Futures Point To A Higher Open
3/31/2005
INTEREST RATES
The Treasury market was impressive yesterday, as
it held early gains in the wake of what seemed to be a broad based improvement
in macro economic sentiment. However, in retrospect the massive decline in
energy prices failed to hold into the close and some of the macro economic
optimism interjected yesterday seems to have been premature. On the other hand,
the GDP reading (while dated) was still slightly weaker than expectations but
the positive impact off that unrevised GDP release was countervailed by the fact
that the GDP deflator increased and because of a rise in Corporate Profits.
STOCK INDICES
While stock prices have managed to maintain the
gains posted in the wake of the initial energy prices declines on Wednesday, it
would not seem like macro economic sentiment has improved as much as one would
have expected. While the recovery in crude oil prices isn’t the end of the world
for the stock market, the return of high oil prices could combine with the
series of corporate concerns (GM, AIG, Verizon and the airlines) to dampen near
term attempts to add to the recent gains. We also note a number of disconcerting
international economic readings overnight, with German unemployment levels
reaching a new post war record high and France unemployment readings also
rising.
DOW
While the Dow did manage to rise above a series of critical pivot points on the
charts, it still remains in a technical down trend pattern. In fact, the trend
off the March high is down and the 100 day moving average is seen all the way up
at 10,650. While the market saw an improvement in macro economic sentiment
yesterday, in the wake of the energy decline, we think the key lynchpin for the
market is whether or not the trade comes away from the Friday morning report,
with a positive view toward the future. In short, we can’t argue against
additional minor hard fought gains, but the bull camp has to prove it can avoid
a restart of the selling pattern in force at the beginning of the week. Traders
should watch critical pivot point support today around 10,510, as a failure at
that level could rekindle program sales.
S&P
While the June S&P comes into the opening holding almost all of the gains forged
yesterday afternoon, it should be noted that energy prices have regained most of
the losses that seemed to inspire the rally in the S&P on Wednesday. However,
the rally itself served to weaken the resolve of the bear camp and that is a
factor that should not be understated. Near term critical pivot point support in
the June S&P comes in today at 1183.50 but in order to turn the trend up in the
S&P, the market will have to regain the 100 day moving average at 1195.65 or at
least regain another important level of 1186.50. One might also note that the
March down trend channel resistance line would be broken with a rise above
1186.60 on a close basis today. The trend might be up but the bull camp is still
very vulnerable to failure.
FOREIGN EXCHANGE
US DOLLAR
The Dollar was lucky to avoid a decline below the
84.00 even level yesterday in the wake of disappointing GDP readings. We also
think that the Dollar was fortunate to see sharply lower energy prices
yesterday, as that also added to the idea that 84.00 is solid support. Coming
into the action this morning the Dollar is also lucky to have seen some patently
soft Euro zone employment readings. In other words, the US Dollar has managed to
skate through the last 36 hours with enough bullish events to offset the bearish
events. However, in order to make it through the coming 36 hours, the Dollar
will have to see at or better than expectation readings. In our opinion, we
think that the Dollar will eventually be able to hold above the 84.00 level but
that a temporary swoon below that critical level might be seen. In fact, traders
might look to enter fresh long Dollar plays on a slide down to 83.70, using a
stop down at 83.20.
EURO
The Euro seems to be poised to forge a minor rise
against the Dollar this morning, despite the fact that unemployment rose to
10.1% in France and to 12% in Germany. In other words, the Euro zone employment
situation is very undermining and without the uncertainty toward the US payrolls
on Friday, the Euro might have come under intense selling pressure this morning.
In short, the Euro might rally in the near term, but to breakout to the upside
and return to a bull trend, the US will have to pave the way with a headline
disappointment on Friday morning. However, the risk of being short isn’t
insignificant and therefore traders might want to consider buying some June Euro
127.50 put for a ride through the report.
YEN
The yen seems to be in a clear cut reversal
overnight and that reversal might be partly end of month book squaring and it
might also be a reaction to the slight improvement in the US macro economic
outlook yesteday. Near term corrective targeting on the upside is seen up at
94.69 basis the June contract. A normal retracement of the March break in the
Yen would give an initial upside target of 94.88.
