Futures Point To A Higher Open
3/3/2005
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INTEREST RATES
bond market breathed a sigh of relief that
comments from Fed Chairman Greenspan basically proved to be a non-event and
could even be construed as a little supportive. As a result June bonds were able
to cut losses and kept a firm tone over night, but market sentiment remains
bearish and there still is a potential for prices to fall to the 111 level if
the employment report comes out strong. Greenspan did not warn against rising
inflation pressures (despite surging energy prices) or give any indication that
the Fed’s rate hike policy may become more aggressive.
STOCK INDICES
Stocks traded higher over night as energy prices
receded. Profit taking Wednesday erased earlier session gains which were
triggered by supportive comments from Fed Chairman Greenspan. However, the spike
higher in energy prices with crude oil topping $53/barrel brought back fears
that corporate profits will be pinched by higher energy costs and that rising
inflation will cause the Fed to raise rates more aggressively.
DOW
There are technical signs in the March Dow that suggest the market may be close
to a near-term top. The outside day down and failure at the contract high at
10,875 is bearish. Fund traders are still likely holding a record net long
position. Given this setup, the market will be much more vulnerable to profit
taking if the employment data is a disappointment. Mar Dow support comes in at
10,778 then 10,742 and 10,711. A close above 10,875 negates a bearish setup with
the next objective then at 11,000.
S&P
The market’s structure remains bullish if the March S&P can hold above the 1200
support level. We think the move in energy prices was excessive and if energy
prices can recede in the face of solid gains in jobs, then the March S&P still
has a chance of testing 1221.20 this week.
FOREIGN EXCHANGE
US DOLLAR
The March Dollar was able to over come some negative
comments from Greenspan on Wednesday to close over key resistance at 83.
However, the market traded a little weaker over night and will need to see a
bullish claims number to prevent price from sliding under Wednesday’s lows at
82.90. While short-term technical indicators suggest more of a recovery is
possible, the upside potential for the Dollar may hinge on Friday’s jobs report.
In his testimony to the House of Representatives Budget Committee, Greenspan
warned against a rising budget deficit which has been at the core of negative
sentiment towards the currency. Also, Greenspan said that the economy was
growing at a reasonable pace leading markets to believe the Fed had no plans to
become more aggressive in raising rates. However, he did say there was no
evidence of foreign banks dumping dollars which were fears that triggered the
gap lower price action last month. We would not be surprised to see a further
upside adjustment in the Dollar ahead of the Feb employment report on Friday
especially if weekly initial claims show a decline. The next area of resistance
for the March Dollar is the gap at 83.37, 83.49 then 83.87 while support should
be found at 82.90, 82.76 and 82.51. It is still too early to tell if rising US
bond yields and solid economic growth will be enough to turn the tide in the
Dollar’s favor.
EURO
While the Euro was able to cut losses on Greenspan’s
statements, the correction in the Dollar may not be over. We would think the Mar
Euro could fall back to 1.3000 if today’s claims show more than a 2,000 decline
and the Feb payroll Friday rises more than 220,000.
YEN
A recovering Japanese economy is being offset by
rising US rates and keeping the Yen in a well defined trading range. The Yen
traded lower over night pressured by the spike in oil prices and a report
showing foreign investors were net sellers of Japanese bonds last month. The
Dollar may have to move sharply higher to push the Yen back below critical
support. The March yen needs to break out of the 96.45 to 94.55 range to
determine near-term direction.
SWISS
More weak economic data and March Swiss breaking
below support at 85 turn the market picture more bearish. Swiss fourth quarter
GDP fell.1%. A steady to stronger US Dollar will likely push the Swiss back to
the retracement targets of the last leg up at 84.64 and 84.08.
BRITISH POUND
With BOE rate policy looking to be on hold some more
air needs to be taken out of the Pound. A strong US employment number this week
could push the March pound back blow support at 1.9000 and possibly to 1.8945.
CANADIAN DOLLAR
It is impressive that the Mar Canadian Dollar was
able to hold above critical support at 80 despite solid gains in the US Dollar,
a sell off in the Australian $ and the BOC revealing future rate hikes will be
at a slower pace. Mar Canadian is still caught in a 79.45 to 82 cent trading
range, but the longer the currency can stay above 80, the more likely the trade
will decide to try a push to the upside.
METALS
OVERNIGHT
London Gold Fix $433.25 +$1.50 LME COPPER
STOCKS 50,575 metric tons -200 tons COMEX Gold stocks 5.911 ml oz -2,829 COMEX
SILVER stocks 101.5 ml unch.
GOLD
With the gold trade dominated by fluctuations in the
US Dollar, we expect a quiet, jittery market until the release of the non-farm
payrolls report tomorrow morning. With trade expectations hovering around a
220,000 increase, a number significantly below that could trigger dollar selling
and therefore support gold. Gold traded lower yesterday on a stronger Dollar,
but the declines were held in check by comments from the Fed chairman regarding
the state of the federal budget.
SILVER
Silver broke early on the dollar strength yesterday
but managed to recover as the Dollar gave back its gains. Silver fell to its
lowest level since February 11th but managed to close 7.8 cents higher on the
day. While Friday’s Payrolls report may prove the driving factor for the next
two days, yesterday’s spike bottom and strong close suggests May silver could be
ready to resume an uptrend pattern, with the first objective being the recent
high at 7.61.
PLATINUM
Platinum is range-bound. It broke with the other
metals yesterday and managed a stronger close when the Dollar gave back its
gains. First support for April platinum is at $856 and the $851, with resistance
at $869 and $874.
COPPER
Like the precious metals, copper recovered off of a
sharply lower opening yesterday when the dollar gave back its gains on the
comments by the Federal Reserve Chairman regarding his concerns over the size of
the federal budget deficit. May copper’s ability to hold the 145.00 support
level encouraged some short covering and gave the market a lift. Copper could
get a lift from a disappointing payrolls report on Friday (below +220,000) as it
could spark selling in the Dollar and make Dollar-priced assets like copper more
attractive.
CRUDE COMPLEX
The energy complex exploded to the upside on
supply fears as declines in distillate stocks, a shockingly large draw in API
gasoline stocks and production problems at several Texas refineries trigger a
buying frenzy. New contract highs were made in April crude and heating oil.
Energy markets traded lower over night and while we think the supply concerns,
particularly for gasoline, are over done, the risk of trying to pick a top
outweighs the reward in a market with this type of volatility.
NATURAL GAS
April natural gas was dragged higher by the price
explosion in the rest of the energy complex, but the failure to close back over
6.75 reflects the market’s weak fundamental setup. Over night the market was
able to push back above resistance at 6.75 which puts the market in a position
to test 6.84. Natural gas stocks are over 400 bcf above year ago and with the
latest 11 to 15 day forecast calling for temperatures to rise to more normal
levels for this time of year in both the Northeast and Midwest, draw downs in
stocks over the next 2 weeks will not likely put much of a dent in excess
supplies.