Futures Point To A Higher Open
4/1/2005
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INTEREST RATES
While the expectations on the Monthly non farm
payroll report have hung up around the +210,000 to +225,000 level, the price
action in Treasuries would seem to suggest that the number today will not be
that strong. We suspect that the muted inflation reading yesterday inspired most
of the buying. In fact, in looking at all the data yesterday, one could easily
have argued for a slide in Treasury prices off the information.
STOCK INDICES
Apparently the threat of super spikes in oil
prices, sharp declines in US auto sales and political tension on Wall Street
isn’t undermining equity prices. In fact, with the early overnight gains the
stock market appears to be in the process of extending the gains forged for most
of this week. In other words, the market is digesting and discounting a series
of potentially damaging developments and is apparently looking to the numbers
this morning, as if they will be supportive.
DOW
The Dow comes into the session this morning 136 points off the recent low and
apparently is in favor. However, this market is “rising against a wall or worry”
and would also seem to have moderately significant overhead resistance on the
charts. If you are bearish, you have to be wondering what is causing the Blue
Chips to appreciate in the face of rising interest rates, rising energy prices
and generally slack economic readings. Certainly the Dow was lifted yesterday by
the realization that a closely watched Fed inflationary reading was muted, but
expecting prices to rally consistently, off “no inflation” is a slippery slope.
Unless the payrolls rise by more than +220,000 we doubt that the bulls will
maintain control into the close today. Near term pivot point resistance comes in
at 10,558 and again at 10,573. Critical near term support comes in at 10,520.
S&P
The S&P comes into the open this morning almost 21 points above the recent lows
and like the Dow, the S&P seems to be discounting the usual bear arguments.
Maybe the sharp reversal rally at the beginning of the week cleared the
technical deck and altered sentiment, but in order to stay in that posture into
the close today, the payrolls need to show a gain in excess of +220,000 and oil
prices have to keep gains to a mild roar. While the path of least resistance
might be pointing up, we think that the risk and reward of being long from
current levels is unattractive. In fact, those that are long should carry along
some put premium or utilize tight stops on the June at 1183.00.
FOREIGN EXCHANGE
US DOLLAR
The Dollar comes into the report this morning, right
on critical pivot point support of 84.00 and unlike the US equity market we
doubt that the Dollar will simply shake off a weak number. However, the Dollar
does have the benefit of seeing a series of weak international readings from
both the Euro zone and Japan overnight. On the other hand, with a certain
inflation reading from the US benign yesterday and the trade concerned about
soft March US auto sales figures, we have to think that the Dollar is vulnerable
unless the report clearly sends a loud and bullish message on the US employment
situation. In fact, we suspect that the June Dollar will see prices below the
prior day’s lows and that the Dollar could fall all the way down to 83.50 in the
event that the non farm payrolls are below +200,000. Furthermore, a recovery in
oil prices would seem to leave the US in an even more precarious position.
Without a true inflation tilt and a strong economy, the market will attempt to
attack the Dollar.
EURO
Slackening Euro zone confidence readings overnight
undermine the Euro slightly but certainly won’t prevent the Euro from forging
strong gains off any undershoot on the US payroll report. Surprisingly the Euro
can continue to gain against the Dollar despite the fact that a number of Euro
zone countries posted extremely dismal employment readings early in the week. In
other words, the Euro is pressured in the face of inflation evidence in the US
and isn’t pressured off evidence of a macro economic edge in the US. As we
suggested yesterday, those that want to be short the Euro should limit those
plays to long put positions as the Euro could easily rise to 130.70 in the
action today off the right combination of numbers.
YEN
The Yen continues to be held back by the slack
economic readings and the constant fear of ultra high oil prices. Overnight the
widely watched Japanese business survey showed a worsening of sentiment at Big
companies and that also combines with the old fear that the Japanese economy is
really hindered by high oil prices. In short, the Yen is poised to breakout to
the downside but will only breakout down in the event that the Dollar can some
how muster a rally. Left to it’s own devices, the path of least resistance is
down but because the Dollar is being held to such a high standard, the Yen is
given a measure of support around the 93.52 level.
