Futures Point To A Flat Open
INTEREST RATES
03/02 OVERNIGHT CHANGE to 04:02 AM:BONDS+0 The
bond market could see some consolidation ahead of the employment report Friday
as the market should turn a little more cautious in reaction to recent economic
reports pointing to a pick-up in jobs growth. If the Fed’s prediction that jobs
growth is just around the corner, then March bonds above 114 are looking a
little pricey. Although the market failed to hold initial gains off the weak
headline reading of the ISM Manufacturing survey, the tone of the market remain
bullish.
STOCK INDICES
03/02 OVRNIGHT CHG to 04:02 AM:S&P-120, DOW-18,
NIKKEI +90.39, FTSE+8 The stock market is oozing with bullish sentiment as the
combination of growth in the manufacturing sector, consumer spending and low
interest rates has the market looking through rose colored glasses. The ISM
Manufacturing survey showed the sector still expanding, although at a slightly
slower pace than in January. However, the surprise jump in the ISM Employment
index to the highest level since 1987 has made the market more optimistic on job
growth, which could translate in to a higher payroll number on Friday.
DOW
The Dow is in a position to take out the February highs as both the market’s
technical setup and fundamental outlook has improved. Monday’s strong close will
likely lead to a further flush out of speculators who were holding a net short
position as of Feb 24th. Therefore, the March Dow may push through the 10,750
level before Friday’s employment data.
S&P
On a move through the February highs we would think the funds would begin to
short cover more aggressively. With the funds holding close to a record net
short position as of Feb 24th, there could be a tremendous amount of buying
power if they do decide to cover.
FOREIGN EXCHANGE
US DOLLAR
The Dollar’s firmer close Monday following some good
economic news and thoughts that the European Central Bank may be ready to shift
toward an easing bias keeps the market in a position for a break-out move. The
Dollar gained against the Yen in over night trade helped by suspected BOJ
intervention. The ISM survey showed the manufacturing sector expanding and a
surprising jump in the ISM Employment Index raises speculation that jobs growth
could start to accelerate. With recent economic reports unable to give the
currency market a clear picture of growth prospects in the US this year,
Friday’s employment report has become critical for the Dollar to sustain its up
trend. March Dollar Index needs a catalyst to attract buyers and a big payroll
number would be the kind of headline that could begin to reverse the market’s
entrenched bearish sentiment. Once the beginning of the recovery in the jobs
sector has been proclaimed, US interest rates have the potential to rise and
support the Dollar. Focus today will be on Greenspan’s talk in NY, and the
market could chop around off headline comments on a lack of other news.
EURO
The March Euro continues to trade weak and losing
its luster as traders fear the ECB could begin to shift sentiment to a less
hawkish view. The US economic data also outshines the Euro-zone and a recovery
in the US jobs sector would be the first step toward higher US rates. The path
of least resistance remains down, with March Euro possibly testing the January
low at 123.15 ahead of the ECB meeting on March 4th.
YEN
With investor repatriation ahead of the fiscal year
end (March 31st) and sharp gains in the Nikkei, it looks like the BOJ intervened
and sold Yen for Dollars in order to counter the natural flow of funds back into
the Yen. The BOJ has orchestrated to devalue the Yen and they maintain control.
While technical indicators are over sold and point to a bounce, March Yen could
break under 91 support if BOJ intervention continues. Without intervention the
Yen could bounce back above 92, possibly 92.60 near-term. However, it does not
appear the BOJ will give the Yen much wiggle room and traders may not get the
opportunity to sell.
^next^
SWISS
Weak Swiss manufacturing data and strength in global
equity markets are pressuring the Franc. The weak close turns the setup for the
Swiss negative and a push to 78.20 looks possible before the market tries a
serious bounce.
BRITISH POUND
Look for more consolidation above the 40-day moving
average. The UK economy looks to be too strong to reverse the Pound’s up trend.
However, a broad move higher in the Dollar will put pressure on the Pound.
Critical support for Mar is at 184 with resistance at 187.60.
CANADIAN DOLLAR
We think the best the Canadian can do is some
consolidation between 75 and 74 cents. With Canadian rates set to fall and US
rates likely near the lows, the Canadian’s trend remains down. There is strong
overhead resistance for Mar Canadian between 75 & 75.45. Traders should look to
sell against resistance.
METALS
OVERNIGHT
GLD-0.20, SLV-6.50, PLAT-14.60 London
A.M. Gold Fix 398.60 +$1.40 LME COPPER STOCKS 278,600 -2,900 tons COMEX Gold
stocks 3.47 ml +1,514 Comex Silver stocks 123.3 ml +119,801 oz
GOLD
A sense of inflation crept into the metals yesterday
and the move higher in gold without the currency help was seen as a positive
development. As the economy heats up and industrial metals tighten, the
inflationary buyers are coming back onto the market after being on the sidelines
for much of the year. Stronger than expected demand from India and a less
overbought condition basis the recent traders report added to the positive tone
yesterday.
SILVER
The upside break-out is impressive as managed money
continues to move into all of the metals. Keep 711 May as next objective with
support today at 680.50.
PLATINUM
With the sell-of overnight, it will take another
close over $900 to see dealers more comfortable with holding inventory. Managed
money continues to flow into platinum due to tightness in supply, an improving
world economy for autos and for information technology and the reluctance of
gold to follow the other metals up. Consolidating recent gains and holding above
900 will leave $1047 (the March 1980 highs) as a longer-term target.
COPPER
The corrective breaks have been shallow on the rally
to the highest level since December of 1995 for copper as a steady flow of
buying from China and a drop in exchange stocks in London and in New York has
provided solid underlying support. Strong economic news adds to the positive
tone and news of improving manufacturing activity helped trigger active buying
yesterday. The accelerating uptrend is even tempting China buyers of inventory
in the past month to resell inventory at even higher premiums.
CRUDE COMPLEX
With the energy complex skyrocketing higher on
the slightest whiff of a potential supply problem the market seems to be acting
a little irrational, which suggests to us that the trade can become even more
volatile. Given the stronghold the bulls have on this market, trying to pick a
top in futures is much too risky and too pre-mature. However, longs must
consider using option strategies to protect profits especially since speculative
traders are likely holding a record net long position in crude oil and unleaded
gas which makes the market vulnerable to profit taking breaks.
NATURAL GAS
It is not much of a surprise that April natural gas
was pulled higher considering the sharp gains in crude oil & gasoline. Although
natural gas stocks are ample, there is growing speculation that industrial use
could pick up as natural gas has a price advantage over the other energy market.
The current fundamentals are weak with the approach of low spring demand, weak
cash prices and mild temperatures.