Futures Point To A Flat Open
3/21/2005
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INTEREST RATES
The Treasury market appears to have a slightly
bearish tilt this morning but would generally seem to be locked within a range
of 110-30 and 110-08 basis the June bonds. While the Treasury market did manage
to bounce moderately from the level where the COT report was measured, it is
clear that the Treasury market remains moderately short in the combined small
spec and fund position. In fact, the bonds were showing a net spec short of
83,854 contracts and while that is significantly below the all time record spec
short of 138,000 contracts, traders have to respect this markets ability to
short cover! In the near term, a stronger Dollar would seem to down play the
threat of international rotation away from the US and that could diffuse some of
the potential selling in bonds and notes.
STOCK INDICES
While the stock market was impressive in its
ability to absorb bearish news last week, we are not sure that the market is
going to be as fortunate this week. In fact, we are concerned that the ongoing
threat of rising energy prices, will be made even worse by the realization that
the US Fed is set to accelerate its recent pattern of persistently higher US
interest rates. In fact, one might even see inflation concerns spawned by the
FOMC statement on Tuesday, as the Fed might confirm the need to boost the pace
of rate hikes with its post meeting statement.
DOW
The June Dow has already made a lower low in the early action today and we would
suspect that the bear camp will maintain a near term edge. In fact, we would not
be surprised to see anxiety levels rise persistently and for the June Dow to
slide below 10,600 in the coming sessions. With the overnight slide in the June
Dow, the market actually fell below the.618 retracement of the January low to
March high move and that would seem to call for an extension of the downside
thrust. The weekly COT report showed the funds to still be net long over 11,000
contracts as of last Tuesday, so it would be an easy task to see at least
several more sessions of long liquidation. In fact, an eventual bottom in the
June contract might be seen down at 10,500 instead of 10,600.
S&P
While the June S&P reached a short term oversold condition on Friday, the weekly
COT report showed the small spec long position to still be moderately vulnerable
at 62,000 contracts longs. Some might suggest that the June S&P has decent
consolidation support at 1189.50, it would not be surprising to see a temporary
probe down to the 1180 level into the Tuesday afternoon Fed decision.
In conclusion, but it would seem like there are a number of negatives facing the
market and little in the way of optimism toward the future.
FOREIGN EXCHANGE
US DOLLAR
Apparently the market is changing its attitude
toward the Dollar and that change is probably the result of ideas that the US
Fed might be set to ratchet up the pace of rate hikes. Unfortunately the ability
to raise rates at a more aggressive pace, would be easier to justify in the face
of stronger US numbers but the US Fed has always erred to the side of fighting
inflation, as opposed to protecting the US job sector. In other words, a weak
economy hasn’t discouraged the Fed from hiking interest rates in the past. While
some might suggest that the potential for US Budget Deficit work is also behind
the recent bounce in the Dollar, we see no evidence of that reality. In the
short term, we suspect that the anticipation of more aggressive interest rate
hikes will dominate the action and that could push the June Dollar up to the
March highs in the coming sessions. Near term resistance comes in at 83.00 and
close-in support comes in at 82.50. Given the current fundamental tilt it could
be critical for the US PPI on Tuesday morning to come in at or above
expectations of +.3%.
EURO
While we might be putting too much importance on the
weak European payroll dialogue from last week, that element is at least part of
the current weakness in the Euro. In fact, in conjunction with the prospect of
sharply rising US rates of return, we can understand some money leaving the Euro
for more lucrative returns elsewhere. In fact, with the sharp decline in the
June Euro overnight, it is possible that the Euro is in the process of targeting
the 131.26 level. Retracement targeting off the February through March rally
gives a downside targeting of 131.34, which is the 50% retracement level. In
order to keep the pressure on the Euro, US inflation data Tuesday morning will
have to fan the flames of concern.
