Futures Point To A Flat Open
5/9/2005
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INTEREST RATES
While the outlook on the US economy is anything
but clarified by the most recent US payroll report, we thought that the report
and the prior month’s upward revisions were certainly enough to counterbalance
the overly negative view toward the economy that became entrenched throughout
March and April! While the Treasury market comes into the action this morning
significantly below last weeks highs, it would not seem like the market is
poised to extend the downside pulse aggressively. Many times the Treasury market
takes two full sessions to factor in a surprise Non-Farm payroll reading, but
this time the market just doesn’t appear to have the capacity to follow through
down. Some traders suggest that the lack of a definitive up trend in the stock
market, concern over the auto industry and the always present concern for
soaring oil prices, is keeping the Treasury market from totally giving up the
bull track.
STOCK INDICES
A pattern of higher lows combined with the much
better than expected US payroll readings last Friday morning should be
cushioning the equity market against the constant undermine of GM/Ford talk. In
a rather disappointing development, the stock market seems to have discounted
part of the benefit of the favorable payroll report by rising interest rate
fears. In other words, instead of focusing on the positives, the market is
dredging up potential negatives and that isn’t a bullish development.
DOW
With the Dow unable to extend upward in the wake of the Payroll report last
Friday morning, it is clear that a buy the rumor/sell the fact pattern was in
place. Even with the recent COT report showing a very minimal long position
prior to the mid week run up last week, the trade is apparently unable to muster
consistent buying interest. Therefore, a normal correction might be expected in
the coming sessions, with an initial downside target of 10,289 basis the June
Dow futures. With the market so easily distracted by the interest rate
conundrum, it is clear that the bulls have lost the control they seemed to
possess for most of last week! On the other hand, a surprise rise back above the
10,372 level this morning could catch some early sellers leaning in the wrong
direction and that possibly rekindle the recent upward track in prices.
S&P
While the pattern of higher lows remains, the bull camp has to be very
disappointed with the markets ability to follow through on patently bullish
fundamental information. The recent COT report showed the S&P with one of the
most balanced spec long positions in months and that would seem to have left the
market with significant buying potential, but in retrospect the buyers are
skeptical. However, as long as the June S&P manages to hold above the 1171.00
level, one has to give the bull camp a slight edge. For fresh buys, we suggest
that players wait for the typical 2-3 day correction before getting long. In
fact, our pick for a near term corrective buy point on the charts is 1166.10
basis the June S&P contract.
FOREIGN EXCHANGE
US DOLLAR
While the Dollar managed to forge another new high
for the move overnight, it would not seem like the outlook toward the US economy
is poised to interject a wave of buying into the Dollar. On the other hand, the
credit markets and the equity markets seem to be tossing around the idea of
sharply higher US interest rates and that can be supportive to the Dollar.
Dampening the upward track in the Dollar are suggestions this morning that the
Chinese might officially announce a long series of very minor incremental
changes in the exchange rate and that in effect would rob the market of the
speculative reaction that many expected in a change in the Chinese currency peg.
Therefore, with the US economic numbers stronger than expected and the
expectation of even higher US interest rates ahead, maybe the “re-peg” of the
Chinese currency isn’t a major event. Therefore, we see the Dollar hanging
around the recent highs but we think that the long interest will wane quickly
and that should leave the Greenback vulnerable to a correction later this week.
However, the May 3rd Commitment of Traders with Options report showed the US
Dollar to have a minimal spec long position and that should reduce the need for
profit taking on the run up off the April lows.
EURO
While the Euro made another new low for the move
overnight, we don’t get the sense that the speculative crowd is prepared to
drive the Euro down below the April lows. The May 3rd Commitment of Traders with
Options report showed the Euro Non-Commercial position to be net long 7,797
contracts and the Non-reportable position to be net long 3,106 contracts.
Therefore, the combined spec long position is only 11,000 contracts. However,
with the break since May 3rd, we suspect that the long position has been pared
somewhat but isn’t yet at what we would call a totally liquidated level.
Therefore, we can’t rule out a test of the April low of 127.86, but we expect
volume to dry up on weakness.
YEN
A major slide in the Yen would seem to suggest that
recent bullish mentality has been completely reversed. In fact, we have to
wonder if new rumors on the Chinese currency situation haven’t conspired to push
a number of spec longs out of the Yen. Near term downside targeting in the Yen
comes in at 94.56, if the June Yen fails to hold above 94.95 in the early going
today. While the US payrolls could be considered supportive to the Japanese
economy, we can’t help but think the entire April rally in the Yen was
undertaken as a pure surrogate for the Chinese currency. Therefore, the close
today could be a very telling development for the near term trend in the Yen.
