Futures Point To A Flat Open
INTEREST RATES
02/25 OVERNIGHT CHANGE to 04:25 AM:BONDS+7 The
bond market continues to have upside potential as the outlook on the economy is
being called into question. The fact that Conference Board readings on Tuesday
fell aggressively, while University of Michigan sentiment readings fell to the
lowest level since the Iraq war should be more than enough evidence to question
the US recovery. While the Chairman of the Federal Reserve suggested in
Congressional testimony that a recovery in jobs was on the way, the bond market
might be at a point where the promise of future improvement isn’t enough.
STOCK INDICES
02/25 OVRNIGHT CHG to 04:25 AM:S&P+110, DOW9,
NIKKEI +14.6, FTSE+11 The stock market remains weak and vulnerable. Most market
measures have declined for 5 straight days and the NASDAQ made a new low for the
year. Therefore, one can hardly argue against more downside action in the
market, especially since the scheduled numbers are serving to undermine consumer
and investing sentiment.
DOW
Another new low for the move overnight, leaves the near term trend down.
Critical support of 10,549 in the March Dow would seem to be an easy target for
the market today. In fact, in the face of patently disappointing economic news
in the coming two sessions, it would not be surprising to see the Dow slide back
below 10,500.
S&P
As mentioned before, we are waiting for a sign of a bottom and have nothing to
make such a call. In fact, both fundamental and technical setups call for more
downside. Under a series of disappointing US economic reports in the coming
sessions, the March S&P might see a slide down to 1125.00. Without fundamental
reasons, we won’t pick a bottom until a big spike down range is rejected in a
single session.
FOREIGN EXCHANGE
US DOLLAR
The Dollar appears to be showing a minor profit
taking bounce this morning but there would certainly not seem to be a reason for
anything more than a light bounce. In fact, with the US Treasury Secretary
suggesting that the world might have to be patient with the Chinese on the
floating exchange rate issue, many traders think that the US might tone down
their efforts to drive the Dollar down and force the Chinese to act. We have to
think that the market is driving the Dollar down, as opposed to the US
government driving the Dollar down. In fact, when one looks at the US numbers
there seems to be every reason to doubt the recovery in the US and hammer the
Dollar. Extremely weak Conference Board readings combined with exceptionally
weak University of Michigan sentiment readings really puts the burden of proof
on the US economy. In other words, the chance of a near term rate hike is really
minimal and that should keep the Dollar tracking toward the February lows. In
short, on a minor Dollar rally today look to get short.
EURO
Certainly the Euro was significantly overbought
after the sharp rise yesterday and that is probably the primary reason behind
the initial weakness in the Euro this morning. In other words, the action this
morning is simple profit taking and should not be expected to extend. Therefore,
traders should be looking to buy the March Euro on a slide to 126.26, looking
for a return to the February highs of 129.19. The reason behind our short-term
bullishness is that the US recovery is really coming back into question.
YEN
Overnight economic reports from Japan were weak as
expected but that doesn’t seem to be a big issue in the Yen pit. We have to
think that the BOJ is aggressively working to insure the Yen stays down and its
possible that the BOJ has a line in the sand around this week’s high of 92.60.
Expect a near term range of 92.60 and 91.91.
^next^
SWISS
The Swiss needs constant positive leadership from
the Euro in order to move higher. The Swiss didn’t manage to post as aggressive
of a rally against the Dollar yesterday and that highlights the lack of bullish
resolve in the currency. We would actually consider being long the euro and
short the Swiss for a position trade.
BRITISH POUND
With 4th quarter GDP readings from the UK coming in
at +0.9%, the Pound would seem to hold favor over the Euro but the number isn’t
strong enough to thrust the Pound even higher against the Dollar. Regardless of
the numbers the trend in the Pound is up and traders should be buying
corrections to 188.06 in the March contract.
CANADIAN DOLLAR
We are actually surprised that the Canadian is
peaking out above near term resistance, as that suggests the potential for more
near term gains. However, we have to think that the Canadian will be limited
once resistance of 75.60 is encountered.
METALS
OVERNIGHT
GLD-0.90, SLV+6.80, PLAT+3.90 London A.M.
Gold Fix $403.40 +$2.95 LME COPPER STOCKS 291,800 -2,925 tons COMEX Gold stocks
3.47 ml Unchanged Comex Silver stocks 123.9 ml -5,220 oz
GOLD
Even without additional declines in the Dollar it
would appear that gold is maintaining a slightly positive basis. Anglo American
projected a slide in gold production in 2004 down to 5.4 million ounces but then
expects the company’s output to grow once the acquisition process is completed
however, the up front decline in production is more important than the prospect
of higher output down the road. Anglo American also predicted that Chinese
demand for commodities will remain strong especially in the metals area and that
gives gold and silver another element of support.
SILVER
News that Chinese demand for commodities will remain
strong is just the type of story the funds in silver have been feeding on.
Furthermore, with the overnight gains we suspect that silver is primed to make a
new high. Even with the small spec and fund positioning expected to reach a new
record level this morning, the market would seem to have additional buying
capacity in reserve.
PLATINUM
Like silver, we expect platinum to forge a new
contract high in the coming sessions. While the hope for expanding Asian demand
is a fuzzy link, the fundamentals in platinum are so tight that even minor
amounts of new demand push supplies to even lower levels. In fact, Anglo
American suggested that platinum supply deficit might continue for the remainder
of 2004.
COPPER
Chinese copper futures were limit up again, as the
main buyers continue to show interest despite sharply higher prices. While some
might want to suggest that the lower Dollar is providing the recent thrust in
prices, we have to think that it only exaggerated the recent run and that the
market would have went higher without the additional help. LME copper stocks
continue to decline and Major metals executives continue to project ongoing
strong demand for commodities by the Chinese.
CRUDE COMPLEX
The market was not overly impressive in its
performance Tuesday, as it failed to hold the early gains. In fact, the crude
oil market managed to forge a new high for the move but then settled back below
the recent consolidation highs. Slightly cold temps were seen in the Plains but
mild temps in the South and East leave the weather impact a slight negative.
NATURAL GAS
The natural gas market appeared to forge a spike
bottom Tuesday but with the sharp recoil it would certainly seem that some fresh
buying was behind the move. In looking at the characteristics of the small spec
positioning in the natural gas, it would seem that many small traders remain
long their positions well into April but this year price weakness began in early
January and that could easily result in the winter bulls throwing in the towel
earlier than normal. Regardless of the remaining small spec long position, we
expect that the $5.00 level might be able to prop up prices.