Futures Point To A Flat Open
4/12/2005
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INTEREST RATES
The Treasury market seemed to defy the usual
fundamental track yesterday, as the trade saw talk about the US Fed possibly
stepping up its aggressiveness in the coming FOMC meeting and the Treasury
market is also aware of impending supply later this week, but yet prices managed
to climb. Some suggest that the recovery in oil prices was behind the rally in
Treasuries, but the Treasury rally took place in advance of the energy bounce.
Others suggest that the market was factoring in the potential for intervention
buying into the coming US Trade Balance report, while others even suggested that
slowing numbers might actually result in a softer tone from the Fed this
afternoon.
STOCK INDICES
The Ford Motor news yesterday simply undermined
the stock market. In fact, the combination of concerning GM and Ford news, in
the wake of even more dire warnings from the airlines, clearly brings home the
fact that high oil prices are squeezing the life out of the US recovery track.
At least 33 US Governors have seen to the heart of the energy problem, as they
moved to expand a Federal Mandate for use of ethanol as a fuel additive.
DOW
For some reason, the bull camp isn’t presenting itself in anticipation of the
earnings cycle. In fact, given the rise in Treasuries yesterday, it is clear
that investors are concerned about future growth and are shying away from
equities. In fact, investors would seem to have a good reason to shy away, as
the Transportation sector is under severe threat (GM, Ford, United Airlines),
the US economic numbers are slack, the US Trade Balance is set to worsen and
lastly, the Fed seems deaf to the signs of slower activity. Therefore, we see a
lot of risk and only minimal reward. In fact, one might have to spin current
conditions aggressively, to even expect favorable rewards from the current
setup. In the coming session, we suspect that the June Dow will at least test
the old consolidation low down around 10,400 and under a triple whammy of a
soaring Trade deficit readings, high oil prices and a hawkish Fed tone, we could
end up seeing the lowest Dow print since early November. You might eventually be
right in being long from current levels, but the odds are clearly against the
bull camp!
S&P
So far, the earnings season has been a bust and the stock market isn’t even
inclined to see favorable scheduled numbers as supportive. In fact, the Kansas
City Fed manufacturing readings on Monday were positive, but were mostly ignored
by the market. Furthermore, we suspect that today’s fundamental news flow will
keep the pressure on stock prices, as early US Trade deficit readings could
rekindle the US disinvestment theme and the Fed could add to the concern by
increasing borrowing costs in the afternoon. Therefore, the path of least
resistance is down and the June S&P might be headed to an 1177.20 trade but a
much lower trade could be seen in the event that June crude oil manages to rise
above $55.50 today!
FOREIGN EXCHANGE
US DOLLAR
It would almost seem to be too easy to get short the
Dollar for the Trade Balance report this morning. However, the bear camp must
keep in mind the potential for a reversal in the Dollar into and through the
FOMC meeting result. In our mind, the magnitude of the US Trade Deficit reading
this morning, really dictates the ultimate direction of the Dollar in the coming
weeks. In other words, if the US Trade deficit only worsens slightly (instead of
rocketing to record levels) we suspect that the afternoon will bring about a
bottoming and a recovery in the Dollar. On the other hand, the US would seem to
have its hands full with the energy threat, economic and regulatory problems in
the US corporate sector and lastly fact that the US Fed is set to slow growth in
an effort to control inflation. Given the setup, we suspect that the Dollar is
poised for a slide below the 84.00 level this morning but that an afternoon
recovery is expected to unfold. In fact, our projection of a low this morning is
83.78 basis the June contract, but that the Dollar will close back above 84.19.
EURO
The June Euro is currently 160 points above the
April low and is probably poised to benefit from the US Trade Balance report. In
fact, we suspect that the June Euro is poised for a rise to 130.43 in the
morning action but that the Euro will probably fail to hold above 130.23 into
the close today. In order to diffuse the upward tilt in the Euro today, the US
Fed will have to leave the impression that even more aggressive rate hikes are
in store for the future. In our opinion, the bull bias in the Euro will lose
significant momentum if there isn’t some significance thrown off by the early US
Trade figures. In other words, the bulls in the Euro need to start out on a
positive footing or the tilt could decay throughout the session.
