Futures Point To A Higher Open
1/25/2005
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INTEREST RATES
The Treasury market comes into the action this
morning holding right on contract highs and considering the recent flow of US
economic information and the relatively muted inflation tilt, the market seems
mostly justified in its price action. We even suspect that recent talk about an
inflation debate inside the Fed is shaking out as a positive to Treasuries. The
Press continues to periodically float stories about the Yield curve and that
seems to give the bonds additional but slight buying interest, even with prices
at contract highs.
STOCK INDICES
The stock market was fortunate to have the early
strength on Monday or the late afternoon selling wave might have pushed the
market into a much more aggressive slide. While prices are showing a slight
bounce this morning off favorable corporate earnings news, it would not seem
like the corporate news flow is capable of totally shifting sentiment
consistently back into the bull camp, even if the initial reaction this morning
is mostly positive. Schering-Plough posted a loss in the early earnings flow,
while Xerox managed to see earnings come in slightly above expectations and
therefore some of the earnings news is mixed and generally leaves the market
without a clear cut signal.
DOW
The March Dow appears to have found some support on the charts around the 10,400
level. While we don’t get the sense that the market is making a major low, we
can’t rule out a bounce similar to Monday before the sellers step back into the
market. We continue to look for a key low in the Dow but currently don’t see the
information or catalyst for a key low!
S&P
The pattern in the S&P remains bearish, as lower lows and lower highs is hardly
the type of pattern, that looks to pull in a concentrated wave of buying
interest. We also suspect that lower consumer confidence will take away the
initial bullishness from the corporate earnings news and that the S&P will
manage a new low before the end of the week.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to suffer under the “survey”
that suggested many European central banks will continue to reduce Dollar
holdings. Against the disappointing back drop of slack US economic numbers, we
can understand the Dollar weakening as the macro economic differential is one of
the few reasons that traders have looked more favorably toward the Dollar since
the late December low. While we see decent support in the Dollar at 83.08 we
have to think that the consumer confidence readings from the US and the
potential Iraqi election debacle, will keep light pressure on the Dollar for the
rest of the week. However, in the event that the election is carried out and a
clear winner is determined, that could serve to take some pressure off the
Dollar! Therefore, aggressive traders might consider buying the Dollar today on
weakness or looking to buy the March Dollar Index 84 calls for 59.
EURO
We are a little surprised that the Euro managed to
shake off the talk yesterday about sagging employment conditions. However, we
are also of the mind that the recent rally in the Euro was simply a short term
technical bounce and that the overall down trend in the Euro remains intact. On
the other hand, a delay in the election in Iraq or all out havoc into the
election could temporarily lift the Euro back toward 131.28. We would look to
buy a March Euro 128.50 put for 69 on a rally today.
YEN
With the Japanese expecting to see auto production
rise and strong Chinese growth figures released overnight, one might have
expected the Yen to rise. However, some think that the slightly lower Chinese
inflation readings make it less likely that China will move to float their
currency and that appears to bring selling into the Yen. On the other hand, we
doubt that the Yen will manage to slide below the recent spike low of 96.56.
SWISS
Despite the potential build up in anxiety to the
Iraqi election and patently disappointing US economic numbers, the Swiss hasn’t
managed to shake off the technical down trend pattern on the charts. In other
words, bullish fundamentals haven’t resulted in a Swiss rally and that suggests
to us that the trend remains down.
BRITISH POUND
The Pound continues to show a preference for the
upper end of the recent trading range. With London stocks higher and recent
economic dialogue more upbeat, we assume that a light upward track in the Pound
will continue but that the market will see somewhat thick resistance at 187.90.
CANADIAN DOLLAR
After the recent spike up, the Canadian has seen
buying interest dry up and that could clear the way for a short term slide back
down to 80.85. The inability to get above 82.35 this week could be extremely
damaging to the near term trend in the Canadian Dollar.
METALS
OVERNIGHT
London Gold Fix $426.20 -$1.40 LME COPPER
STOCKS 44,125 metric tons +600 tons COMEX Gold stocks 5.928 ml -8,039 oz COMEX
SILVER stocks 102.3 ml -15,161 oz
GOLD
The gold market comes into the action this morning
down from the recent highs and showing a slightly negative tilt. Near term
downside support on the charts comes in at $427 and near term resistance appears
solid at $430.5. As opposed to the recent pattern of news highlighting increased
physical gold production, Sino Gold overnight posted a 7.7% decline in
production over its most recent quarter but that was countervailed by a rather
significant increase in production from an Australian gold producer.
SILVER
While the technical action in silver is a little
discouraging, the trade seems to maintain a generally bullish tilt. However, one
can’t rule out a back and fill move to $6.743. The silver market could easily
fall back to even lower support of $6.62 but we get the sense that the market
will attempt to hover around the critical pivot point of $6.75.
PLATINUM
With the mostly favorable Chinese growth news
overnight (growth picked up from the first 3 quarters of 2004 to post a gain of
9.5%, while CPI posted the 4th straight month of declines) we suspect that
silver, platinum and copper will all be given some support. The path of least
resistance is pointing up but the charts look suspect and platinum prices are
relatively expensive compared to historical measures. Those holding longs or
getting long at current levels should be aware of the potential for extensive
volatility.
COPPER
As mentioned in the precious metals comment this
morning, Chinese growth for the 4th quarter came in better than the prior 3
quarterly readings and at the same time inflation continued to soften its
expansion and that is an overall positive for copper prices. However, Chinese
copper prices were weaker overnight and it would seem like copper fell back
rather quickly from the recent high. In other words, the fundamental track would
seem to support prices but the market is acting like it is a little overbought
or heavy.
CRUDE COMPLEX
The energy complex came out of the box strong
Monday morning, faded into the early afternoon but then settled prices in the
afternoon action close to the days highs. Overnight, the OPEC Secretary General
suggested that the current output ceiling should be maintained at 27 million
barrels and that seemed to undermine prices slightly. Therefore, we continue to
think that energy prices are a little overextended from a short term basis, but
we also think that for the coming two weeks, the path of least resistance is
pointing upward.
NATURAL GAS
The natural gas market seems have altered its
generally bearish tilt that was in place since the October high. While we
continue to think that gains in the regular energy complex are providing the
impetus for gains in natural gas, we also think that the path of least
resistance in the regular energy complex remains up. With the DOE releasing a
study that suggests regulations have served to hinder US natural gas production,
one might see the beginning of a longer term negative supply theme.