Futures Point To A Gap Lower
INTEREST RATES
After another shockingly strong US payroll report
the Treasury market is certainly due additional downside pressure. Typically it
takes at least two full sessions to fully factored a surprise Monthly payroll
report and the report last Friday was certainly a surprise. While the bond
market has been down consistently off fears of higher interest rates, we don’t
think that the market was actually expecting the recovery to show itself, as a
sustainable force! Some might continue to doubt the recovery because of the
weakness in the US equity market, but the numbers were so large that some follow
through in hiring might be in store for the US economy.
STOCK INDICES
The selling tide from last week looks to remain
in place, at least early in the session today. While the news from the recent
payroll report was outstanding, the market is still apparently in a negative
posture and unwilling to look at the positives. While we can understand some of
the rate hike fears, that can’t be the only thing driving stock prices down, as
the Fed has persistently promised very measured moves when they do raise rates.
DOW
A big range down probe on the opening, certainly favors the bear camp. In fact,
the market might eventually forge a reversal later in the session, but in the
mean time one has to give early control to the bear camp. If one can’t cheer
rampant job growth and lower energy prices, it is really clear that investors
are just turned off on stocks. Critical downside support comes in at 10,000 and
then again down at 9,956.
S&P
On a sharply lower opening today, we suspect that the net spec and fund long
position in the S&P will be the “smallest spec long†since the 2003 lows and
that might be considered enough cause for a low! However, we are not sure if the
geopolitical condition is easily changed for the better in a quick fashion. In
fact, if the market fails on solid earnings and jobs growth, one can hardly
expect prices to recover off some lesser issue. Nonetheless we will continue to
look for a technical low signal, as the fundamental tilt is simply out of vogue.
In order to make a classic bottom reversal, the S&P will have to manage a close
above 1087.50 and not fall back below the early lows!
FOREIGN EXCHANGE
US DOLLAR
The Dollar market seems to be one of the few
financial markets accepting of improving US economic conditions. The weakness in
US equity prices would seem to suggest that solid growth doesn’t matter, but it
is clear that currency traders are rushing to factor in a series of US rate
hikes. The whole idea that the US Fed is behind the inflation curve, seems to be
pulling capital toward the US Dollar and with the dismal stats released from the
Euro zone last week, it’s not surprising that the Dollar is in strong favor. It
does seem a little strange that the world is so down on the US politically, but
yet money is managing to flow aggressively toward the US currency. Those that
got long the Dollar from 89.70 (and weren’t stopped out early Friday morning)
should probably consider banking profits, as the market has come a long way
quickly and we suspect that the US Fed will be compelled to calm rising interest
rates fears in their speeches this week. It is also possible that falling energy
prices take some of the upside momentum out of the Dollar.
EURO
The euro looks set to slide to the April low of
117.45. As suggested before, the economic numbers from the Euro zone Friday,
would seem to be add to existing pressure in the Euro. We have to think that the
long term trend in the Euro is down and that the current trend in the interest
rate and macro economic differential, would facilitate the down trend that began
in the Euro in February. Bottom of the channel in the euro is 116.65.
YEN
The Nikkei got hammered overnight and with the
recent fear of slowing in China, it is possible that the Yen continues to fall
at a breakneck pace. Near term down side targeting in the Yen is seen at 87.04.
^next^
SWISS
The Swiss might be the only currency capable of
standing up to the Dollar, as some players seem willing to use the Swiss as a
flight to quality instrument, in the current state of severe macro economic
flux. The overnight slide to 76.00 seemed to be rejected and that hints at a
near term bottoming. However, if the Dollar manages to close strong today, that
could make the Swiss a sale on a bounce to 77.19.
BRITISH POUND
After the recent rate hike, the presence of a +0.3%
rise in UK PPI is mostly discounted. In fact, the downside action in the Pound
overnight is probably just a balancing of the gains posted last week, as the
fundamentals in the UK economy are no so weak, that players should attack the
Pound. However, it might be possible for the Pound to make a technical bid at
near term support of 175.91.
CANADIAN DOLLAR
From the charts, it’s clear that the Canadian has
made a major failure and is simply not in a position to gather any fundamental
support from the ultra strong US non farm payroll growth. Near term downside
targeting in the Canadian is now seen at 71.00.
METALS
OVERNIGHT
London A.M. Gold Fix $374.10 -12.75 LME
COPPER STOCKS 146,900 mt tons -1,600 tns COMEX Gold stocks 4.269 ml -403 oz
Comex Silver stocks 122.5 ml -989 oz
GOLD
Despite the potential for soaring political
uncertainty and ultra strong US growth, the gold market continued to slide under
the weight of the rising Dollar. With the Dollar rising to the highest level
since last November and the back of the bull market apparently broken, it’s not
surprising that the rather hefty spec and fund long position of 103,000
contracts is being forced from the market. While gold has now fallen $18 an
ounce since the COT report was taken, it is very clear that the market is still
teeming with spec longs.
SILVER
The silver market also looks pretty negative on the
charts and with the net spec long in silver coming in at 69,000 contracts (last
Tuesday) it is also still vulnerable to more stop loss selling. It would not be
surprising to see July silver fall to $5.00 under current conditions, as the
long camp seems to be without resolve and the technicals have the market on the
run. Like gold, the silver market can’t seem to profit from the concept of
improving physical demand, international political strife, or the prospect of
inflation.
PLATINUM
It would seem like platinum is being lumped into the
same condition as gold and silver, with the Platinum chart in very poor standing
and the market headed to even lower levels. The weekly COT report showed the
platinum market to have a net spec long of 1,400 contracts but since the report
was measured platinum has declined an additional $49 an ounce, which could bring
the market closer to balance. The next support on the weekly chart comes in down
at $750.
COPPER
While Chinese copper prices were higher overnight,
that strength has not altered the weak pattern in US and London markets.
Supposedly the Chinese were interested in copper overnight and that should at
least temper the liquidation tilt that is being seen in the precious metals. The
strong Dollar is probably making US copper less attractive to foreign players
and that could be why the Chinese were bargain hunting overnight.
CRUDE COMPLEX
According to weekend stories the Iraqi pipeline
that feeds the Baghdad refinery was attacked. From the Press reports it was not
clear whether the pipeline was shut down as a result of the explosion, but it is
clear is that opposition forces are focused on attacking Iraqi oil facilities.
If there continues to be periodic attempts to disrupt critical world oil supply
flows, we suspect that the market will continue to add a threat premium to oil
prices.
NATURAL GAS
July natural gas has shown an extended consolidation
pattern just under $6.43 with some calling the formation a triple top! The
recent COT report showed the spec long position to be 44,000 but the record spec
long is close to 77,000 contracts! Therefore, natural gas has the technical
capacity to rally further but it is also vulnerable to technical stop loss
selling. Given the weekend pipeline blast in Iraq, we suspect an undertone of
support will be present against the near term liquidation tilt. From our
perspective, the weather forecast has turned a little negative, as it would seem
that temps were pulled down by the NWS.