Futures Point To A Higher Open
5/6/2005
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INTEREST RATES
While the median forecast has apparently held up
around the +175,000 level we have to think that is a high bar for the US
economy. On the other hand, seeing the payrolls come in stronger than the prior
month, means that the economy does have residual strength and is basically
stronger than many were expecting it to be. In fact, we are actually a little
surprised that economists and trade sources have even embraced the “high number”
considering the pattern of slowing in many scheduled US economic numbers.
STOCK INDICES
The stock market has climbed significantly off
the April lows and is confronted today with an extremely critical reading on the
economy. While some might suggest that a single month’s data shouldn’t carry
that much weight, we can’t help but notice the trend of smaller monthly US non
farm payrolls over the last few months, the down grade to junk status in GM and
Ford, recent news of layoffs at several bellwether issues and most importantly,
the ongoing potential of a summer US gasoline debacle. In our opinion,
conditions have recently begun to improve and it would be nice to get beyond
this number today, without seeing a number of stock analysts discussing the need
to lower P/E’s or the need to discount future earnings.
DOW
The Dow seems to be leaning a little bit toward the downside in the early going
today and we have to think that some longs are weak handed into the numbers this
morning. With the Dow seeing added anxiety off the GM and Ford debt news, it is
clear that the market is feeling its overbought status a little! We want to end
up long this market but we can’t rule out a dip today down to 10,256. In the
event that the payrolls are at or above expectations, those that are long Dow
futures and have spent some money on puts will not be unhappy. If the payrolls
are strong, then the Fed really knows its business. On the other hand, it is
also possible that a soft number today is simply the low water mark on the soft
spot, and the big break will be a major buying opportunity. Don’t lift long puts
against the Dow futures, unless you can bank a moderate profit, or the numbers
are distinctly bullish.
S&P
The June S&P comes into the action this morning 39 points above the March lows
and that means the market is very vulnerable to a soft number. On the other
hand, this market hasn’t even scratched the surface on improving overall
market/economic sentiment and therefore a good number could result in a wave of
buying and one of the sharpest run ups in years. However, given the overbought
status, the pattern of the last three months payrolls, the GM/Ford news and the
lingering oil concerns, one can’t ignore the potential for a payroll gains
closer to 100,000 than to 175,000. Therefore, we would be long, but we would
also consider a long May S&P 1155 put for insurance purposes!
FOREIGN EXCHANGE
US DOLLAR
The Dollar has coiled into a very tight range,
partly because the fundamental track is extremely difficult to measure and
partly because most of the action over the last month has come from bald
speculation on the Chinese currency situation. In fact, most of the speculation
on the Chinese currency is without official merit and therefore the Dollar has
basically gotten away from focusing on the US economy and the relative level of
US interest rates. We think that the market is generally leaning on the Dollar,
looking to press the Greenback in the event that the numbers are patently weak.
However, as long as the market comes away from the report today, with the idea
that the Fed will stay on track, we doubt that the market will push the Dollar
down below the late April consolidation lows. On the other hand, the US economy
over the last month has been given the Rodney Dangerfield treatment and a strong
number could be cause for a re-adjustment in attitudes. In other words, the
market has been fixated on the negatives and therefore today is a major
inflection point. Overnight even the German numbers were stronger than expected
and that could suggest that global expectations toward growth simply
overindulged in the negative view. In the event that US payrolls are above
150,000, we suspect that the Dollar will rise to 84.63 but we doubt that it will
hold that level long.
EURO
The chart pattern in the Euro would suggest that the
currency is still generally working itself down. However, German March
manufacturing orders were the second highest on record with a gain of 2.2% and
that certainly serves to alter sentiment. However, the market is so focused on
other issues that the Euro didn’t show a ripple off the overnight news. In fact,
the early market action in the Euro this morning is the tightest we have seen in
weeks! The problem with the Dollar and the Euro is that neither currency is
capable of taking control of the market. Therefore, pushed into the market we
would be short the Euro for a position, on rallies back up to 130.20 but mostly
there isn’t a driving force to be worked into or out of the Euro!
YEN
The Yen is a little like the US stock market, it
comes into key US numbers today rather overbought and in need of more bullish
fuel. Like the US stock market the trend in the Yen is up but the market will
have to see the US economy in a favorable light to extend the recent gains.
