Futures Point To A Flat Open
5/11/2005
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INTEREST RATES
It took a while but US Treasuries on Tuesday
finally managed to rise to a level that factored in some of the disconcerting
economic developments seen during the session. In addition to early gains in
energy prices, the Treasury market also noted the sharp slide in equity prices
and an escalation in credit concerns. We suspect that part of the Treasury
buying was in fact flight to quality buying, but for the most part, the Treasury
market was quiet and non reactionary.
STOCK INDICES
Fortunately for the bull camp, the market was
presented with some favorable Cisco earnings news after the close yesterday and
that has served to lift prices a little this morning. However, while it would
not seem like the hedge fund issue will become a LTCM type problem, the incident
adds to the woes facing the world economy. The whole credit issue off the hedge
fund loss is amplified by the growing concerns of US corporate pension fund
default.
DOW
Another new low for the move overnight, despite favorable Cisco earnings,
clearly suggests that the bears have control over the market. Prior to yesterday
we didn’t expect to see anxiety type selling but we also didn’t expect a fresh
bearish wrinkle in the form of soaring credit concerns in the wake of the large
fund loss story yesterday. The path of least resistance is down in the Dow today
unless there is a surprise capitulation in oil prices that serves to countervail
the early flow of bearish macro economic news. As suggested before, we can’t
rule out a return to the 10,200 level in the June Dow in the coming sessions,
especially if the US Trade numbers leave the US with another black eye.
S&P
While the S&P managed to hold above the prior day’s low overnight, we don’t
think the market has the resolve to avoid more near term weakness. In fact,
unless oil prices ride to the rescue, with significant declines off the weekly
inventory data this morning, it is really difficult to come up with an offset to
the generally bearish setup in the market. In fact, those that bought the June
S&P on the dip yesterday might scramble out of that position with a small profit
and look to reset that position down at 1160.00. Trade Balance woes, hedge fund
concerns, pension worries and generally disconcerting oil price fears are simply
too much for the bull camp to weather in the near term.
FOREIGN EXCHANGE
US DOLLAR
The Dollar managed to forge a new high for the move
yesterday by a single tick and then started to give ground aggressively. While
the whole hedge fund concern would not seem to be strictly a US issue, it would
seem that the focus of the hedge fund loss might have been caused by US auto
stocks and that seems to leave a negative tilt toward the US Dollar. Also
dampening prospects in the Dollar are concerns that high oil prices will pump up
the US Trade deficit this morning and that in turn could rekindle the
international investment rotation theme again. With the headlines also full of
US pension fund concerns and the US Fed indicating that they will retain their
posture of higher interest rates there would seem to be a series of
countervailing developments facing the Dollar today. However, even with all the
negatives, it would seem like the Dollar is simply poised to drift down toward
pivot point support around 84.00 and isn’t headed into a sharp downward spiral.
Certainly seeing a massive leap in the US Trade deficit reading this morning,
could spark a slide to 83.72 in the Dollar, but that magnitude of break would be
a little surprising considering the early weakness in the Canadian and the
Pound.
EURO
While the Euro would seem to have a foot up on the
Dollar due to all the negative developments being thrown at the US economy,
French Industrial output in March was much weaker than expected this morning and
that limits the bounce potential in the Euro. However, it would seem that
Chinese currency talk is fostering some fresh weakness in the Dollar and that
seems to give the market just enough buying lift to leave the Euro in an upward
pattern. Certainly the Euro can expect to get an additional lift off the US
Trade numbers this morning and therefore a track up to consolidation resistance
around 130.00 would not be that surprising over the coming sessions. However,
because the economic back drop in the Euro is failing to facilitate capital flow
toward the Euro currency we can’t get overly excited about the upside prospects
in the Euro.
YEN
A rather wide range has already been posted in the
Yen today and we suspect that most of that range came compliments of the Chinese
Daily comments regarding the move to a floating currency next week. However, it
seems that the Chinese newspaper has retracted the statements claiming to have
translated the story inaccurately. Considering the US Trade numbers and the Yuan
talk, we have to think that the Yen is poised to rise toward the 96.00 level
again, with near term support on the charts pegged at 95.04.