SWISS
While the Swiss might be poised for a hook up on the
charts, we doubt that the fundamentals are in place to see this market forge a
sustained breakout above the 84.33 pivot point. However, in the coming 12 hours
we would not be surprised to see the market attempt a rise to 84.33 and on that
bounce we would attempt to purchase some June Swiss puts.
BRITISH POUND
With the UK seeing a decline in housing prices
overnight one might have expected the Pound to have been tripped up but the near
term path of least resistance is pointing up and the next targeting would seem
to be 188.42. In fact, we will assume the trend is up in the Pound, until prices
fall back below the 188.84 level in the June contract.
CANADIAN DOLLAR
A pattern of higher lows seems to down play the fact
that the Canadian was the odd man out against the Dollar yesterday. However,
with a rise above 83.00 we suspect that a wave of fresh buying might flow to the
Canadian and in the process lift the currency toward the 83.57 high.
METALS
OVERNIGHT
London Gold Fix $427.50 +1.00 LME COPPER
STOCKS 44,775 metric tons +75 tons COMEX Gold stocks 5.945 ml oz +15,600 oz
COMEX SILVER stocks 103.1 ml +1.69 ml oz
GOLD
While the gold market action on Wednesday was
disappointing in that the market failed to rise as much as silver, it would seem
like the fundamental tilt today has strengthened. For instance, the Dollar is
down again in the early going and the market is aware of a series of South
African gold mine strikes, which have resulted in 30,000 workers walking off the
job. Both Harmony and Gold Fields are seeing walk offs and that could mean that
gold is actually supported off physical supply and demand developments.
SILVER
The silver rally looks to continue and it’s no
secret now that silver enjoys the prospects of an improving macro economic
outlook. In fact, seeing the stock market recover aggressively yesterday, in the
wake of early energy declines, seemed to spur on all the industrial metals. We
suspect that silver is now benefiting from both fund and spec buying, with
players apparently seeing silver prices as relatively cheap, compared to other
bull markets like copper and platinum.
PLATINUM
A minimal upward track is seen, partly off the
potential for spillover support off the gold mine strikes and partly off the
idea that platinum supplies will remain tight as long as the global economy is
thought to be in forward motion. We also think that platinum will get a slight
lift from Press coverage this morning that highlights the expanding demand for
platinum based products. Critical near term resistance in July platinum comes in
at $865.8 and little support is seen until $858.
COPPER
The copper market came roaring back as the global
macro economic outlook improved in the wake of a sharp energy price decline
yesterday morning. While the sharply lower energy price action failed to stick,
the sharp gains in the US equity market seemed to improve attitudes toward
future copper demand. While the market is a little concerned about Chinese
actions to control fixed asset investment and the price of steel, the market is
generally upbeat on the prospect of strong ongoing Chinese demand for copper.
CRUDE COMPLEX
While energy prices initially fell below critical
consolidation support on the charts, the market once again managed to regain
composure and return to the prior days closing values in the late afternoon
trade. The surprising large EIA crude stocks build of 5.38 million barrels for
the week ended March 25th actually managed to increase the stocks surplus over
last year to 24.8 million barrels. In fact, over the last 4 weeks, EIA crude
stocks are up nearly 15.3 million barrels, while API crude stocks have increased
by an even more impressive amount of 19.2 million barrels.
NATURAL GAS
The natural gas market didn’t wait to rally late in
the afternoon like the crude oil market, but considering the late recovery in
crude oil prices it is not surprising that June natural gas rejected the mid day
break to $7.49 and made a late afternoon probe back up to $7.575. Against a much
firmer regular energy complex setup, revived demand expectations and apparently
consistent industrial buying interest, we have to think that the path of least
resistance is pointing up. The weekly inventory report is expected to post a
moderate draw, but considering that cold weather hung on into the end of March,
we wouldn’t be surprised to see a bullish reading in the report this morning.