Futures Point To A Flat Open

3/4/2005

 

INTEREST RATES

prices have been consolidating over the last
three sessions in anticipation of today’s February jobs report. The market
prices have fallen nearly 2 points this week in preparation for a solid rise in
the payroll number, and the question now is how far will yields have to back up
and how quickly? The employment component of the ISM non-Manufacturing index
(which measures service sector activity) rose to the highest level since the
index was created. This has traders speculating that the consensus for a 220,000
gain in payrolls may be an under estimate.

STOCK INDICES

Stock prices were pulled in both directions
Thursday as prices were supported by economic reports showing high productivity,
low labor costs in the 4th quarter and rising service sector employment during
February, but stocks were pressured by another surge in energy prices. The
decline in initial claims and the rise in the employment component of the ISM
non-Manufacturing Index to the highest level since the index was created suggest
a rise in payrolls over +220,000 is possible. However another spike higher in
oil prices kept the bulls on a short leash as rising energy costs could begin to
cut into corporate profit margins.

DOW

If the March Dow fails to take out the contract high on a bullish payroll
report, we would think the funds would begin to lighten their record net long
position. Mar Dow support comes in at 10,778 then 10,742 and 10,711. A close
above 10,875 sets the next objective at 11,000.

S&P

The inside day Thursday does little to clarify the near-term direction in the
March S&P, but with the market holding above the 1200 level in the face of
higher energy prices, we feel the bulls still have control. End of the week
profit taking may be mild if payrolls data is a big surprise.

FOREIGN EXCHANGE

US DOLLAR

Thursday’s economic reports gave a boost to the
Dollar which prompted more short covering ahead of today’s key employment
report. The reports that were out Thursday support a February payroll increase
in the vicinity of 220,000, although there was some market talk that the number
could come in closer to +300,000. Initial claims dropped by 1,000, the ISM
non-Manufacturing index rose to 59.8 with the employment component showing a
jump to 59.6, the highest level since the index was created. Productivity in the
4th quarter was revised up to 2.1% while unit labor costs were lowered to +1.3%
from a +2.3% preliminary reading. A strong jobs report could be a critical
turning point for the Dollar when combined with strong US economic growth and
rising interest rates. In fact, with the March Dollar closing the price gap left
last month, a stronger than expected payroll number may be enough of a catalyst
to propel the market back to 84. On the other hand, the Dollar has likely
corrected enough that a disappointing payroll report could also start a new wave
of selling. If the payroll number is strong, will it be enough of a critical
turning point in the economy when combined with rising US yields to shift focus
away from the US deficit situation and begin to turn Dollar sentiment more
positive? The next area of resistance for the March Dollar is at 83.49 then
83.87 while support should be found at 82.90, 82.76 and 82.51.

EURO

With the European Central Bank cutting the growth
forecast for this year to 1.2% to 2% and retail sales coming in much below
expectations, the March Euro looks poised to test the 1.3000 level if the US
payroll number comes in at or above expectations. With growth expectations so
weak, and inflation not yet a concern, Euro-zone rates are likely to stay on
hold while US rates are hiked which should undermine the Euro currency.

YEN

With Japan a major oil importer, the surge in oil
prices threatens to derail the country’s fragile recovery. As a result, the Yen
is being pushed to the lower end of its recent trading range. With the surge in
energy costs, the BOJ might be faced with stagflation. On a big US payroll gain
a test of 94.55 looks possible for the March Yen.

SWISS

More bad news for the Swiss economy is compounded by
the surge in oil prices. With the market’s technical picture turning bearish, we
would expect the Mar Swiss to correct back to the retracement target of 84.08, a
50% correction of the last leg up.

BRITISH POUND

A fall in Britain’s Service Sector business activity
index and lower monthly housing prices further clouds the outlook for the
economy and lowers expectations for rates to move higher. A strong US employment
number this week could push the March pound back below support at 1.9000 and
possibly to 1.8946.

CANADIAN DOLLAR

While the Mar Canadian held another test of key
support at 80, and has been confined to a relatively narrow trading range all
year, the US Feb payroll data could be the catalyst that determines near-term
direction. If the US data is strong, we would expect the Canadian to make a
downside run especially considering US rates are tightening while the BOC says
future rate hikes will be at a slower pace. Below 80 support in the Canadian is
at 79.45 then 79.00.

METALS

OVERNIGHT

London Gold Fix $429.65 -$3.60 LME COPPER
STOCKS 50,100 metric tons -475 tons COMEX Gold stocks 5.911 ml oz unch COMEX
SILVER stocks 101.5 ml unch.

GOLD

Expectations are running very high for strong data
out of this morning’s US non-farm payrolls report. The trade is looking for a
net gain of 220,000, which they believe would then put the Federal Reserve in a
better position to support interest rate increases and therefore strengthen the
Dollar. A number at 220,000 or better should pressure gold, while a
disappointing number should support it.

SILVER

May silver closed lower but held in the upper end of
the previous day’s trading range yesterday. Traders are looking to this
morning’s payroll report for direction. A strong number could send May silver
down to support at 7.10 and then 6.94.

PLATINUM

Platinum made an attempt to break out on the upside
of a triangle pattern it has been forming over the past month yesterday, but it
was probably held in check by anticipation for this morning’s jobs report. A
strong, technically based rally in palladium yesterday may have provided some
minor support, although the platinum move was barely a blip next to palladium.
First support for April platinum is at $865 and $856, with resistance at $869
and $874.

COPPER

Copper prices dropped in Asia on Dollar strength and
on long liquidation by Chinese investors. The focus on this morning’s payrolls
report and its potential effect on the Dollar have been dominating the issue of
supply and demand. Copper and other dollar denominated commodities benefit from
a weakening dollar because it increases the purchasing power of international
buyers.

CRUDE COMPLEX

A flurry of fund and speculative buying continues
to dive energy markets sharply higher on concerns that supplies will not be able
to keep pace with rising world demand. On-going refinery production problems
sent unleaded gas prices surging for a second day as there are concerns that
surplus stocks could quickly be whittled away if refinery disruptions occur
during the upcoming high demand period. While we do not think the current
fundamentals justify the price rise seen this week, traders should not try to
buck the up trend.

NATURAL GAS

The gas storage report was bearish for natural gas
with stocks falling only 107 bcf for the week ending February 25th. The
withdrawal was below the 115 bcf expected and widened the annual surplus to 415
bcf over year ago levels. With year ago supplies on the rise and the market
entering a slow demand period during the spring, natural gas prices are having a
hard time sustaining prices above 6.75, despite the price surge in the rest of
the complex.