SWISS
The Swiss doesn’t seem to be poised to pick up a
flight to quality impetus but could be set to gain a windfall off Dollar
weakness. Like the Euro, the Swiss isn’t going to rally off its own
fundamentals, it is going to rally in the wake of a soft US payroll or it is
going to fall quickly back to chart support at 83.50 in the event that the US
payrolls come out above +220,000. We still think the big picture trend is down
but we aren’t sure that the recent short covering effort has fully exhausted
itself yet.
BRITISH POUND
The Pound might be a bit overbought from a technical
perspective but a minor under shoot on the US numbers should allow the Pound to
regain positive momentum at least early in the session, but we doubt that the
Pound will be able to drive against the Dollar all day unless the payrolls are
patently weak. Critical support is seen this morning at 187.76 and a breakout up
might be signaled with a rise back above 188.26.
CANADIAN DOLLAR
Overall the Canadian chart seems to be pointing to a
down trend pattern but a rise above 82.80 could signal a breakout up and that
isn’t a very big move! However, pushed into the market we would prefer a quick
short play off a minor rally as the Canadian might need more sideways basing
above 82.00 before attempting an upward thrust.
METALS
OVERNIGHT
London Gold Fix $427.45 -.05 LME COPPER
STOCKS 45,275 metric tons +500 tons COMEX Gold stocks 5.960 ml oz +15,602 oz
COMEX SILVER stocks 103.6 ml +477,822 oz
GOLD
While the gold market has engineered a pattern of
higher lows this week, the rate of gain hasn’t been that impressive. The Dollar
appeared to be ready to track lower yesterday after failing to hold above 84.00
but in the end the Dollar managed to claw back above critical support on the
charts and that leaves some buyers discouraged. In short, the gold market isn’t
getting a definitive signal from the Dollar and might have to turn to other
themes if it if going to come out of a $425 to $435 range.
SILVER
If there is a real chance of $105 oil, $1.55 copper
and $900 platinum then silver might be considered cheap at $7.15. However, in
order for silver to continue rising back toward the late February and March
consolidation pattern up at $7.25 to $7.68, we think that the US payrolls have
to shown signs of growth. Silver should continue to be the leadership market in
the precious metals sector but unfortunately the May silver has little in the
way of solid close-in support on the charts.
PLATINUM
The market remains mostly range bound as the US
economy is throwing off some mixed signals and the Asian economy has seen some
negative surveys released overnight. A major platinum producer has announced its
intentions to expand capital spending and has allocated money to expand
production but that is only a longer term negative influence on prices. In the
near term, the bias is up but the market doesn’t appear to have much in the way
of momentum.
COPPER
After a big upward pulse yesterday the copper market
was a little overdone and when one considers the recovery in energy prices
yesterday and the negative overnight economic news (a soft Japanese business
survey and Confidence declined in the Euro zone) the market might continue to
bank some profits and drift lower. However, overnight Shanghai copper stocks
declined by 5,136 tons to stand at only 16,327 tons and that is certainly a
major underpin for prices. In other words, Chinese internal supply is growing
thin and that could serve to pull more supplies from the international supply
pool.
CRUDE COMPLEX
The energy complex exploded back to levels just
under the old consolidation highs and did so off wild upside projections for
crude oil and because of the assumption that global demand was simply going to
outstrip supply. Apparently a large Brokerage concern was rumored to have
predicted a grand super-cycle in energy prices, with the potential for crude oil
spikes at high as $105 a barrel and given the source of the prediction it wasn’t
surprising to see the market react so violently. While the aftermarket saw
evidence of slightly higher OPEC export flow, we hardly think the market is
going to be pressured as a result of a minor 36,000 barrels per day increase in
OPEC exports.
NATURAL GAS
The natural gas market exploded to another round of
news highs for the move yesterday and even managed to hold those gains in the
after market. The weekly storage report showed a minimal draw of only 51 bcf and
therefore it is clear that the internal fundamentals are not the source of
buying interest in the market. While some might point to a narrowing of the
annual surplus tally, the small draw really limits the support derived from the
inventory data.