Futures Point To A Higher Open
3/18/2005
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INTEREST RATES
The fundamental attitude toward Treasury prices
continues to strengthen in the wake of rising oil prices. In fact, we suspect
that the Treasury market could even have discounted slightly better than
expected US economic readings this week, but in retrospect one might conclude
that the US economic numbers this week were actually disappointing and therefore
somewhat supportive even, without a downward adjustment in future expectations
off the high oil price situation. However, countervailing the upside impetus in
Treasury prices is a growing concern of inflation or a growing concern that the
Fed will remain in a rate hike posture in the coming months.
STOCK INDICES
While it would seem like a number of moderate
negatives continue to face investors, it is impressive that equity prices have
managed to mitigate losses this week. In addition to the sharp rise in energy
prices, the regularly scheduled US economic reports this week haven t exactly
shown much in the way of progressive growth. In fact, while the Wall Street
Journal front page story on Leading Indicators, trumpets the extending pattern
of monthly expansion from leading indicators, the actual rise of +.1% is a
rather slim growth rate, especially in the face of nearby oil prices recently
flirting with the $58.00 level.
DOW
While the Dow has been the leader on the downside pulse of the last two weeks,
we suspect that it will now attempt to bounce and that the oversold condition
might actually be a benefit today. However, the Dow really needs to see oil
prices soften, in order to spark a bounce back above 10,686 in the June
contract. A normal retracement of the March slide could give a corrective target
of 10,787 but again, in order to see that type of bounce, the market will have
to see an improvement in macro economic sentiment and that probably has to come
from the oil market. In fact, in order to signal even temporary weakness in oil
prices, the May crude oil might have to remain below $56.90 into that markets
close today.
S&P
The market is oversold and there is the chance that the early scheduled numbers
this morning will provide a slightly positive impetus. Traders should note a
change in the S&P calculation, which is supposed to take into consideration the
amount of shares available for trade in a particular stock and while that change
was put in motion months ago, some players expect a temporary increase in
volatility off the change. However, we suspect that triple witching expiration
volatility will already be in the process of declining, into the opening this
morning and therefore the market could be set for the most “normal” session of
the week! In short, overall calmer market action could favor the bull camp, as
that means short covering could dominate. However, in order to truncate the
mostly bearish dialogue of the week, the stock market needs good US numbers and
lower oil prices.
FOREIGN EXCHANGE
US DOLLAR
Like the US Stock market, the US Dollar took a
number of bearish body blows this week but in the end neither market buckled.
While we doubt that the US economic numbers are going to ramp up optimism toward
the US economy, we do think that they could serve to countervail some of the
overly bearishness attitude toward the US economy. On the other hand, it would
also seem like part of the Dollar s ability to deflect the selling this week,
seems to have come from the fact that the Euro zone economy was put into
question this week. In the end, the US Dollar took a licking and might continue
to tick, especially if the June Dollar manages to rise above near term
consolidation resistance of 82.24. Maybe the Dollar is seeing some support from
the idea that the US is apparently beginning to negotiate budget changes, but it
is also possible that the trade is looking through the smoke and haze to the
near 4 year lows in initial US claims as a sign that the US economy is hanging
on, despite energy prices. The path of least resistance is up, even if the
fundamentals fail to present an impressive case for significant gains in the
Dollar.
EURO
We at least expect a slide down to consolidation
support of 133.20 but might see even bigger declines if the idea of US inflation
heats up, US numbers are strong, or in the event that energy prices slide
aggressively. Underpinning the Euro is the fact that the US Philly Fed survey
yesterday was the weakest reading in 20 months and the fact that the US leading
indicators were up only a minimal amount. Unfortunately, the June Euro might not
find solid support on the charts until the 132.50 level is encountered and that
is partly because the Euro zone lacks a strong economy and partly because the
Euro has forged such a significant February and March run up. For a correction
equal to the late February early March slide, the June Euro would only have to
fall to 132.98.
