Futures Point To A Higher Open
4/19/2005
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INTEREST RATES
The Treasury market should continue to favor the
upside but one should not be surprised to see a slight setback off a hot PPI
report. However, we don’t get the sense that the PPI is a development that will
serve to halt the uptrend in Treasury prices. In fact, the Fed seemed to
acknowledge the ongoing inflation pressure yesterday in a speech and actually
reiterated that the Fed can continue to raise rates in a measured fashion to
battle the rise in prices.
STOCK INDICES
The stock market seems to have gathered some
optimism off the fact that prices have stopped going down sharply. Despite what
would seem to be slightly disappointing earnings readings from Coke and Merrill
Lynch this morning, the market seems to be in a positive tilt in the early going
today. However, in looking ahead to the early scheduled US numbers today, it is
possible that the macro economic outlook deteriorates off higher inflation fears
and some contractionary numbers from the US housing sector.
DOW
While the June Dow is showing some solid technical reversal action overnight,
the main fundamental reason behind the bounce would seem to be that the
marketplace has become overly negative toward the economy. The Wall Street
Journal suggests that the market is incorrectly confusing slowing growth with
negative growth and that the US economy has merely hit a soft spot. We have to
wonder how the market will effectively discount the potential for ongoing
interest rate hikes in the wake of the PPI report today. We also have to wonder
what the reaction will be to a moderate bounce in energy prices. In our opinion,
the market might have some upside potential but the negatives are still present
and capable of seizing control of the trend. A normal retracement of the April
slide would allow for a bounce back to 10,229 without altering the downtrend
pattern. The 50 day moving average in the Dow comes in all the way up at 10,654
and that is simply more proof of how oversold this market has become on the
compacted April slide.
S&P
Technically the S&P did manage a classical bottoming formation with the big
range down reversal on Monday. Therefore, it would not be surprising to see a
2-3 day corrective bounce before the downtrend resumes off the sagging
fundamental case. A normal retracement of the April decline would allow for a
rise to 1158.75 without even threatening to reverse the entrenched downtrend
pattern. Unfortunately to see a 2-3 day up pattern might require a favorable
opening in the wake of the PPI report. We would prefer to wait for a rally to
get short, rather than being long for a quick bounce.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seems to have found a weak bottom around
the lows Monday but without a hot PPI report this morning, we doubt that the
Dollar is going to stand up to the renewed pressure arising from a slower US
economy and the idea that the G7 might be poised to push China on its currency
situation. In the March Dollar rally, the market was convinced that perpetually
higher interest rates were going to attract capital to the US and we suspect
those views will be present into and shortly after the PPI release this morning.
However, we doubt that inflation and growth expectations will remain in place
into the close today and that could mean that an early rally in the Dollar fails
to hold. Fortunately for Dollar bulls the numbers out of the Euro zone this
morning are extremely weak or the Dollar would be presented with a even more
critical reaction to the US PPI report. In short, the 83.81 level is some
semblance of support for the early action but the failure to get a +.6% PPI
could mean that the Dollar closes down around 83.50 today. While some might
discount the PPI report today, the housing starts and permits might be a more
significant report, as strength in the US housing sector could cushion against
the recent negative macro economic view, while overt weakness in the housing
sector could open up the selling in the Dollar.
EURO
With the German ZEW readings falling sharply and
Euro zone Industrial Output also slumping, we are not surprised that the Euro
has fallen back off the Monday highs. We would expect to see the Euro slide even
further into the US numbers this morning but we suspect that the selling
pressure in the Euro will mitigate as the session progresses. In fact, we would
become a buyer of a slide back to 129.55 but would not tolerate a slide below
128.83. While the Dollar might fall today we simply can’t get excited about
being long the euro in the upper portion of the last months trading range,
particularly after the slack numbers released overnight.
YEN
We suspect that the Chinese currency impact on the
Yen is waning, as the weekend G7 meeting influence fades. As it is, the Yen sits
in the upper portion of the last months trading range and to a degree lacks the
fundamental rational for such action. We would continue to look to longer term
put positions on near term strength, as we expect the downtrend in the Yen to
resume but maybe not in the coming sessions. In fact, we suspect that the June
Yen is capable of forging a bounce above 94.00 before the downside action
resumes in earnest.
