Futures Point To A Higher Open
INTEREST RATES
The Treasury market is having trouble reaching a
consensus, as the US economic numbers released yesterday morning were very
strong and could easily have justified a move to a lower trading range. However,
the market was pent up for a rally, as demonstrated by the knee jerk reaction to
the FOMC meeting. In the end, the bull camp proved that they lacked the capacity
to control prices, as prices only briefly rally on the idea that the Fed was
still on hold and that when the Fed did move to raise rates, that the rise would
be very slow.
STOCK INDICES
The bull camp just can’t seem to get a firm grip
on this market. We are really surprised at the action in the financial markets,
as the US Dollar is under aggressive selling pressure because players in that
market think the US is on hold with interest rates, whereas the stock market
continues to fear higher rates at almost every turn. The factory orders and
durable goods reports released yesterday from the US, were simply fantastic but
those figures more than likely fostered concern for higher interest rates.
DOW
Until the market knocks off the pattern of lower lows, and lower highs, one has
to assume that the trend is pointing down. Furthermore, since the market can’t
seem to embrace the positives and is easily undermined by almost any negative
story, it may take a crescendo of selling just to culminate the weak pattern.
Finally given that strong US numbers don’t even help the stock market, maybe a
disappointing number Friday will bring about a bottoming incident. Our target
for a low in the June Dow comes in at 10,154.
S&P
we just don’t like the setup in the S&P, as the market is without consistency.
Right now, we are finding it difficult to come up with a chain of events that
would spark buyers to enter the market in force. Seeing US numbers come in
strong Tuesday, followed by the Fed claiming that rates are still on hold,
should have been very positive, but the market is simply not bullishly inclined.
Therefore, we have to wait for a decline to at least 1096 before getting long
the June S&P.
^next^
FOREIGN EXCHANGE
US DOLLAR
We are not sure why the Dollar is getting hammered
unless the world takes the Fed stance as a sign that interest rates are on hold
indefinitely. From the recent sweep of US economic numbers and from the weak
action in the US equity market, it would seem like a number of players are
convinced that the US will be raising rates soon, despite what the Fed says! In
the near term a number of key technical areas were violated in the Dollar and
that leaves the short term trend pointing down. Like the stock market, we are
not sure what will make the Dollar happy, as the US numbers have been stellar.
When one looks at the European numbers this morning and compares them to the US
readings yesterday, the big decline in the Dollar just doesn’t make sense. The
fact that a large portion of the world is on holiday, combined with the apparent
Fed willingness to let out the string on inflation, could be why the Dollar is
weak. We still think that the June Dollar has critical support around 89.47 and
are willing to be long from 89.70 or better.
EURO
As suggested in the Dollar section, it would not
seem like the markets are paying much attention to the numbers, as Euro zone
retail sales readings for March declined 0.2% and German jobless levels
increased by 23,000 in April. The German Labor Office actually suggested that
their economy remains too weak to help the jobs issue. In other words, the
market appears to be pushing money toward the Euro zone because its economic
outlook is poor and interest rates in that area might be expected to remain low,
longer than almost all other G7 entities. Since the market is obviously onto
some surprising theme, one can’t sell the Euro futures but we can suggest that
traders consider buying at the money put options on the overnight rally.
YEN
Because of the Dollar weakness, the Yen has forged
an upside breakout on the charts and might be headed to 92.49. However, the
downtrend pattern in the Yen is entrenched and steep and therefore we are simply
not prepared to suggest that the trend has shifted.
SWISS
The Swiss will actually violate a very important
down trend channel resistance line today with a rise above 78.84.
BRITISH POUND
The Pound would violate an extremely critical long
term down trend channel line, with a rise above 181.56 but that seems to be a
long way to go, given current information.
CANADIAN DOLLAR
Surprisingly the travails of the US Dollar haven’t
given the Canadian a boost and that really suggests that the trend is down in
the Canadian. We suspect that once the Dollar returns to more normal action, the
Canadian Dollar should end up making a new low for the move.
METALS
OVERNIGHT
London A.M. Gold Fix $394.30 +$4.55 LME
COPPER STOCKS 150,400 mt tons -800 tns COMEX Gold stocks 4.142 ml Unchanged
Comex Silver stocks 121.9 ml unchanged
GOLD
We see a number of fresh issues for gold, the most
important of which is certainly a persistently lower Dollar. Despite the fact
that US economic numbers were stellar on Tuesday, the market is discounting the
Dollar, because of the perception that US interest rates are on hold long term.
It is also possible that the market is also factoring some inflationary
potential as many economists are suggesting that the Fed is behind the curve in
heading off inflation.
SILVER
It is pretty clear that the silver market is not
following the bullish swing in gold. Overnight the silver market did managed
another 10-cent gain, but the market remains below recent consolidation
resistance at $6.175 and well below the critical pivot point of $6.32. As long
as gold is providing such clear-cut leadership, we suspect that silver will
manage to forge some gains.
PLATINUM
like gold, the platinum market continues to shake
off the fear that Chinese demand was set to contract. The fundamental setup in
platinum probably gives platinum the best chance of discounting the Chinese
demand threat, especially if the global economic recovery continues to expand.
The first retracement off the April high to low washout, comes in at $825.5 and
that level could easily be regained in the coming two sessions, when one
considers the magnitude of recent gains in gold.
COPPER
The copper market seems to have circumvented the
FOMC meeting without any permanent damage. The end of the Asian holiday period
might give the copper market a little more support in the overnight action
tonight and with the Dollar falling sharply during the recent Asian holiday,
that could make US copper really look attractive to foreign buyers. In fact
copper prices are generally at the cheapest currency adjusted level since early
February.
CRUDE COMPLEX
While the market is certainly well aware of a
series of small US refinery problems, we have to think that the market already
factored in a slight decline in US gasoline inventories for the report today.
While a small decline in inventories wouldn’t seem to be a big deal, with the
market beginning to move into the middle/end of the recharge period, another
minor decline could ignite the market for a significant speculative run. While
the gains since the last COT report probably put the unleaded market close to
the old record long position, we suspect that the market is not yet at a new
record long positioning.
NATURAL GAS
The natural gas market followed the crude higher and
was probably lifted by more talk of hot and dry weather. We continue to think
that crude prices venturing toward $40 is resulting in some industrial users
moving to natural gas from crude and we also suspect that the funds are getting
long at the same time that the small specs are taking their position to an even
larger record long. Just like the regular energy complex, the natural gas market
is convinced that the bull conditions are going to entrench, until there is a
reason to suspect otherwise.