SWISS
In order to turn the technical trend in the Swiss
up, the June contract will have to manage a rise above a trend line at 84.09 and
with the US Trade figures coming on top of the hedge fund scare on Tuesday,
there is certainly the scope for consistent Swiss buying in the coming sessions.
However, the inability to hold above 83.37 today would be a very negative sign
for the bull camp.
BRITISH POUND
After the recent concerns of ultra soft UK numbers
and the talk about cutting interest rates, it would seem like the Pound has more
downside work ahead. In fact, with the BOE suggesting that the CPI will continue
to hold above targeted levels, one could even be a little concerned about
stagflation in the UK. In fact, if it were not for the potential for a weak
Dollar ahead, we would see the prospect of a decline in the Pound to 187.06.
CANADIAN DOLLAR
The Canadian failed miserably overnight and in
retrospect the market failed to clearly turn up the technicals. Therefore, a
full back and fill washout might be ahead, with the June Canadian possibly
sliding down to 80.05 before the end of the week.
METALS
OVERNIGHT
London Gold Fix $428.35 +$1.45 LME COPPER
STOCKS 60,575 metric tons +225 tons COMEX Gold stocks 6.083 ml oz -1,479 oz
COMEX SILVER stocks 104.9 +401,039 oz
GOLD
It would seem like the Dollar is headed back toward
84.00, with the majority of the Dollar selling interest focused on this mornings
US trade Balance report. While early estimates only call for an increase of 500
million in the closely watched deficit report, the effect of ultra high oil
prices could raise that deficit a little more than expected, which could
pressure the Dollar and in turn lift gold prices. With the market suggesting
that recent US payrolls might have been lifted by statistical adjustments and a
massive slide in equity prices yesterday, we can understand the metals getting a
measure of flight to quality support from increased financial market anxiety.
SILVER
While the pattern of higher highs remains in place
and both the small specs and the funds have been noted buyers this week, it is
really difficult to jump on the bullish bandwagon 30 cents off the April low.
However, the July silver is still 29 cents below the top of the recent
consolidation and that could allow the market some additional near term
appreciation potential. Apparently the lower Dollar, stronger gold track
supports silver, but we have to think that the big losses in the equity market
yesterday, takes away part of the bull case in silver.
PLATINUM
As we expected late last week, the platinum market
is headed to a retest of contract highs. In fact, with the recent news of
ongoing restrictions in platinum production, we would have to upgrade the bull
market condition in platinum, especially if the Chinese change their currency
without causing a marked change in Asian economic activity! In short, the market
is headed higher and even though the coming COT report in platinum might end up
being close to a record spec and fund long positioning we are not sure that the
rally will end this week. In fact, unless world equity markets resume the sharp
selling seen on Tuesday, we suspect that the pattern of prices in platinum will
continue to point upward.
COPPER
The chart pattern in copper is certainly
disappointing to the bull camp. In fact, with Shanghai copper prices lower
overnight, the trade discounting the recent favorable US payroll readings and
the debacle that hit the equity market on Tuesday, we can understand a slide
back toward the bottom of the recent consolidation at 142.00. Countervailing the
slight negative tilt this morning in copper, are suggestions of booming Chinese
2005 copper concentrates imports and very strong nickel prices.
CRUDE COMPLEX
The early news in the energy complex on Tuesday
conspired to send prices sharply higher but around mid session a series of
partially bearish developments contrived to send crude back into negative
territory. The market was probably factoring another rise in US crude oil
inventories today, but it was also clear yesterday that the product markets were
willing to continue to embrace longer term bullish supply and demand
expectations with their action. The EIA actually lowered their forecast for
gasoline prices to $2.17 but also suggested that gasoline prices might have
already peaked.
NATURAL GAS
The wheat market is signaling a possible hot and dry
pattern for the coming summer and that type of thinking also served to lift
natural gas prices on Tuesday from a demand perspective but the natural gas
market was unable to hold the gains and finished poorly. We suspect that the
deterioration in the macro economic track on Tuesday contributed to the reversal
in the natural gas, but it was also clear that crude oil prices continue to
dramatically influence intraday natural gas prices. Also dampening natural gas
prices are ongoing expectations for high near term storage levels, as the market
has already entrenched a pattern of surplus tallies over year ago levels.