Futures Point To A Flat Open
INTEREST RATES
While we doubt that the payroll number is going
to provide a big surprise, one can’t help but realize that Treasury prices come
into the report this morning significantly above the May lows and basically
right on the highs of the last 3 months. While the argument that Treasuries
overshot on the downside justifies a large measure of the recovery bounce, to
add significantly to current prices on the upside we would think that the
economy will need to show some vulnerability, or at least some hint that the
growth rate in jobs is slowing. With expectations of a 250,000 jobs gain, there
seems to be a mismatch between prices and expectations on the economy.
STOCK INDICES
The market displayed profit taking action
Thursday and did so off a variety of reasons. Before the washout yesterday, we
thought that the stock market might be poised to blow off to the upside into and
through the payroll report this morning. However, with the rather sharp setback
yesterday we suspect that aggressive speculative interest for stocks has been
deflated.
DOW
The overnight action in the September Dow is patently negative, as prices have
violated consolidation support. In fact, with the overnight decline, the
September Dow has moved back down into the gap area and that could allow for a
continued slide to the 10,246 level. This is a classic location to sell 1 future
and buy 3 calls, in the event that prices slide aggressively, the long term call
position play will be partially financed, while a sharp rally will mean that
longs capture a minimal profit.
S&P
So far, the S&P has managed to hold above consolidation support on the charts at
1121.80. Critical moving averages come in today at 1117.70, but a trade below
1121.80 could result in a surprise washout down to 1114.30. The trend is still
up but the market is vulnerable to a temporary wash.
FOREIGN EXCHANGE
US DOLLAR
Early in the week the Dollar failed to soar off a
much stronger than expected consumer confidence reading and that would seem to
leave the Dollar vulnerable to anything other than a strong reading today. In
our opinion, the payroll report will have to come in above expectations just to
foster a minor upside extension. In the big picture, one must conclude that the
trend in the Dollar has been down since the May high. Like the Bond market, the
Dollar might have to see an ultra strong US payroll reading just too temporarily
alter the existing down trend. However, it is possible that the September Dollar
manages to respect technical support around 89.00. In fact, we might summarize
the situation by saying that the number needs to be ultra strong, or the bulls
will be on the run.
EURO
While the Euro is somewhat vulnerable to a short
term overbought condition, it would seem like the trend is generally pointing
up. A slightly hot Euro zone PPI reading for May of +0.6% could spark the talk
of higher interest rates and that might be a negative, as the Euro zone economy
doesn’t seem to have enough momentum to begin hiking rates. Critical moving
average lines come in today at 120.60, while an upside breakout takes place with
a rise above 122.15. While the Euro might rise today, we would prefer to play
against the Dollar with a short Dollar Index, a long Yen or a long Canadian.
YEN
The yen comes to the end of the week in a vulnerable
technical posture, but given the fundamental news flow from Japan this week one
would expect support to hold. Critical up trend channel support in the Yen comes
in at 91.72, but to defeat the up trend pattern, the market will have to post a
close below 91.53.
^next^
SWISS
The Swiss comes into the action today significantly
above channel support and at the upper end of a range that was populated by some
wide range trade. In other words, the Swiss would not seem to have much support
directly under the market. Therefore, the initial direction spawned by the
payroll report could extend dramatically. We think the Swiss is a sale, unless
US payrolls fail to come in above +200,000.
BRITISH POUND
While the Pound might temporarily flare up against
the down trend pattern, the setup continues to be bearish toward the currency.
In fact, with a trade back below 179.50 the Pound might see a pulse down to
178.50. The market is already looking ahead to the next Monetary Policy meeting
but with recent economic readings sedate, the BOE will probably leave rates
steady. Therefore, it would seem that the fundamental setup also favors the
downside in the Pound.
CANADIAN DOLLAR
The Canadian has forged significant gains into what
might be considered a very significant US payroll report. Longs should move to
protect profits with option wings but should stay long, as the Canadian might
eventually be able to rise to the March & April highs of 76.40.
METALS
OVERNIGHT
London A.M. Gold Fix $394.70 +$.20 LME
COPPER STOCKS 100,275 mt tons -1,200 tns COMEX Gold stocks 4.399 ml Unchanged
Comex Silver stocks 118.3 ml Unchanged
GOLD
While the Asian trade suggested concern for the
coming US payroll report, we are not sure that the actual report is going to be
that damaging to gold, as the expectations for a pretty strong reading have
already been factored. In other words, the gold market should have concern that
rising interest rates from a strengthening economy will siphon off investment
Dollars, but unless the number today is ultra strong we doubt that it will sink
gold aggressively. In fact, given action early this week (following the ultra
strong consumer confidence report) the Dollar really didn’t show signs of making
a big upside run.
SILVER
While the silver remains mired in an extended
consolidation, it has managed to migrate to the upper end of the consolidation
zone. In order to spark technical stop loss buying, the silver market needs to
see a rise above the $6.00 level but to really attract some attention, the
September will have to take out $6.22. We think the silver market is a little
more vulnerable to the payroll report than the gold market and without much
fanfare the silver could easily fall to support of $5.73.
PLATINUM
Unless the US payroll report manages to change the
focus of the platinum market, it would seem that the market is in a weakened
posture. Some might suggest that the June spikes lows of $765 and $764.8 will
hold the market up, unless the US payroll report comes in much weaker than
expected and that could provide enough of an undermine to send the market down
to the May spike low. This might be a classic place to sell 1 Oct platinum and
buy 3 Oct calls.
COPPER
While copper prices are sloppy and weak from the
overnight action, the market in general has managed to forge a pattern of higher
highs since the June low and that means that something besides recent strike
issues are supporting copper prices. Weekly Shanghai copper stocks posted
another moderate decline and that is becoming a pattern and that is something
that should also support prices. We suspect that the payroll report this morning
will generally foster favorable views toward future demand, but a story out of
Australia might dampened long interest, as a survey there suggested that base
metals prices are near a top.
CRUDE COMPLEX
The energy complex virtually exploded Thursday
and from the Press coverage it would seem like the majority of the players think
that concentrated fund buying fueled the rise in prices. We suspect that a
number of issues combined to adjust energy prices to a level that is
commensurate with the ongoing risk to global supply and the relative tightness
in the US unleaded market. In addition to the talk of rising unleaded demand,
some sources suggested that strong heating oil demand was also prompting
aggressive cash buying.
NATURAL GAS
The Natural Gas market saw a slightly lower
injection reading than the trade was expecting at 93 bcf, which in turn narrowed
the annual surplus to 276 bcf. With the annual surplus consistently pulling in
from around 400 at the beginning of the build season, the market might begin to
see some light support off the tightness theme. In fact, with the regular energy
complex firming, the natural gas might get out from under the liquidation tilt.