Futures Point To A Lower Open
INTEREST RATES
From our perspective the US economic news toward
the end of last week, really tempers the economic outlook. While we continue to
think that the US economy is in a recovery mode, we still see the recovery pace
as disjointed and fraught with peril. However, with a number of economists now
suggesting that inflation is at least a consideration, the bar on the next Fed
action is lowered somewhat.
STOCK INDICES
With the Treasury market unable to hold recent
losses it is clear that the recent flow of economic information was slightly
disappointing. It would also seem like the recent flow of corporate earnings is
a little disappointing. Therefore, the equity market is pointing higher but is
simply not getting enough good information.
DOW
About the only positive that one can say about the Dow, is that it managed to
bounce off critical moving average support last week and seems to want to
respect even number support of 10,400. However, significant overhead resistance
is offered up by the April highs of 10,536.
S&P
Like the Dow, the S&P did manage to respect moving average support levels last
week and now appears to have settled into a range bound by 1126.50 and 1137. The
weekly COT report showed the net spec and fund position to be net long a little
over 10,000 contracts and that actually overstates the spec long, as the market
broke consistently following the report. Therefore, the market has a firm
technical underpin, and a somewhat firm fundamental underpin but just doesn’t
seem to have the intensity to spark a big rally.
FOREIGN EXCHANGE
US DOLLAR
We could see this coming last week, as the Dollar
moved into the breakout zone and then saw a series of numbers disappoint. In
other words, the double whammy of a big jump in initial claims and a very
disappointing Industrial Production reading, simply turned the tide in the
Dollar. While many in the market think that the US Fed is closer to hiking
interest rates, we have to think the opposite, as the Fed certainly notes the
recent improvement but is also looking for confirmation of a pattern of jobs
growth. The fact that Euro zone numbers have been soft, merely cushions the
Dollar against even bigger near term losses. Next support in the June Dollar
comes in down at 89.42 and a decline below 89.13 could effectively turn the
trend back down. In the mean time, assume that the trend is up but one should be
very skeptical of that opinion.
EURO
While the Euro looks like it might technically
regain a critical moving average line at 121.09, the downtrend channel line
wouldn’t be taken out until the June manages a climb above 122.41. Overnight
Euro zone Industrial output was reported to be up +0.1% and that was a touch
better than expectations. Therefore, the technical weakness in the Dollar and
the slight disappointment with recent US numbers, gives the bulls an edge in the
Euro. Critical resistance comes in at 120.56 and support is seen today at
119.59.
YEN
The Dollar weakness is giving the Yen pause.
However, weakness in the Japanese stock market (particularly in Bank shares)
seems to discourage interest in the Yen. Therefore it would not seem like the
Yen is inclined to rally, even though outside markets would seem to allow a near
term rally.
^next^
SWISS
The Swiss is showing overnight signs of a possible
upside breakout. In fact, the Swiss would regain a moving average line in the
event that prices manage to climb above 78.10 today.
BRITISH POUND
Reports that UK PPI rose +0.4% should give the Pound
a lift, as the UK economy hasn’t been showing as much strength, as it was around
the February highs. Considering the weakness in the Dollar and the potential
inflation news from the UK, we have to suggest that the fundamental trend is
pointing up in the Pound. A critical moving average would also shift up if the
June Pound were to regain 181.35 today.
CANADIAN DOLLAR
The Canadian is trying to respect critical support
of 73.95 but with the action in the US economy, the fundamental players are
having a tough time stepping forward for long Canadian plays. Traders might
consider buying a Jun C$, buying a Jun 74 put for 92 & selling a Jun 76.50 call
for 28.
METALS
OVERNIGHT
London A.M. Gold Fix $405.30 +$5.55 LME
COPPER STOCKS 157,325 -2,575 tons COMEX Gold stocks 3.99 ml +31,881 oz Comex
Silver stocks 122.6 ml Unchanged
GOLD
Despite fears that the net spec and fund long
remained at an excessively high level, the gold market has managed to further
the gains posted last week off the lows. The COT report showed the fund and
small spec long in gold to be 220,000 contracts but the trade realizes that
almost all of the losses last week took place after the report was compiled.
Therefore, we would expect that the fund and small spec long position comes into
the week closer to 195,000 contracts spec long than to the 220,000 contract
level posted by the COT.
SILVER
The silver market also looks to mount some
consistent gains this week after the mid month wash, balanced the overbought
technical condition. The weekly COT report showed the spec and fund long to be
94,000 contracts and that is dramatically overstated, considering the magnitude
of the slide following the report. With the markets current bounce, confidence
is restored and the market probably finds solid support at $7.20.
PLATINUM
July platinum gapped up overnight leading the market
to conclude that recent weakness was merely sympathy with the liquidation in
gold. Signs of strong US imports is probably something that is being seen in
most developed countries and that simply exposes the tight supply and demand
equation in platinum. Critical support is seen at $916, with first resistance at
$938.
COPPER
The copper market flared aggressively Friday, as the
trade reportedly saw intense fund buying. It is clear that the US economy is
getting stronger and that most areas (with the exception of Europe) are showing
accelerating growth and that is a direct support for the copper market. Chinese
copper prices rose in sync with LME prices overnight and with the US Dollar
weaker overnight and significantly off its recent highs, that should give the US
market an added lift.
CRUDE COMPLEX
The energy complex managed to linger near the
highs into the close last week. While the crude oil market is significantly
overbought, with a spec long of 120,000 contracts in the COT report, we have to
think that reading understates the positioning. The energy complex saw two major
developments last week with the API documenting a large crude stock build but
countervailing that development was an upward revision in 2004 demand by OPEC.
NATURAL GAS
Critical support in the June natural gas comes in at
$5.667 but without some quick and clear upside action in crude oil, the natural
gas market might be primed for a corrective slide. Much warmer than expected
weekend temps might give rise to warm summer dialogue, as the natural gas market
is famous for looking forward beyond what is forecastable. The market comes into
the week fearing softer demand from the heating sector, constant to slightly
higher industrial demand and probably some concern for another inventory
injection.