Futures Point To A Higher Open

4/29/2005

 

INTEREST RATES

It took a while but eventually the Treasury
market responded to the weaker than expected US GDP reading. Initially the
market was held back by inflation readings within the GDP report, but with stock
prices generally weak and oil prices recovering late yesterday, it was clear
that the outlook on the economy was very much in question. In fact, the breakout
to the upside in the Treasury market, seems to confirm that more and more
players are embracing the idea of a soft spot.

STOCK INDICES

While the break in prices yesterday seemed to be
very aggressive, the stock market has basically remained within a wide trading
range for the last two weeks. Apparently some analysts were prompted to lower
multiples, in the wake of disappointing US GDP readings and that certainly
seemed to justify a general decline in equity prices. So far, earnings reports
are following a bullish track but the market is apparently more concerned about
the prospect of future slowing, and therefore earnings are assumed to old news.

DOW

In the near term, the June Dow might be able rise back above 10,200 and might
even be able to retest 10,245 if the early numbers come in as expected. However,
the overall pattern in the Dow isn’t that impressive and it is difficult to
discount the pattern of lower highs in place since the March highs! In fact, the
biggest problem confronting the stock market (in addition to energy price fears)
is that the Fed will ignore the signs of softening in the US economy and
continue to pull back on the reigns next week in the FOMC meeting. Some players
are already calling for a round of new lows next week, because of the Fed’s
expected stance. Other analysts have suggested that a major spike down low next
week, could present a significant buying opportunity, in the event that the Fed
hikes and then suggests that they will be on hold for a while. For today the
bulls have the ability to push up prices in a short covering bounce, but we
would once again look to purchase some put options on a rise above 10,200.

S&P

Given the sharp slide yesterday, we suspect that the market is poised for a
bounce this morning. However, in the event that the June S&P manages to rise
above 1160 again, we will be a buyer of the June 1075 puts, for a look at next
week’s Fed meeting. In fact, given the sharp bounce in energy prices off the
lows yesterday it would not be surprising to see early gains this morning
dampened by afternoon gains in energy prices. However, the stock market does
look to be temporarily bailed out from the aggressive selling impetus present at
times yesterday, by the rather sterling earnings report from Microsoft. However,
unless the market gets a flurry of favorable earnings reports this morning and
sees a "muted" Employment Cost Index reading, we doubt that the June contract
will be able to rise significantly above 1162. Until a down trend channel line
at 1171.50 is taken out, or crude oil prices fall below $49.00, we will assume
that the big picture trend is pointing downward.

FOREIGN EXCHANGE

US DOLLAR

In looking back at the week, it is clear that the US
economy is softening the stellar growth pace seen in 2004. However, mitigating
the potential selling pressure in the Dollar is the fact that the Euro zone
economic outlook is also deteriorating. While the sharp decline in energy prices
this week has generally supported the Dollar, the sharp recovery off the lows in
the energy market yesterday have apparently shifted the energy impact on the
Dollar, back into the bear camp. While the Dollar has lost some of the focus on
the inflation issue, that issue will be front and center again this morning in
the wake of the US Employment Cost Index release. The market is expecting an
increase of 1% in the ECI and is also expecting up ticks in both Consumer
Spending and Consumer Income. Therefore, the Dollar bulls had better get
satisfaction early or the early weakness could extend and the June Dollar could
slide down to 83.67 chart support. We doubt that the Dollar will come under
aggressive selling, with the upcoming FOMC meeting looming ahead, as the threat
of rising US interest rates should discourage some selling in the Dollar. We
suspect that the early numbers this morning will lift the Dollar but that the
strength will wane quickly.

EURO

Given a huge hook reversal in the last 24 hours, it
would seem like the Euro is capable of discounting the negative dialogue arising
from weakening Euro zone consumer sentiment figures. In fact, the trade is
absorbing Press headlines from Europe that suggest the 1st half of 2005 will
bring about a "downturn". Additionally it should be noted that the German
government has lowered their 2005 GDP targeting to only +1% from +1.6%. In other
words, growth expectations in Germany and the Euro zone certainly serve to
mitigate the buying interest in the Euro. However, in the event that US spending
and income numbers are soft, we suspect that the Euro could win by default and
in the process manage a weak rise to 130.38. Again we can’t find a compelling
reason to be aggressively long the Euro.