Others might suggest that the primary reason behind the run up in the Yen is the
Chinese currency element but until that issue has something more concrete, we
would not add to longs in the Yen unless prices retrenched back to 95.40.
SWISS
We have a gut feeling that the Swiss is poised for a
slide, in fact unless something really ugly spins out of the US payrolls, the
Swiss will continue to sit just above critical downside breakout points on the
charts. Those that purchased several September Swiss calls need to protect those
positions (with a fresh short of the futures) against a temporary slide down
below 83.00.
BRITISH POUND
Apparently the UK election was old news or
unimportant news as the Pound is weakened this morning and apparently poised for
a little corrective setback. Key UK housing price readings released this morning
were unchanged and that would seem to hint at a little softening in an otherwise
robust housing area. Therefore, a slide back to the 100 day moving average might
be seen in the Pound but this market should have enough bullish backbone to
avoid serious chart damage. Wait for a slide before considering adding to long
positions.
CANADIAN DOLLAR
While the Canadian jobs numbers aren’t patently a
“big deal” it would seem that favorable fundamentals have joined favorable
technicals for a solid bottoming signal. It would seem like the Canadian is
setup for a rise above down trend channel lines but the 81.00 level might
initially present significant overhead resistance. Fresh longs still need to
carry a little put protection.
METALS
OVERNIGHT
London Gold Fix $429.70 -$0.80 LME COPPER
STOCKS 60,300 metric tons -250 tons COMEX Gold stocks 6.034 ml oz Unchanged
COMEX SILVER stocks 104.5 +600,655 oz
GOLD
Today is a difficult junction for the gold market as
a strong US payroll reading probably lifts the Dollar due to ideas of more
aggressive forward Fed action. On the other hand, in the event that US payrolls
are weak that could rekindle deflationary concerns in the metals. However, given
recent action in gold, it is pretty clear that the key driving force of the gold
market is the Dollar not the economy per say.
SILVER
While silver has shown a bullish pattern off the
recent low, we are not sure that the market has the story to continue rising
toward the April highs, unless the US monthly payroll report is at or above
expectations. Certainly soaring gold prices off a slumping Dollar could provide
silver with some spill over support but in order to definitively drive silver
up, we think that the macro economic situation has to clearly improve. Given the
fickle nature of fund trading activity in the last few weeks, traders will have
to be braced for compacted action in the coming hours.
PLATINUM
As we suggested yesterday, the fundamentals in the
platinum market continue to advocate higher prices ahead but to really drive
prices to contract highs, the demand outlook will have to be viewed positively
after the key US numbers today. We are generally bullish toward platinum but
implementing fresh longs from current levels just doesn’t feel right, especially
since this market could slide back to $870 without damaging the charts or market
sentiment.
COPPER
The pattern in copper still looks negative and
considering the potential volatility off the US numbers today, we would suggest
that fresh longs lower July copper entry points to 138.00 or look to utilize
call options. Overnight Norilsk (a Russian miner) indicated that 1st quarter
copper production increased by roughly 3,000 tons over the same quarter in 2004
and that is a minor negative. With the market finally getting beyond the sweep
of Asian holidays at the close today, it might be possible that a number of
players are looking to take a shot at the long side.
CRUDE COMPLEX
The energy complex continues to post fickle
market action, as oil prices have simply shut off the recent selling wave,
despite what would appear to be a continuation of bearish supply news. On
Thursday, the market was confronted with fresh private forecasts calling for a 4
week OPEC export flow increase of 370,000 barrels per day. However, with Saudi
Arabia, the kingpin of OPEC producers, moving to jack up term delivery prices by
roughly $2.00 per barrel, it is apparent that they are ready to shore up the
price structure, possibly in advance of the big summer flow to the US.
NATURAL GAS
The weekly gas storage report showed an injection of
39 bcf compared to estimates between +70 bcf to +15 bcf. Gas storage now stands
at 1,455 bcf, with stocks 238 bcf above year ago and 295 bcf above the 11 year
average. Gas stocks have increased by 206 bcf over the last four weeks which
means the market is seeing similar drag off the supply equation.