Futures Point To A Flat Open

5/25/2005

 

INTEREST RATES

The Treasury market started out weak yesterday
but didn’t extend the weakness in the face of US economic information that came
in better than expected. In other words, the general bias in the Treasury market
is remains bullish, with the market still embracing growth concerns and still
convinced that inflation is fully under control. Yesterday the FOMC meeting
minutes suggesting that the Fed was unanimous in its view that additional rate
hikes were needed but with several Fed members also expressing concern that the
rate hikes were in fact hindering the economy, the net spin from the release
seems to have been positive.

STOCK INDICES

We suspect that the market is entering the 2nd
day of a 2-3 day temporary technical correction. However, the fact that GM was
downgraded by another “ratings agency” yesterday rekindled the credit risk
concern and with the Fed reiterating its desire to hike interest rates even
further, we can understand the concern for future growth and earnings. In fact,
several Fed members in the last FOMC meeting minutes, worried over the fact that
the rate hike process was in fact hindering the recovery we can understand the
renewed concern for future growth! The Fed was also concerned about the ongoing
impact of high oil prices in that last meeting but they continued to be
confident that the slowdown off oil would be temporary.

DOW

The June Dow contract appears to have made a negative chart trade in the
overnight action and with slightly disappointing economic numbers this morning
and higher oil prices, we might see the June Dow make a run at consolidation
support down around the 10,400 level. While the June Dow might be able to
respect closer-in support of 10,462, we just don’t get the feeling that the
market is poised to suddenly reverse the downward drift, without some headline
type surprise. Therefore, short term traders should remain lightly short, while
position players should simply hold longs.

S&P

The S&P is also in a slightly vulnerable posture into the opening today but
there would appear to be decent pivot point support around 1189.20 basis the
June. However, we still can’t rule out an eventual probe down to 1185.80 in the
current 2-3 day corrective pattern. The stock market is simply in need of a
positive fundamental jolt and we are not sure if the numbers today can provide
that type of information. In the short term, traders might have to risk fresh
long plays to 1180 and that would seem to leave buyers on the sidelines for at
least another session.

FOREIGN EXCHANGE

US DOLLAR

While the US Fed was still generally upbeat on the
US economy and clearly maintained the desire to hike rates further, the positive
buzz seen in the Dollar around the middle of the month is still missing. We do
think that recent Chinese currency dialogue is providing some support to the
Dollar, as the Chinese continue to be entrenched in a go very slow mode.
However, we doubt that the US is going to be patient and therefore we expect
something aggressive from the US Treasury Secretary very soon. Considering the
slackening of US equity prices, the potential for slightly higher oil prices and
slightly disappointing US economic numbers, it would seem that the Dollar is in
the process of making a fresh decision on its near term trend. Certainly seeing
the German IFO head call for a reduction in Euro zone interest rates is
supportive of the Dollar and certainly the failure to see a compromise on the
Yuan situation is supportive, but the trade for some reason is balking at buying
more Dollars above the 86.50 level. Unfortunately it would seem like the Dollar
will be capable of rising above the recent highs but could do so without a
direct correlation to economic reports or outside market action. In other words,
the bull trend in the Dollar seems to control even if one has trouble justifying
the continued rise.

EURO

The Euro is vulnerable and a new low for the move
would not be that surprising. As mentioned before, it would seem like the Euro
zone economy is falling backward toward recession and that has prompted the head
of the German IFO to call for the ECB to cut interest rates. In short, if one
can’t get positive toward the US economy, then the Euro zone outlook is
extremely suspect. Therefore, we suspect that the Euro will see a new low for
the move, unless the US numbers are extremely disappointing. On rallies back to
126.36 we would suggest that players look to resell the June Euro. We might add
that the concern for the coming EU Constitutional votes, has mitigated slightly
and that would seem to diffuse some of the aggressive selling interest that was
present around the middle of the month.

YEN

The pattern of lower highs continues and the down
trend pattern in the Yen would seem to remain in place. The ongoing
Nationalistic debates between Japan and China would seem to be a minor negative
to the Yen and without signs of a change in the yuan, we can’t rule out a near
term slide back to the recent lows of 92.50. However, at the current time it
would seem to be a little difficult to justify a full downside breakout in the
June Yen.

