Futures Point To A Flat Open
1/13/2005
INTEREST RATES
After a minor slide following the US Trade
Balance yesterday, the Treasury market found enough buying to turn the head of
the market back to the upside into the close on Wednesday. In other words, the
Treasury market initially seemed to fear a debacle off the surge in the US Trade
Deficit but eventually managed to discount that potential. It also seemed like
Treasuries were seeing indirect pressure from Fed comments about inflation
yesterday morning, but in retrospect the market came to the conclusion that the
Fed is only "looking closely" for inflation and that inflation isn’t necessarily
on the rise.
STOCK INDICES
While the action off the lows on Wednesday gives
off the impression of a classical technical bottom, the magnitude of the early
probe down wasn’t what one would call an "exhaustion washout". In other words,
in order to get the sense that the stock market had effectively cleansed itself
of selling interest, we would have preferred to see a much bigger spike down
ahead of the reversal Wednesday afternoon. In retrospect, the stock market has
now anticipated negative information on a number of issues and in the end
actually saw positive results.
DOW
Near term critical consolidation resistance in the March Dow comes in at 10,635
and that level might restrict the upside, unless the retail sales report results
shock the bulls into action early today. The Dow futures have yet to see short
term technical indicators kick into a buy mode and that might mean more downside
is ahead before a key bottom is seen. We would give the market one more day down
before picking a bottom.
S&P
While the S&P forged one of those classical technical reversal patterns
yesterday, the magnitude of the slide before the reversal wasn’t significant
enough to label the slide as "total" exhaustion pattern. Therefore, one can’t
rule out a 2-3 day technical rally, but we would be really surprised to see the
March S&P manage to rise above the recent consolidation resistance up at
1194.80. On the other hand, seeing the March S&P maintain prices above 1185.50
early today, could be just enough to give the bulls confidence.
FOREIGN EXCHANGE
US DOLLAR
From a casual overview it would seem like both the
fundamental and technical setup for the Dollar is negative. In addition to
disappointing US Trade Deficit readings, the Dollar would also seem to have
bearish short term technical readings. While the US economy wasn’t necessarily
being given full credit for the pace of its growth, the inconsistency of that
growth is really undermining to the bull camp in the Dollar. Furthermore, it
should also be noted that while US economic numbers have mostly disappointed
over the last 5 sessions, the Euro zone numbers have over performed. This
morning might be a prime example of the macro economic mismatch, as the US
retail sales expectations are already set at a lofty level of +1% and therefore
anything less than that might promote Dollar selling. Additionally the Euro zone
has once again pre-empted the potential bullishness of US readings, with a
stronger than expected and impressive economic reading from Germany. Therefore,
the Dollar would seem to be heavily restricted in its ability to rally, unless
there is more salient talk about coordinated intervention against Asian
currencies. Weak support is now seen at 82.00 and resistance is heavy at 82.70.
EURO
Short term technicals are in a buy mode and the Euro
zone has once again started the session out with some favorable economic
readings. Apparently Germany showed a 2004 GDP reading of +1.7%, with exports
rising 8.2% on the year. In other words, the unfavorable exchange rate wasn’t
nearly as negative to the Euro zone economy as was feared, and that gives the
Euro a positive fundamental tilt, in addition to the positive short term
technical tilt. Near term resistance in the March Euro comes in at 133.13 but in
order to turn the trend up, the Euro will have to finish the week above 133.20!
YEN
Despite all the talk about the "ultra damaging Asian
exchange rates" the Yen doesn’t seem to the restricting its upside momentum.
With the rise above the late December highs and the disappointment in the US
Trade numbers, it is possible that the Yen will return to the contract highs. To
turn off the short term bull tilt, the March Yen would have to fall back below
97.57.
SWISS
While the Swiss is managing to rise against the down
trend pattern that has been in effect since the December high, we are not
convinced that the bear track has been discarded. However, on a close above
86.68 we would alter our longer term bearish opinion toward the Swiss.
BRITISH POUND
In a slightly negative note overnight, the UK
reported a decline of 0.1% in manufacturing output and that leaves the most
recent 3 month growth rate in UK manufacturing output, at a very discouraging
-0.5% level. Therefore, the Pound is vulnerable from a fundamental perspective
and could be headed back down to 186.50 and possibly to 185.70.
CANADIAN DOLLAR
The trend is clearly pointing up and with the sharp
spike up on Wednesday we would not be surprised to see the Canadian finish the
week up around 85.00. In fact, if the US retail sales reading is patently
disappointing, the rate of climb in the Canadian might really expand.
METALS
OVERNIGHT
London Gold Fix $424.65 +$2.95 LME COPPER
STOCKS 46,175 metric tons -1,200 tons COMEX Gold stocks 5.967 ml +102,954 oz
COMEX SILVER stocks 103.2 ml -147,813 oz
GOLD
The gold market eventually responded to the sharp
slide in the Dollar but the correlation seemed to lack the usual punch.
Overnight the gold market is not only confronted with some profit taking in the
Asian markets, but is also seeing a number of gold producers reporting higher
output. Apparently Cambior and Goldcorp are both reporting record gold
production in 2004, while several other producers are either reporting higher
2004 production or forecasting higher 2005 production.
SILVER
The action in silver is somewhat impressive, even
though we are hard pressed to give a specific reason for the rise. We suspect
that some players are rotating from gold into silver, as silver will still give
the flight to quality benefit in the event of an international currency crisis
and yet silver might end up behaving like an industrial metal in the event that
the global economy gathers some momentum. We also think that the silver market
aggressively balanced its net spec and fund long in the late December/early
January washout of 74 cents.
PLATINUM
The platinum market did manage to forge a new high
for the move overnight, but has once again failed to hold all the gains. While
the lower Dollar has given platinum support indirectly from the recent strength
in gold, we just can’t make a fundamental case to own platinum above $830.
However, one should not be surprised to see April platinum temporarily rise to
$870 but that type of rally would seem to be a selling opportunity.
COPPER
The copper market seems to have reached an
overbought technical level and with the Chinese copper market weak overnight,
that could prompt some light profit taking in the US session. However, LME
copper stocks did manage a fairly impressive decline, with the stocks level now
standing at a relatively low historical level of 46,175 tons and that should
continue to underpin the market at these higher price levels. We suspect that
the US retail sales report will be mostly supportive to copper, especially since
the equity markets were helped out by a much stronger than expected earnings
report from Apple.
CRUDE COMPLEX
Once again the energy complex took a mostly
bearish weekly inventory report and seemed to spin it into a supportive
development. Some traders suggest that the increased stock levels at the API
were more than offset by the DOE crude stocks decline and the rather aggressive
decline in the API refinery operating rate. It is possible that the market
simply looked forward to the upcoming OPEC meeting for support, as OPEC seems to
be poised to go through with the meeting despite the request from Iraq to delay
the meeting until after their coming election.
NATURAL GAS
The natural gas market continues to track almost in
direct opposition to the regular energy complex. Apparently the coming cold
spell, concerns of a January OPEC production cut and a moderately oversold
technical condition have failed to inspire buyers. We suspected feared the
weekly API/DOE reports would indirectly pressure natural gas prices, but we
really didn’t expect natural gas to slide and crude oil to rally.