YEN

A holiday in Japan dampens the upward adjustment in
the Yen. However, in retrospect, it would seem like the macro economic outlook
for the Japanese economy has been upgraded this week and we also suspect that
the long term prospect of a higher Chinese currency peg is also contributing to
the gains in the Yen. Therefore, there is no reason not to think that the June
Yen is set to return to the 96.00 level, which was merely the bottom of the
November 2004 to early March 2005 trading range.

SWISS

Given the technical reversal in the Swiss, the early
weakness in the Dollar and positive leadership from the Euro, we suspect that
the Swiss is capable of rising toward the 85.00 level. We must note that the
current rise looks to take place without the benefit of flight to quality or
anxiety and therefore the gains might be measured and inconsistent. We do think
that near term chart support around 84.00 has strengthened but to turn off the
down trend pattern and invoke an uptrend pattern, the June Swiss would have to
rise above a long term down trend channel resistance line at 84.93 today.

BRITISH POUND

There is no confusing the overnight action in the
Pound and given the slightest undershoot from US numbers this morning, it might
be possible for the Pound to forge a quick run up to the March high of 192.27.
While we think that the political situation in the UK will hinder the Pound on
the coming upward pulse, we doubt that the buyers will be totally put off from
pushing the currency to the highest levels in six months. Traders should now be
prepared to buy setbacks to 190.60 looking for an eventual target of 192.50.

CANADIAN DOLLAR

The trend remains down in the Canadian even though
the reversal action overnight suggests a near term bounce is possible. We
continue to think that the eventual rise in the Yuan is undermining the Canadian
but that a bounce to 80.39 today could be sold. The trend remains down until the
June Canadian manages to rise above the long term down trend channel resistance
line at 81.45.

METALS

OVERNIGHT

London Gold Fix $433.25 +.45 LME COPPER
STOCKS 59,975 metric tons +150 tons COMEX Gold stocks 6.036 ml oz -10,011 oz
COMEX SILVER stocks 104.0 ml +484,961 oz

GOLD

After forging three straight lower lows in a row,
the June gold has managed to bounce in what initially seems to be a short
covering rally. However, with the Dollar sharply lower in the early action, we
suspect that a positive tone will be present into the US numbers. However, the
US numbers this morning could end up being negative to gold, as the reports
include an inflation report, which could serve to resurrect the Dollar.

SILVER

While July silver has recoiled away from the spike
low posted on Thursday, there really isn’t a solid fundamental reason to be
aggressively bullish toward prices. Technically the big wash certainly balanced
the somewhat overbought condition that was present around the recent highs and
the July contract did manage to respect the pattern of higher lows. Pan American
reported a moderately large increase in 1st quarter silver production, but we
really don’t get the sense that the market is intently focused on physical
supply and demand.

PLATINUM

After yet another big probe down overnight, the
platinum market appears to have recoiled sharply away from the overnight low.
However, the trend remains down in platinum, especially if macro economic
information continues to post weak readings. With some Asian holidays today and
next week, we suspect that the market will lack the volume to forge an
impressive recovery.

COPPER

Like the rest of the metals, the copper market is
showing signs of short covering following a weak of moderate selling pressure.
Shanghai copper stocks declined by 4,326 tons on the week and that helps to
shore up the recently questionable demand track in China. Chinese copper prices
did finish higher overnight and might have been helped along by comments from
Rio Tinto concerning the ongoing strength of world demand for copper.

CRUDE COMPLEX

The energy complex forged another patented big
range down reversal pattern on Thursday. Surprisingly the market initially
ignored bullish private tanker movement forecasts, which pegged OPEC output to
have declined by 160,000 barrels per day in measurements out to May 14th. Floor
sources suggested that the market turned buyers after the crude and unleaded
dropped down to even number levels on the charts and therefore the market might
have signaled a temporary technical bottom in the action Thursday.

NATURAL GAS

The weekly gas storage report showed an injection of
73 bcf compared to estimates between +80 bcf to +60 bcf. The 5 year average
stock change for this time of year is for an injection of only 43 bcf, with
stocks rising 71 bcf last year. Gas storage now stands at 1,416 bcf with stocks
272 bcf above year ago and 311 bcf above the 11 year average.