SWISS

With the June Swiss potentially seeing solid chart
support at the 81.00 level, we suspect that the daily ranges in the Swiss will
narrow. However, if the negative dialogue toward the coming EU votes begins to
surface, that could result in the Swiss falling below critical support. While we
suspect that the Swiss will hold relative to the Euro over the coming sessions,
we are not inclined to spread the Swiss against the Euro at current levels.

BRITISH POUND

The UK GDP readings continue to foster some concern
toward the UK economy, especially since the numbers were deflated by specific
weakness in the manufacturing sector. The big problem with selling the June
Pound is that the market is closing in on extremely critical longer term
historical chart support level, derived off a consolidation back in November of
2004. Pushed into the market we would sell the June Pound on rallies back to
183.10.

CANADIAN DOLLAR

The 7 day corrective pattern, against the existing
down trend channel has probably run its course and now the Canadian would seem
to be poised to return to levels around and below the 79.00 level. However, we
will be watching the Canadian closely for signs that the currency is correlating
positively with the Dollar, especially in the event that the Dollar manages an
upside breakout, as that could diffuse part of the potential selling interest in
the Canadian.

METALS

OVERNIGHT

London Gold Fix $418.50 -$1.75 LME COPPER
STOCKS 49,225 metric tons -1,000 tons COMEX Gold stocks 6.069 ml oz -67,766 oz
COMEX SILVER stocks 105.6 Unchanged

GOLD

The gold market continued to under perform the rest
of the precious metals markets in the action Tuesday. We have to think that the
net shake off the release of the FOMC meeting minutes undermined gold, as that
suggests that the Fed remains poised to keep inflation under control and in the
process they recognize that they are hampering economic activity. While gold
might see some benefit from a Dow Jones news story of rising teenage jewelry
demand in China, the market just isn’t playing off the expectation for rising
physical demand.

SILVER

Apparently the silver rose sharply at times on
Tuesday off unfounded rumors that an exchange traded fund was going to be
launched on silver. Certainly seeing a more direct investment line into physical
silver could firm up the price structure but we are not sure that ETF’s are
going to be a near term influence. It would appear as if existing fund interest
is present in silver as it has periodically outperformed gold on a daily basis,
off action that seems to be emanating from fund interest.

PLATINUM

Just when it appears that platinum is poised to
fail, it manages to post a higher high and keep bullish sentiment alive.
However, in order to see July platinum prices run back up to the consolidation
highs around $875 to $880, there will have to be a much more optimistic view
toward Chinese and Asian demand. In the near term, traders can’t rule out a
temporary slide back to $860 support.

COPPER

The copper price action of late has been very
impressive, especially since the gains came in the wake of slack equity market
action and news that the US Fed remains on track to hike interest rates further.
Even more surprising is the fact that copper prices this morning are higher
again in the face of calls for the ECB to cut interest rates (because of the
slowing threat in the Euro zone). Chinese copper prices managed a minimal gain
overnight but in general attitudes in China remain positive toward copper.

CRUDE COMPLEX

The energy complex appeared to manage a quasi
upside breakout on Tuesday and that was action impressive considering that the
market was presented with some bearish information during the session. In
addition to Venezuela suggesting that their oil production levels were steady
throughout the 1st qtr or 2005, the Saudi Oil Minister continued to echo prior
suggestions that OPEC didn’t need to cut production in the June meeting.
However, we suspect that some shorts decided to exit positions ahead of the
coming weekly inventory data, as the report today might be the last clearly
bearish weekly rebuild figure, before the summer demand season begins to eat
into supply more aggressively.

NATURAL GAS

The natural gas market managed to hold most of the
gains forged on Monday, but didn’t exactly rise in tandem with the crude oil
market. Slightly less supportive near term weather forecasts, combined with less
optimism toward the global economy seems to diffuse some of the the bullish
sentiment that managed to lift natural gas prices off the May lows on Monday.
However, we suspect that many natural gas players are concerned about getting in
the way of an inventory inspired decline in crude oil today.