Futures Point To A Higher Open
2/2/2005
INTEREST RATES
The Treasury market remains near the recent
highs, despite the fact that most US economic numbers have come in stronger than
expectations and the FOMC meeting decision looms later in the session. We are
surprised that the sharp rise in the ISM employment Index didn’t undermine
Treasury prices yesterday, especially when one considers the coming monthly
payroll report. On the other hand, the Treasury market really isn’t that
convinced that the economy is expanding rapidly and that major top timing is at
hand.
STOCK INDICES
It is really a shame that the stock market hasn’t
had its head on straight over the last two months, as the slide in energy
prices, the much better than expected earnings flow and the election in Iraq
would have really sparked a massive wave of broad based buying. While the market
is currently on a pretty impressive upward run, we still get the sense that most
buyers are jumping into the market with the idea of jumping right back out!
Overnight Google provided yet another bullish kick in the pants from its
earnings and is seeing its stock price rise sharply in European action. While we
suspect that some equity players are concerned about the coming FOMC meeting, it
would seem that the market will at least start the session out on a positive
tilt.
DOW
With a gap up move overnight, it is clear that buyers have been stirred into
action. In fact, we would now think that the March Dow has an objective of
10,624 and possibly 10,635. On the other hand, a wholesale liquidation wave
might be ignited in the event that the March Dow fails to hold above 10,542 in
the afternoon action. In order to entrench the current bull pattern, prices need
to finish higher today and do so on expanding NYSE trading volume.
S&P
After a big range up Tuesday, the market would seem to have extension capacity.
However, the longs should acknowledge the volatility potential in the afternoon
around the FOMC decision. From a big picture sense, the stock market deserves to
rally, it is just a little surprising that it took weeks of mostly favorable
information to wake up the bull camp. We suspect that the market is headed up to
the early January consolidation highs around 1197.20, but a price at that level
ahead of the FOMC decision would certainly be surprising. In fact, we would not
be surprised to see a temporary back and fill off the Fed action, but in general
corporate news seems to be capable of carrying prices even higher, while the
regularly scheduled economic numbers are really the only disappointing condition
in the current equation.
FOREIGN EXCHANGE
US DOLLAR
Unlike the US stock market (which has suddenly
decided to rally on supportive news) the Dollar has yet to definitively garner
favor in the marketplace. We suspect that the backslide in US GDP last week, is
still undermining the Dollar, as that development rekindles concerns about the
US getting out from under its soaring deficit situation. Furthermore, it would
not seem like the Dollar is benefiting from foreign central bank dialogue, which
overnight seemed to hint at some support for the Dollar. It is certainly
possible that the coming G7 meeting has temporarily tied the hands of the market
and it is also possible that the market is waiting for stronger US economic
information, or some sign that the US is going to work on its budget deficit.
With the US State of the Union Address ahead, it might be possible for the
budget deficit to get some attention, but we are not sure that the market is
ready to embrace more indirect references to fiscal responsibility. In fact, the
early word is that Bush will look to cut spending in all areas, except defense
and Homeland Security but defense and Homeland Security are big spenders. In
short, the Dollar is stuck in a range but will have to see a rate hike today and
a solid payroll reading on Friday, just to hold consolidation support down at
83.08.
EURO
Despite what would appear to be disappointing German
January employment readings (jobless rates jumped from 10.8% to 11.4%) and
extremely disappointing German December retail sales readings, the Euro is
higher this morning. In other words, the market is currently exhibiting action
off anything but the economic fundamentals. However, we seriously doubt that the
March Euro will be able to rise above consolidation resistance of 131.32, unless
the US Fed holds steady and the US payrolls on Friday are extremely weak. The
euro is simply caught in a range!
YEN
The trade is simply marking time ahead of the coming
G7 meeting and the fear of higher Asian exchange rates is present, but at the
same time few players think that anything concrete will be implemented in the
near term. Therefore, we can’t rule out a slide to 96.33 but we seriously doubt
that the Yen will manage a downside breakout ahead of the coming weekend.
SWISS
The pattern of lower highs remains in place, but the
ability to see the Euro rise toward the upper end of its consolidation zone has
indirectly supported the Swiss from more near term losses. We continue to think
that the trend is down in the Swiss but that a temporary rise to 84.78 can’t be
ruled out, before a resumption of the downtrend later this week.
BRITISH POUND
The Pound would seem to be poised for a light upward
track but the overall setup doesn’t appear to be that impressive, especially
with UK stocks apparently underperforming US stocks. We can’t rule out a rise to
188.70 and we can’t rule out an upside breakout but the risk and reward of being
long at higher levels is unattractive.
CANADIAN DOLLAR
With some players expecting a slight rise in the
Canadian unemployment rate later this week, we are not that interested in
catching the light upward tilt in the Canadian. In fact, once the Canadian
manages a rise to 81.65 we would consider getting short for a return to the
consolidation lows.
METALS
OVERNIGHT
London Gold Fix $421.15 +$.75 LME COPPER
STOCKS 48,025 metric tons +1,675 tons COMEX Gold stocks 5.980 ml -643 oz COMEX
SILVER stocks 102.3 ml Unchanged
GOLD
We suspect that the Fed action today will
temporarily dampen speculative interest in gold, as higher rates are thought to
be supportive to the US Dollar. However, the US Dollar has had a pattern of
failing to benefit from bullish information and therefore the negative impact on
gold might be short lived. In fact, aggressive traders might consider buying
April gold today on a slide down to $421.4 to $420, looking for the market to
respect consolidation support and possible waffle in a trading range bound by
$420 and $431.
SILVER
The silver market continues to coil but has
maintained a pattern of higher lows, as if an uptrend pattern is in place. It is
a little disappointing that the silver market failed to show an increase in
volume and open interest on the January rally, as that fails to show a rising
wave of buying interest. Unfortunately the silver market hasn’t been tracking
the expectation of expanding physical demand like the platinum market.
PLATINUM
The platinum market continues to respect a pattern
of higher lows and would seem to be capable of drifting through the FOMC meeting
without a significant backlash. However, the gold market noted Asian selling
ahead of the coming holiday and that might start to take the legs out from under
platinum prices. Critical near term support in April platinum comes in at $870,
with near term resistance seen up at $880.
COPPER
The market continues to show signs of lost momentum.
We suspect that the market is also pausing into the window of higher US interest
rates. Also pressuring prices is the fact that LME copper stocks leaped by a
rather surprising amount overnight.
CRUDE COMPLEX
The energy complex failed to hold the late Monday
rally, in the action Tuesday, as some traders are apparently afraid of the
upcoming weekly inventory report. The trade generally expects crude oil stocks
to have increased by 1 or 2 million barrels, but for heating oil stocks to have
declined again. We will be watching the direction of the gasoline stocks
closely, as a pattern of stock declines over the coming 4-5 weeks (last week
there was a surprisingly large decline in gasoline stocks) could set the stage
for a return to pricing above $50.00 a barrel in crude oil.
NATURAL GAS
The near term weather forecast continues to be
negative and with the regular energy complex unable to hold recent gains, we
have to give the near term edge to the bear camp. However, we suspect that April
natural gas has established a fair value zone just above the $6.00 level, but
even that support level will fail if the weather remains mild and the annual
working gas in storage surplus continues to rise. In fact, seeing the annual
surplus rise well into February could begin to chase some weather longs from
positions and in the process begin to lower the overly long small spec position.