SWISS
The Swiss also comes into the opening this morning
on the ropes but the question becomes, will the trade be able to find the volume
to press the short side. However, with the April low in the Swiss still
significantly below the current trade, it would appear as if the Swiss has
moderate downside potential still ahead. With a much stronger than expected US
payroll report it would also seem like the flight to quality issue, which was
already insignificant, was dealt yet another blow. The bears control.
BRITISH POUND
With some very disappointing economic numbers coming
from the UK coming out in the wake of very favorable US economic numbers last
Friday, the tide has been turned in the Pound. While we suspect that long
interest in the Dollar and short interest in the Pound will wane after a few
sessions, we can’t rule out a slide to 187.20 in the June Pound in the coming
sessions. In fact, with slow Industrial production and a semi hot PPI reading
from the UK overnight, it would seem like the Pound is set to battle stagflation
threats, much like was feared by the Dollar for most of last month.
CANADIAN DOLLAR
The action in the Canadian has been impressive of
late. In fact, with a rise above 82.70 overnight, a number of long term
technical trends have turned up in the Canadian. Near term upside targeting
comes in at 81.25.
METALS
OVERNIGHT
London Gold Fix $425.80 -$3.90 LME COPPER
STOCKS 59,950 metric tons -350 tons COMEX Gold stocks 6.084 ml oz +49,945 oz
COMEX SILVER stocks 104.5 -1,159 oz
GOLD
While we suspect that the US economic information
last Friday provides some form of support to gold in the hope of improved
physical demand, the strength in the Dollar has as expected dominated the
current trend. In other words, improved economic growth might eventually foster
physical demand and potential inflationary expectations but in the near term,
gold will be negatively impacted because of the Dollar. It is also possible that
the ebb and flow of Chinese currency talk will govern the direction of gold, as
the Chinese indicated over the weekend that all the talk about a floating
currency has actually made it more difficult for them to move forward on the
“re-peg”.
SILVER
Surprisingly favorable US economic numbers did
little to lift July silver up above the critical pivot point at $7.00. Trend
line support in July silver comes in at $6.832 and with the slack action in
gold, we can’t rule out some ongoing weakness. The May 3rd Commitment of Traders
with Options report showed Silver to have a net spec long position of nearly
45,000 contracts, which is a slightly above average long position.
PLATINUM
The early action this week will be very important to
platinum as it managed to outperform the rest of the metals last week and did so
without the usual Asian trade activity. We suspect that platinum will make a run
at contract highs this week but we think that risk and reward of fresh longs
will leave most players on the sidelines. With the spec and fund long in
platinum showing a combined long of 5,700 contracts and the market $7 above the
level where the COT report was measured, this market is approaching a moderately
overbought condition.
Near term targeting in the July platinum comes in at $884 and near term support
is seen at $869.5.
COPPER
With Chinese players coming back with some early
buying interest, it is clear that the copper market is due some short covering
ahead. We have to think that the US payroll reading last Friday was partially a
stop gap development for the global copper demand outlook, and therefore that
report could have laid the groundwork for a return to the 150.00 level in July
copper. With the most recent COT report showing the net spec position in copper
to be less than 20,000 contracts and the market at times another almost 400
points below the level where the COT report was measured, this market should be
considered to be in solid technical condition.
CRUDE COMPLEX
With the Saudi move last week to raise term crude
prices by almost $2.00 per barrel, the OPEC President over the weekend
suggesting that the cartel wouldn’t increase output in the near term (because
they feel their already overproducing) and the much stronger than expected
recent US economic numbers, it is likely that the energy market finds the
resolve to hold above last week’s lows. However, after making a significant
upward pulse last Friday, the crude oil market was clearly unable to hold up
near the highs into the close and that could suggest that the market is
partially locked inside the last week’s trading range. While the better US
economic look certainly shores up the demand outlook, in order to rekindle a
driving bull trend, there might have to be a more specific supply threat.
NATURAL GAS
At best, the natural gas market firmed up support
around the recent consolidation lows of $6.50. The May 3rd Commitment of Traders
with Options report showed the Natural Gas Non-Commercial position to be net
short 13,889 contracts up 6,594, with the Non-reportable position net long
34,212 contracts and that leaves a combined small spec and fund long position of
only 21,000 contracts. However, in order to completely level the spec
positioning in the natural gas market, we might have to see a temporary decline
to the $6.25 level.