YEN
The Yen currently sits 115 points above the recent
low and would not seem to have a large measure of favorable fundamentals
supporting the bull theme. On the other hand, recent strength in other Asian
economies is providing the Japanese economy with a lifeline. We suspect that the
early US numbers will serve to push the yen back toward the overnight highs, but
we also doubt that the Yen will be able to make and hold new highs without a
debacle in the US numbers. The trend is still down in the yen and traders might
consider buying some June puts in the event that the June Yen manages a rise
above 93.53 today.
SWISS
The Swiss failed to make a new high for the move
overnight and once the US Trade balance release is past, the bulls had better
hope that the Swiss has managed a new high for the move, or the window of
opportunity could be past. In fact, into the close today we suspect that the
Swiss will see renewed selling. In short, unless the June Swiss manages to rise
above 84.47 in the morning trade, we would not be afraid to sell strength today.
A trade below 83.95 today could hint at a return to 83.00.
BRITISH POUND
Unlike the Euro and the Swiss, the Pound is showing
new highs for the move overnight and that would suggest the Pound is a
leadership market. In fact, the Pound probably benefits off the initial Dollar
weakness, which in turn might actually spur on technical buying off the charts.
Near term upside targeting in the June Pound is seen at 189.01 and then again at
189.30.
CANADIAN DOLLAR
The negative chart action is difficult to discount
in the Canadian. In fact, the pattern of lower highs would seem to leave the
Canadian poised for even lower action ahead. As we suggested yesterday, the
Canadian isn’t even garnering a windfall from Dollar weakness, but in the
morning action today, we suspect that the Canadian will be able to manage a
bounce up to 81.45 before the rally falters.
METALS
OVERNIGHT
London Gold Fix $429.15 +$1.05 LME COPPER
STOCKS 48,900 metric tons +1,775 tons COMEX Gold stocks 6.109 ml oz Unchanged
COMEX SILVER stocks 102.6 ml +534,490 oz
GOLD
The Dollar comes into the action this morning around
the recent lows, while the Euro is just under its recent highs and that has left
gold somewhat firm. From the day to day trade action, it would seem that gold is
paying more attention to the direction of the currency markets than it is to the
direction of energy prices or the stock market. Therefore, the trade will
intently focus on the coming February Trade Balance reading from the US, which
we suspect will be the second highest record deficit level ever.
SILVER
While the silver market managed an impressive probe
to new highs for the move, it has not managed to climb above that level in the
early overnight action. Now that silver has managed to climb above the critical
$7.25 pivot point we suspect it will attempt to consolidate and firm up its
rather meager chart support. Certainly silver is tracking the Dollar and gold
but we also think that lower oil prices (initially) and generally positive
equity prices helped the silver to the gains yesterday.
PLATINUM
Given the recent decline in oil prices and the
upward adjustment in macro economic opinions, we are not surprising that July
platinum has climbed back to the top of the $850 to $870 consolidation range.
Near term critical resistance comes in at $867 and for platinum to manage a
distinct breakout above near term resistance, we would have to see further
improvement in the macro economic condition, which would imply that the market
skated through the Trade Balance reading and the FOMC without concern. In other
words, the platinum market would seem to be vulnerable to profit taking in the
session ahead.
COPPER
While the bias in the marketplace is still pointing
upward, the copper market is getting just a little ahead of itself from a short
term perspective. In fact, the Chinese might view current prices as overly
expensive and may now wait for prices to fall, in order to purchase additional
forward coverage. We continue to note a slight rebuilding pattern in LME copper
stocks but that is certainly offset by the news yesterday that China might be
set to take down a significant amount of Shanghai copper stocks in an April
delivery move.
CRUDE COMPLEX
The energy complex seemed to reach an inflection
point Monday around the lows. Of course it certainly helped to see the
International Energy Agency suggest that OPEC would be unable to meet 4th
quarter 2005 oil demand! Early in the session, some OPEC Oil Ministers were
fretting over a potential price crash in the event that OPEC moved with another
production ceiling increase. In short, the bull camp seemed to come back into
control but it took a rather aggressive statement from an international watch
dog group, to rekindle the bull track.
NATURAL GAS
The natural gas market also gave off signs of a
temporary bottoming as the June contract recoiled from the $7.25 level. While
some traders expect the downside liquidation to resume, we suspect that prices
will consolidate and wait for more direction from the crude oil market. In fact,
unless the June crude oil falls back below the Monday lows, we doubt that the
June natural gas market will flirt with the $7.25 level.