much stronger footing than
Europe
or
Japan
.
However, traders will still have to brace for a possible push lower in the
dollar index back to the Feb lows leading into a war with
Iraq
as
anxiety reached a crescendo. Since the timing of the war is uncertain, but close
enough that we would suggest position traders look to purchase some June dollar
index call options.
EURO:
The Euro continues to tread water waiting for the next development in the
Iraq
conflict and reports of a Turkish parliamentary veto may take some of the war
premium out of the currency. While the timing for the
US
to
begin the war is uncertain, once it does become apparent the
US
is in
control the safe haven premium built in the Euro will begin to erode. With the
Euro-zone economy in bad shape, the European Central Bank may cut rates this
week, but it will likely take a backseat to the geopolitical turmoil.
YEN:
Confirmation that the Bank of Japan had be covertly
intervening to weaken the yen drove the currency sharply lower against the
dollar. However, until the
Iraq
conflict is resolved, BOJ intervention may not be too successful. Once safe
haven buying is removed, there are not a lot of reasons to hold yen especially
given Japan’s soft economy and the big negative impact of sharply higher oil
prices. However, market action could be choppy & volatile through the month
as yen repatriation ahead of the fiscal year end March 31st could keep a bid
under the yen. We think another test of the Feb highs looks likely.
SWISS:
Despite the Swiss National Bank’s efforts to talk the currency lower, the franc
is still in a solid bullish position with the Feb highs likely to be tested
again. The Iraqi and North Korean situations will continue to attract safe haven
buying in the Swiss.
CANADIAN:
The market is betting big that the Bank of Canada will raise rates Tuesday,
which drove the Canadian dollar to new contract highs last week. It is believed
Canada
is
somewhat insulated from the Iraqi conflict while widening interest rate
differentials with US offer an attractive return. However, the market has risen
sharply over the last two months and we think it is set to see some profit
taking what ever the BOC decides. We would not be surprised if the currency
tried to fill last week’s gap on a profit-taking break.
METALS
OVERNIGHT
CHANGE to 4:15 AM: GLD -1.10,
SLV +1.0, PLAT +2.20;
London
Gold Fix $348.45, – $1.00; LME Copper Warehouse stks
825,650 ton, +4700 tns; Comex
Gold stocks 2.262 ml, -716;
COMEX
Silver stks 109.1 ml oz, +1.02 oz; OVERNIGHT: The gold
market was down slightly overnight due to news of Iraq destroying banned
missiles and from the gain in the US dollar vs. the Yen.
GOLD:
The market had every reason to continue to break on Friday but was well
supported and closed higher. In spite of the strong stock market, the lower
energy prices and a move towards a more peaceful solution to the
Iraq
crises,
gold managed a solid day up. Investor interest from a longer-term perspective
still seems to be strong as the
Iraq
situation is far from over and the
North
Korea
problems
may be just beginning.
SILVER:
Small speculators liquidated over 4400 contracts of their net long position but
with a speculative net long of nearly 47,000 contracts, silver might still lag
gold. Fist notice day deliveries were 4840 contracts but there was a stopper of
3373. Buying support for May silver is at 458 and a close over 465.70 should be
enough to confirm a low.
PLATINUM:
Buying support for April platinum moves up to 668.00 with 713.30 as next upside
objective.
COPPER:
The market may need more than a 2-day break to correct the overbought condition
but the general uptrend looks to continue. Continued strong signs of growing
world demand in the base metals and imports of copper from
Asia
remain
as the foundation for the rally. A jump in LME copper stocks this morning failed
to pressure copper much overnight.
CRUDE
COMPLEX
OVERNIGHT
CHG to 4:15 AM: CRUDE -80,
HEAT -113, UNGA -145
— After nearly touching $40 per barrel last week, April crude may
come under further pressure early this week as more complications for the US to
initiate a military move against Iraq keeps the timing of war uncertain.
Iraq
beginning to destroy illegal
missiles and the Turkish Parliament surprisingly vetoing a plan to allow
US
deployment of troops may put
a monkey wrench in the
US
plan to wage war.
NATURAL
GAS
April
natural gas should easily take out contract highs this week as the newest
weather forecast is calling for below normal temperatures in the Northeast at
least through mid-month. As a result, the market will be pricing expectations of
hefty inventory draw-downs in at least the next two EIA reports.