YEN
We are not sure if the talk about the Chinese
currency is adding to the downside in the Yen this morning but we are a little
surprised that slightly lower energy prices and some early gains in equity
prices haven t given the Yen a little better look in the early going. However,
news of a study suggesting that the floating of the Chinese currency, might not
be as risky as was initially forecast, could temporarily pressure the Yen but we
doubt that the Chinese are going to be goaded into a quick change on the
floatation issue. Near term chart support and a target for today in the June Yen
is 95.73.
SWISS
As the flight to quality mentality mitigates and the
Dollar rises, we suspect that the Swiss will see some increased stop loss
selling activity. However, it might be a mistake to think that the oil market
will remain a back burner issue for long. However, in the near term, the June
Swiss might be poised for a slide to 86.08.
BRITISH POUND
A clear reversal and the inability to get above an
extending consolidation pattern, gives the bear camp a near term edge. It is a
little surprising that the pound is weaker this morning considering that the UK
trade deficit shrank in the month of January. The Pound could effectively fall
down to the up trend channel line at 190.33 today without even damaging the
overall up trend pattern.
CANADIAN DOLLAR
With the BOC expressing concern for its export
markets because of the strength in the Canadian, some of the recent bullish tilt
is extracted. However, the BOC suggested that the relatively strong Canadian
price of the last month, is fundamentally justified and that should make near
term support around 82.74 relatively solid.
METALS
OVERNIGHT
London Gold Fix $436.65 -$6.00 LME COPPER
STOCKS 48,750 metric tons -350 tons COMEX Gold stocks 5.915 ml oz Unchanged
COMEX SILVER stocks 101.8 ml +199,415 oz
GOLD
With the overnight trade maintaining the negative
tilt seen in the US action the prior day and the US Dollar higher it would seem
like the gold market will generally remain under pressure today. In fact it
would almost seem like the Dollar managed to ignore a large portion of the
bearish fundamentals thrown its way this week and that is disconcerting for the
bull camp in gold. Furthermore, with the June gold failing to hold above a
series of chart support levels and the small spec and fund long recently found
to be long 143,000 contracts, there is certainly the potential for additional
stop loss selling.
SILVER
Given that silver is displaying slightly more
downside vulnerability than gold, and therefore silver is potentially going to
be a little more sensitive to macro economic slowing than the gold market, we
would not be surprised to see May silver fall to $7.25 today and even lower in
the event that concern for global growth escalates even further. Fortunately for
silver, it really hasn t seen that much physical demand buying in the month of
March and that could mitigate the near term selling pressure. Trend line support
in the May silver off the February low, would suggest that May could slide to
$7.14 without really damaging the overall up trend designation.
PLATINUM
The sharp spike up action early in the week is
looking a little more like a blow off top, especially since the bullish resolve
for both precious and base metals is tempering. In other words, platinum
currently doesn t appear to be poised for more general broad based spill over
buying by the funds. Near term chart support in the July platinum comes in at
$873 today but considering the aggressive pace of gain in March, there might not
be much in the way of solid support on the charts until the $865 level.
COPPER
The copper market comes into the action this morning
in a profit taking posture, possibly because of the recent concern for the
global economic outlook. However, we would have expected copper prices overnight
to have garnered some strength from news that Shanghai copper stocks declined by
3,265 tons on the week. However, Chinese traders were apparently unimpressed
with the decline in exchange stocks, as prices finished lower and were under
increased pressure into the close.
CRUDE COMPLEX
While the technical action Thursday morning
certainly looked like a blow off top formation, it would seem that most of the
fundamental information continues to favor the bull camp. For instance, shortly
after the crude oil market ran up to new contract highs yesterday, the market
still seemed to run out of steam, despite the fact that a private tanker
movement group suggested that OPEC flow might have declined in the most recent
reporting period. The market also failed to respond positively to news that the
3rd and 4th quarter Call on OPEC was set to rise by roughly 110,000 barrels and
140,000 barrels per day respectively.
NATURAL GAS
If the regular energy complex is short term
overbought and poised for consolidative or corrective action that could really
undermine natural gas. However, we see the weekly natural gas storage readings
as supportive, as the weekly draw was at the top end of expectations at 95 bcf
and the annual surplus tally contracted. However, we suspect that the natural
gas market is a little more vulnerable to stop loss selling than the crude oil
market, especially after the market gets a look at the coming COT report.