Futures Point To A Higher Open
3/11/2005
INTEREST RATES
We suspect that the Treasury market reached a
moderately overdone technical condition yesterday around the lows and since
the fundamental information yesterday favored a corrective bounce, the market
was justified in a sharp bounce. However, we doubt that prices will be able to
extend or even sustain the gains made off the low, as the US Trade Deficit
readings loom ahead. While it is possible that the low Dollar is providing
some windfalls for some US companies, we have to think that ongoing high
energy prices will countervail any export windfall in the Trade report.
STOCK INDICES
The stock market was saved from further
additional downside by the short term oversold conditions present yesterday
afternoon and because of the relief provided by a couple days of weakness in
energy prices. In addition to the favorable spin garnered in the action
yesterday, the market also got an additional lift from much better than
expected Intel news. In fact, if the stock market weren’t being confronted
with constant growth threats, off the energy situation and undermined by the
international diversification threat, (of the falling Dollar) the Intel news
would have been enough to spark a sharp rally! However, in order to extend the
bounce off the recent lows, the stock market will have to pull a rabbit out of
its hat in the wake of the US Trade Balance Report this morning.
DOW
All things held equal, the Dow might be poised for some more gains today.
However, in order to present a bullish track, the Dow needs to maintain prices
above the key pivot point at 10,870 through the early numbers this morning.
Trend line support in the March Dow comes in at 10,820 and there is little
resistance in the market until the 10,945 level.
S&P
In order to present a bullish tilt, the June S&P will have to manage a rise
above 1217.50 in the post report action. On the other hand, a decline back
below 1211.30 could be a sign that the market is poised for a decline back
down to the up trend channel support line of 1203.60.
FOREIGN EXCHANGE
US DOLLAR
The Dollar sits precariously above the recent lows
and with the US Trade balance numbers looming ahead, we suspect that the
sellers are poised to pounce. About the most bullish spin we can come up with
for the Dollar today is the fact that so many players expect the Trade Deficit
to remain at or forge a new record. From a fundamental perspective, it is
clear that there is justification for even more Dollar declines, as money
continues to bail out from the US investments. However, as opposed to the
beginning of the week, the Dollar is seeing a slightly more supportive energy
market impact and with US stocks trying to be higher off the Intel news, there
isn’t the conclusively bearish track toward the Dollar, that was see at the
beginning of the week. However, you might be right in buying the Dollar into
the Trade deficit reading this morning but that would seem to be an against
the odds play. In short, the trend is down and we would stick with that
assumption. Traders that get short the Dollar probably have to risk the June
contract to at least 82.19 just to give the play a fair look! Contrarians
could buy April Dollar 82 calls for 53 ticks ahead of the report.
EURO
While we suspect that the Euro is overbought, we
suspect the Euro will take almost all of its direction from the US Trade
balance report. We think the trend is up but those that are long the Euro
might consider buying some April at the money puts as they are relatively
cheap and have more than enough days until expiration (28) to come into the
money! Overnight News that the OECD leading indicators rose and that the
Italian economy grew, might give the Euro some additional support, but the
direction of the day will be determined by US figures.
YEN
While the Japanese certainly undermined the Dollar
earlier this week with comments about diversification away from the US, that
development really didn’t shake out as a specific impact on the Yen. We
continue to think that the Yen is being held back by heavy overhead chart
resistance around the 97.00 level and by the idea that the BOJ usually reacts
with intervention quicker than the ECB. However, we suspect that the trend in
the Yen remains up!
SWISS
Over the past 24 hours the rotation and flight to
quality issues haven’t been that dominate but the Trade figures this morning
could easily rekindle those concerns. Because of the recent rise in the Swiss
(+250 points in March) we would rather implement fresh long plays in a long
April Swiss 88 call at 69 ticks.
BRITISH POUND
Overnight the Pound showed some negative chart
action, which is a little surprising considering the economy developments
outside of the UK. In short, the market is acting like it is poised for a
correction, but we suspect that the correction will be limited to 190.34 and
probably won’t even take place.
CANADIAN DOLLAR
Just like the Pound, the Canadian is extensively
overbought and apparently not happy with the Canadian employment gain of
26,600. It seems that the market was disappointed by the manufacturing
performance in the Canadian employment report and that could allow for a minor
correction. Those that are long the Canadian should stay that way, but you
might consider buying some at the money April puts to insure against increased
volatility.
METALS
OVERNIGHT
London Gold Fix $440.95 +$0.75 LME
COPPER STOCKS 50,575 metric tons -1,150 tons COMEX Gold stocks 5.915 ml oz
Unchanged COMEX SILVER stocks 101.4 ml unchanged.
GOLD
We suspect that today could be a big day for the
bulls, as the US Trade Balance report usually undermines the Dollar, which in
turn supports gold. If the Trade balance comes in around expectations there
really isn’t expected to be any fireworks, but in the event that the US trade
deficit simply manages to post another record deficit, we suspect that the
rotation away from US financial assets will continue and both flight to
quality and inflationary elements will remain a positive driving force for
gold prices. We also continue to see bullish gold forecasts from a number of
Bank analysts but most of those forecasts are assuming a progressively lower
US Dollar as the primary force behind gold strength.
SILVER
While the May silver is showing a technical
breakdown overnight, it would appear that the slide is part of a general
profit taking that more than likely is simply a temporary balancing off the 58
cent March rally. Unfortunately the May silver has little in the way of
support on the charts until $725. However, it is possible that silver manages
to respect closer in pivot point support around $738, especially if the US
Trade Deficit reading this morning manages to lift gold prices.
PLATINUM
As we suspected, the platinum market had very
little resolve to hold up at this week’s highs. In fact, we continue to point
to an extreme differential between platinum and palladium and the longer that
relationship remains at an extreme, the more likely we are to see platinum
users switch to palladium. It should be noted that Norilsk (a large platinum
producer) is going to publish it production levels in conjunction with its
annual report and that could give an indication on the status of Russia
platinum production trends.
COPPER
As we feared the copper market stumbled in the
wake of Chinese copper demand concerns. In addition to evidence that Chinese
steel prices have recently softened, the market was also confronted yesterday
with a Wall Street Journal front page story about the potential for a minor
iron ore glut! In the weekly Shanghai copper stocks report this morning, there
was a minimal decline of 864 tons and that is probably a non event but some
analysts might suggest that the market needs a steady diet of directly
supportive information with nearby copper prices attempting to trade
significantly above 150! However, countervailing the negative tilt this
morning are suggestions from a large Chinese copper company, that copper
prices will remain high, as global smelting capacity continues to run at very
high levels. Unfortunately we were unable to purchase a July 140 put before
the current setback and now the May Copper looks to be headed to a temporary
sub-145 trade.
CRUDE COMPLEX
Maybe the air got a little too thin for the
funds above $55 per barrel as the energy sector may be in the process of
seeing its first extended break since late January. It appears the market may
be having a delayed reaction to the API/EIA crude stock data, which showed
sharp gains and lifted EIA crude stocks to 24.3 million barrels above year ago
levels and 15 million barrels above the 5 year average. The speculative fervor
has been at a feverish pitch in the energy complex and it may be that the
market is temporarily bought out.
NATURAL GAS
While May natural gas prices were able to hold
support in the consolidation zone at $6.80, the market could encounter further
weakness if the rest of the energy complex sees more profit taking. Without
the strength in crude oil and unleaded gas prices, the fundamentals don’t
appear to be bullish enough for natural gas to rally on its own. The storage
data was generally in line with expectations showing a draw of 139 bcf and
reducing the year ago surplus to 327 bcf, down from a surplus of 415 bcf the
previous week.