Futures Point To A Higher Open
2/10/2005
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INTEREST RATES
One only needs to look at the price action
yesterday for a full understanding of the second auction leg. With Treasury
prices ramping up to more new contract highs, it is clear that the trade is
confident in an ongoing high level of cash market interest. Some in the Press
are making a big deal out of the fact that the yield on the 10 year declined
below 4% for the first time since early November, but with the indirect bidding
component stepping in for 45% of the supply and the bid to cover ratio coming in
at 2.53 it would seem to be likely that yields will fall even further.
STOCK INDICES
Not even the Dow managed to avoid profit taking
in the action Wednesday and with very early futures prices this morning showing
minor weakness, we suspect that the bear camp could end up maintain a slight
edge. However, if the US Trade Deficit report this morning shows a marked
narrowing of the US Trade deficit for December, the market might temporarily
reverse the mostly mild selling pattern that has been in place since the early
action on Wednesday morning. With decent earnings from key insurance companies,
the market has managed to reverse the initial pressure early in overnight
action, but the Dell earnings look to be the main reading of the day and that
could leave the market without clear cut direction for most of the session.
DOW
We suspect that the Dow will attempt to shut off the selling early, but that the
market might not have enough bullish information today, to prevent the market
from slipping a little lower. However, given that the Dow has performed better
than the rest of the market, we suspect that the March Dow might be able to hold
above near term support of 10,673 and could be poised to bottom Friday.
S&P
We suspect that a 2-3 day down pattern is in order, considering the fundamental
and technical setup in the S&P. However, because of the strength in the Dow, the
potential for decent US Trade Deficit reading and the potential for favorable
Dell earnings after the close, we suspect that the S&P will see only a muted 2
day correction, or a very shallow 3 day correction that comes to a quick halt on
Friday. Near term critical support in the March S&P comes in at 1191.80 but we
wouldn’t be surprised to see a quick and temporary spike down to 1190.50.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is in a liquidating tone but the tone
isn’t that aggressive. We think that the US Trade Deficit will narrow but will
probably fail to live up to trade expectations. Therefore, we are not sure that
the Dollar will find the reason to shut off the recent selling tilt. It should
be noted that the US Dollar seems to be doing a little better this morning in
cash markets below the upper tier of heavily traded currencies and that could
suggest that the Dollar is underpinned with support. In our opinion, the Dollar
needs a narrowing in the figures just to respect the prior day’s lows and will
need a narrowing in excess of 2 billion to send the Dollar into new high ground.
On the other hand, a contraction in Japanese machinery orders of nearly 9% would
seem to undermine the Yen and in turn support the Dollar. We suspect that the
March Dollar will see a low today of 84.70 but that might be a point where the
market finds support and attempts to rally in the action Friday. Because of the
entrenched skepticism toward the Dollar, it almost seems like US figures have to
come in consistently better than expected, to even sustain a modest upward rise
in the Dollar.
EURO
While the Euro has managed a series of higher highs,
the upside action appears to be more short covering than fresh buying. In fact,
with the ECB Bulletin overnight, suggesting that Euro growth in 2005, will fall
below 2% and the talk of a Euro zone housing bubble, we doubt that players are
going to come into the long side of the Euro in significant numbers. In the
short term, we doubt that the March Euro will manage a rise above 128.40.
YEN
The Japanese stock market was higher overnight but
that was a relief rally inspired by the fact that Japanese machinery orders
didn’t fall by more than the expected amount. In other words the Japanese
economy is struggling and that has in turn ripped out some of the fundamental
support for the Yen. In short, the Dollar might win by default and the Yen might
slip down to support of 94.00.
SWISS
The recent bounce in the Swiss has corrected the
oversold condition and therefore traders should consider re-entering the short
side of the Swiss after the Trade deficit reading from the US is known. We doubt
that the Swiss will take out the early highs today, unless the US Trade numbers
really disappoint economists.
BRITISH POUND
The Pound has managed to respect the 100 day moving
average and would seem to have solid support just under the current market. The
BOE left rates unchanged overnight but the trade didn’t expect a change in that
stance. Therefore, we see the Pound holding above 185.00 but also having trouble
getting above resistance at 186.10.
CANADIAN DOLLAR
Three days off the lows and a slightly better US
Trade Deficit report might set the Canadian up for some selling, but we really
doubt that the selling will be as aggressive, as the action last Friday and
Monday. In fact, the trend might be down in the Canadian but many in the trade
are simply afraid to sell the currency at current levels.
METALS
OVERNIGHT
London Gold Fix $413.50 +$0.30 LME COPPER
STOCKS 54,675 metric tons +300 tons COMEX Gold stocks 5.916 ml -31,809 oz COMEX
SILVER stocks 102.0 ml -315,571 oz
GOLD
The gold market was partially impressive in its
ability to bounce off the low posted on Wednesday. While it would appear that
some of the overtly bearish tilt toward gold and silver has been mitigated, the
market will be confronted with a critical US Trade Balance report today. The
trade is expecting the US to report a narrowing of the deficit this morning and
since the report is for December, and crude oil prices averaged out at $43.25 in
December as compared to $48.00 in November we suspect that some improvement in
the deficit will be seen.
SILVER
It would appear as if we missed the near term low in
silver, as the probe down on Tuesday and Wednesday might be not be re-visited in
the coming sessions. On the other hand, the Asian holiday continues to rob the
market of speculative buying interest and also physical demand. We also think
that a significant improvement in the US Trade Deficit reading today, could help
the Dollar, pressure gold and in turn apply some return pressure to silver.
PLATINUM
As evidence of the slightly improved tone in the
precious metals markets, one only has to look to the overnight platinum market
action. With the market recoiling sharply away from the significant washout low
on Wednesday, we suspect that the April platinum contract might be headed back
to $865. However, we still think that Asian buyers are on the sidelines and that
platinum will have trouble sustaining prices above $869.
COPPER
The copper market appears to have come out of the
recent consolidation to the upside. In other words, the continued rise in LME
stocks and the holiday slackened Asian action hasn’t discouraging buyers from
moving into copper. We continue to think that copper is preparing to forge a
significant top, but we also respect the residual tightness enough to think that
prices are still certainly capable of returning to levels above 141 basis the
May.
CRUDE COMPLEX
The inventory reports were mostly supportive, as
both crude oil and distillate stocks dropped. The distillate stocks made a
bigger bull splash than crude oil, with declines of 4.2 million barrels and 2.99
million barrels and with the refinery operating rate also declining, we suspect
that we could see additional declines in stocks in the coming weeks. However, we
really don’t get the sense that prices are set to rise sharply or for an
extended period of time.
NATURAL GAS
Certainly the natural gas market deserved to come
alive a little considering the cold weather forecast for next week and the
tightening inventory readings from the API and DOE. However, we are not sure
that the market can muster an extended rally, unless the cold next week is
chained together with yet another cold front. On the other hand, we can’t rule
out a temporary rally to $6.48 basis the April contract but we must also warn
that the market might be set up to forge a spike high in the coming 3-4
sessions.