YEN
Critical support comes in at 95.47 and with the US
possibly being confronted with rising interest rates and even higher energy
costs, we suspect that concern for the Japanese economy will continue to expand.
A Japanese holiday today probably mitigated the negative influence of the
earthquake in Japan but we have to conclude that the path of least resistance is
down until the Yen returns to the early February consolidation lows just above
95.00.
SWISS
Like the Euro, the change in focus toward the Dollar
and the chart damage to the Swiss, would seem to leave the near term trend
pointing down. In fact, until the June Swiss retests the 85.00 level we have to
think that the bears will control. We also suspect that a fear of inflation and
rising oil prices is in many ways diffusing part of the potential selling
interest in the Swiss.
BRITISH POUND
A massive failure below the March consolidation
could facilitate a slide all the way down to the 187.50 level, especially in the
event that the US Dollar gets the anticipated lift from even more aggressive US
Fed policy. In short, both the technical and fundamental tilt is pointing down.
CANADIAN DOLLAR
Even the Canadian has violated some extremely
critical support levels on the charts overnight. However, the ability to hold
above 82.45 today could really dampen the short side interest and create the
chance of a low.
METALS
OVERNIGHT
London Gold Fix $436.25 -$0.40 LME COPPER
STOCKS 48,275 metric tons -475 tons COMEX Gold stocks 5.929 ml oz +14,229 oz
COMEX SILVER stocks 101.8 ml -8,947 oz
GOLD
There would seem to have been a change in the
outlook for the Dollar, as the Dollar has now managed to return to the highest
level since early March and has really done so without solid numbers and without
real signs of change in the Trade and Budget Deficit problems. While there was a
subtle deterioration in the employment outlook for the Euro zone, the currency
markets haven’t paid that much attention to the macro economic differential. One
might think that rising US interest rates are supporting the Dollar and if that
is the case, one might expect the Dollar to continue to rise through the Tuesday
FOMC meeting.
SILVER
The silver market remains vulnerable, especially
with the gold market returning to last weeks lows in the early action today. It
would seem like the May silver has little in the way of support until the $7.25
level and with the fund and small spec combined long position sitting at 70,000
contracts, it would not be surprising to see a slide down to consolidation
support of $7.19. In short, the path of least resistance is down, with any hope
of inflation buying being almost completely offset by the idea that soaring
energy prices are serving to slow growth and dampen physical demand for most
metals.
PLATINUM
We suspect that the recent COT report understated
the size of the spec and fund long in platinum last week, but given the slide
off the high ($13) we now suspect that the overly long position is being leveled
quickly. In retrospect the spike up last week looks a lot like a key top, and a
trade back below the trend line at $870 might cause even more weak handed longs
to exit. As we have said a number of times over the last three months, the risk
and reward of being long platinum really looks unattractive.
COPPER
While it might be premature to suggest that copper
has lost upside momentum, it is not premature to suggest that soaring oil prices
continue to rob the copper market of some future demand. However, it is a
positive that Chinese copper prices were up overnight, off reports of strength
in the Chinese physical market. In other words, the strength in the Chinese
market is currently glossing over the concerns for the US and European markets.
CRUDE COMPLEX
The energy complex finished last week close to
the all time highs and somewhat fresh off a minor corrective setback. Therefore,
it would seem like the technicals remain in a position to facilitate even more
upside action. In fact, while the weekly COT reports showed the funds to have a
massive long position in crude oil, the small specs were surprising still net
short as of last Tuesday.
NATURAL GAS
The natural gas market showed signs of significant
weakness last Friday, but we suspect that the strong performance in the crude
oil market eradicated the selling interest in natural gas. As we also suggested
last week the weather has become less supportive, but is still generally
supportive and we also suspect that seasonal AG use and Industrial buying is
providing the natural gas market with a significant underpin. While we think
natural gas prices are too expensive, with an entrenched bull market setup in
the crude oil, one simply can’t argue with an ongoing upward bias in natural gas
prices.