Futures Point To A Flat Open
4/8/2005
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INTEREST RATES
The Treasury market came under concentrated
pressure yesterday afternoon off the combination of sharply lower oil prices and
comments from the Fed. While the Fed comments whipped up the inflation issue,
the bulls could also argue that the inflation threat from the Fed was mitigated
by suggestions that the US economy has attained price stability and that
inflation expectations remain contained. It is also possible that the muted US
Consumer credit reading yesterday afternoon inspired some selling, as credit
rose by only $5.6 billion and that was less than expected and down sharply from
the January reading.
STOCK INDICES
The strength in equity prices generally continues
overnight with moderate gains even being posted by airline stocks in the early
European markets. In other words, the positive impact of lower oil is clearly
being felt in obvious ways, but is also manifesting itself in less obvious
sectors. In fact, the stock market needed a fresh incentive to throw off the
dominatingly bearish psychology that was in place last week and really has been
entrenched since the early March high.
DOW
The Dow seems to have a number of positives carrying it up against the recent
down trend pattern. In addition to lower oil prices (big cap stocks tend to be
huge energy users) the upper end of the market is also getting the benefit of
spillover buying interest off the early earnings flow. Therefore, it would seem
like the June Dow is capable of rising above the critical pivot point resistance
of 10,573, but in order to rise to and above the 10,600 level the market will
need persistent declines in oil prices. Given the strong rate of gain over the
last week, the June Dow has little in the way of close-in support on the charts.
In fact, the first support in the June Dow comes in at 10,520.
S&P
Now that the June S&P has managed a rise above the critical pivot point of 1190,
the market might be poised for a rise to the 1200 level. In fact, under an
ongoing pattern of soft oil prices and favorable earnings, the June S&P might
not run into formidable resistance until the 1202.50 level. However, in order to
keep all cylinders firing on the upside, the S&P will need to skirt the
wholesale trade report this morning without resurgent concerns of disinvestment
away from the US. In short, one has to leave control of the market to the bulls
but one should not forget that lower oil prices are the primary benefactor of
current action.
FOREIGN EXCHANGE
US DOLLAR
The correlation between inflation and the Dollar
once again proved to be direct. In fact, shortly after Fed comments hit the wire
yesterday afternoon, the Dollar recoiled sharply off its lows and continues to
generally hold that bullish view into the opening this morning. It certainly
didn’t hurt the Dollar to see a significant decline in energy prices, but we
doubt that lower oil is a clear cut benefit for the Dollar. However, in the near
term, the prospect of lower oil, higher US equity prices and ongoing favorable
US corporate earnings information means that the Dollar has more bullish news
flow than the Euro. On the other hand, we are not sure that the prospect of
inflation is going to get that much support in the headlines and that could make
a direct upside breakout in the Dollar difficult. Certainly a $2-$3 additional
decline in crude oil prices and a massive upswing in US equity prices could help
the Dollar breakout up, but it could take something significant to get above the
early April high of 85.09. The bulls control but that control isn’t very
convincing. Near term critical support comes in at 84.78 and a failure is
signaled with a decline back below 84.59.
EURO
While we see a slightly negative tilt in the Euro we
are not sure that the Dollar has the case to effectively force a downside
breakout below critical near term consolidation support of 128.22 in the June
Euro. However, the Euro is certainly more vulnerable to a downside breakout than
the Dollar is vulnerable to an upside breakout. In other words, the recent
weakness in the Canadian, Pound is helping the Dollar somewhat, but the
bearishness toward the Euro seems to be a little more definitive. However, those
that decide to pick a low in the Euro on near term weakness, should realize that
the big picture trend still remains down from the December high.
YEN
Comments from the BOJ overnight would seem to be
rather surprising, as the BOJ suggested that quantitative easing was morphine
for the Japanese economy. We suspect that the suggestion that the Japanese
economy still needs significant assistance is something that favors the bear
camp. In fact, with the Yen sitting right on a downside breakout point on the
charts, about the only thing discouraging a downside washout, is the fact that
oil prices are sliding and US economic sentiment is improving and that usually
provides a measure of support to the Yen. The trend is down and we see no reason
to think the trend will reverse.
SWISS
The Swiss reversal off the lows overnight would seem
to suggest that a downside breakout is unlikely and with some traders noting the
presence of a higher low pattern and also pointing to the overnight bounce, it
would seem like there is buying interest present for the Swiss. However, the
partially favorable tilt overnight would be lost in the event that the Swiss
fails to hold above critical pivot point support of 83.07.
BRITISH POUND
The chart action in the Pound is negative, the
political outlook is undermining but fortunately for the bull camp, there would
seem to be decent support just under the current market at 186.34. On the other
hand, the Pound could easily slide down to 185.24 without much fanfare.
CANADIAN DOLLAR
A fresh downside breakout on the charts, leaves the
near term trend pointing down. In fact, we suspect that the June Canadian will
see a slide to at least 81.33 on this wave down. At present, the market would
not seem to have the fundamentals to force a full washout to the February
consolidation zone bound by 81.00 and 80.00.
METALS
OVERNIGHT
London Gold Fix $425.40 -$1.00 LME COPPER
STOCKS 46,675 metric tons +50 tons COMEX Gold stocks 6.109 ml oz Unchanged COMEX
SILVER stocks 102.0 ml -611,575 oz
GOLD
With the Dollar seeing a revival yesterday afternoon
off inflationary Fed comments, the gold market seems to have had its minimal
upside tilt of the week reversed and that has in turn led to a disruption this
morning of the pattern of higher lows on the chart. We take the divergence
between gold and silver this week, as a slight negative as that suggests that
the precious metals market lacks a consensus opinion. It is also disappointing
that gold is seeing a negative influence off the prospect of inflation.
SILVER
While the silver forged an extremely ugly trade
overnight, it did manage to recoil away from the lows. However, unless the May
contract can manage a rise back above the critical pivot point at $7.075 early
today, we doubt that the funds will decide to carry silver prices up throughout
the session. On the other hand, continued declines in energy prices and a sharp
rise in equity prices might whip up the prospect of improved physical demand and
provide the market with some buying volume.
PLATINUM
The platinum market seems to have run into heavy
resistance at the $867 level and apparently a sharp decline in energy prices and
the prospect of an improved macro economic outlook, isn’t that important to the
market today. We continue to think that the platinum market needs an extremely
strong global outlook to rationalize a further rise in prices, as prices are
already within proximity of historic levels. A trade back below $855 could
really undermine platinum today!
COPPER
The copper market seems to be precariously perched
at the top of an extended consolidation pattern. Surprisingly Chinese copper
prices were softer overnight, despite the fact that many investors seem to be
cheered by the sharp slide in oil prices this week. Weekly Shanghai copper
stocks actually increased by 5,830 tons and that certainly diffuses a
potentially bullish theme.
CRUDE COMPLEX
With a massive slide in energy prices this week
the bull camp is presented with the biggest correction since the $5.10 crude oil
break in March. In the action Thursday the market came under pressure partly off
the realization that near term crude supplies were thought to be rising. In
fact, the increased supply theme was given an additional lift by another private
forecast, (which now means that the market has seen four supply increase items
in the last three sessions).
NATURAL GAS
The natural gas market played catch up to the days
where prices failed to slide in the face of weakness in the crude oil market.
However, the market is undermined by the fact that the weekly storage reading
showed an injection of 10 bcf. In other words, the end of the draw season
basically ends the recent support of natural gas prices off the unusually cool
end to the recent winter.