SWISS
The Swiss seems to be right up against a critical
downtrend resistance line and like the Euro, would not seem to have the
fundamental and economic backing to forge an upside thrust. In fact, on a rise
to the 50 day moving average up at 84.79 we would consider a fresh short futures
play in the Swiss. Unfortunately fresh shorts in the Swiss might have to risk
positions to the down trend channel line up at 86.62 and that requires a much
higher sale than 84.79.
BRITISH POUND
In our opinion, the Pound is the odds on favorite to
rise against the Dollar and to trend against most other currencies. As we
suggested yesterday, the June Pound might be headed to the March highs in the
coming sessions, as the rest of the currencies simply lack the leadership
motion. We have already seen a slightly firm UK inflation reading and that would
seem to allow the UK economy to grow a little faster than the US, where the US
Fed is poised to crack down on inflation. Near term targeting in the June Pound
is now 192.06.
CANADIAN DOLLAR
The Canadian has a clearly defined down trend
pattern on the charts and is still expected to slide toward the February
consolidation lows of 79.52. The big question becomes will the Canadian fail to
hold around the six month consolidation lows, or will a major top be carved out
with a slide to 78.00.
METALS
OVERNIGHT
London Gold Fix $426.90 +$1.25 LME COPPER
STOCKS 51,825 metric tons -525 tons COMEX Gold stocks 5.934 ml oz -24,025 oz
COMEX SILVER stocks 103.5 ml +988,505 oz
GOLD
While gold and silver both held up in the face of
declines in Platinum and copper prices yesterday, a sharp slide in Dollar gave
the precious metals their positive tilt. It is also possible that the slight
rise in equity prices yesterday provided a bottoming force for gold. Chinese
gold prices were higher overnight, which should combine with the US PPI report
to underpin gold prices above the recent lows.
SILVER
While a brokerage firm improved its outlook toward
silver, we are not sure that the market is capable of throwing off the recent
concern for the economy and tracking back toward the April highs of $7.35. In
fact, unless the gold market is somehow lifted aggressively by the coming PPI
report and in the process gold manages to lift silver, we doubt that July silver
will be able to rise above a critical near term pivot point of $7.155. In fact,
we think that silver will continue to pay more attention to the direction of
world equity markets, than it will to the inflation expectation.
PLATINUM
While the platinum market periodically sees talk of
expanding platinum production in Africa, the market just isn’t seeing a near
term threat of additional supply flow and that generally underpins platinum
prices against sluggish demand fears. On the charts, the platinum continues to
coil with an ongoing pattern of higher lows, but at the same time platinum has
been unable to forge higher highs and that hints at a loss of momentum. While
copper has shown signs of bottoming, we don’t get the sense that the platinum
market is poised to get out of the current consolidation to the upside.
COPPER
The copper market has made a definitive upward
thrust overnight despite news of increased Chile copper production. In the near
term, the trade is set to embrace the tight stocks theme and downplay the recent
threat against demand. With Chinese copper prices firm overnight, equity prices
slightly positive and the copper market developing a positive technical story on
the charts, the bulls would seem to have some control.
CRUDE COMPLEX
At times Monday the energy complex seemed to be
poised to forge a bottom, especially when prices failed to slide on the talk
from OPEC that they would possibly consider a May production ceiling increase of
500,000 barrels per day. During the session yesterday, the unleaded market
showed signs of bottoming but in the end the bear camp seemed to maintain
control. Apparently a small refinery problem in Kansas sparked the bounce, which
in a sense shows that the market is still capable of bottoming off a minimal
supply glitch.
NATURAL GAS
The natural gas market seemed to garner some support
off the $7.00 level basis the June contract but as long as crude oil remains
suspect, we doubt that natural gas will be able to avoid the negative outside
influences. Apparently the recent weekend demand was ultra light, with a large
portion of the Midwest seeing very mild temps to hot temperatures and that means
that upcoming injections could be larger than expected, which in turn to add to
the recent weight on prices. With temps expected to remain mild, it would seem
like internal fundamentals in natural gas will remain slightly bearish.