Futures Point To A Lower Open
4/4/2005
INTEREST RATES
For some reason the market has decided to
reconsider the inflation dialogue from the Fed and that has in effect pulled
Treasury prices back away from the recent highs. On the other hand, the bear
camp has little comfort from the inflation argument, as soaring oil prices could
easily trip up the fledgling recovery and give the Treasuries a real reason to
rally. In fact, even the US government is concerned about how high gasoline
prices could rise, as they suggested on Friday that gasoline demand in the
coming summer could increase by 2% over last years levels.
STOCK INDICES
The stock market remains on the rocks as the
residual of the disappointing monthly US payroll report is fanned by the ongoing
threat of soaring oil prices. The Department of Energy seems to be making the
situation worse by suggesting that US gasoline demand is set to grow by 2% this
summer and that US refinery capacity is insufficient. On the other hand, it
would seem like the market is picking up rumors of dialogue between OPEC
officials, regarding a secondary 500,000 barrel per day production increase and
that could reduce the anxiety being prompted by ever soaring oil prices.
DOW
The June Dow comes into the opening this morning in an apparent downside
breakout on the charts or is at least close to failing at the November through
March consolidation lows! In fact, the June Dow might have an extremely critical
pivot point at 10,396 and without a quick setback in energy prices, we are not
sure that the market will be able to deter the trade from forging lower prices.
In fact, in the most recent COT report the Dow continued to hold a moderately
long spec and fund positioning and that would seem to leave the market
vulnerable to more selling before one can even suggest that the market has come
into a simple technical balance. However, the direction of oil prices will
dictate the direction of the Dow.
S&P
We suspect that the S&P is poised for a downside probe but we also suspect that
oil prices will play a huge role in the direction of equity prices. In the most
recent COT report the S&P still had a net spec long position of 12,000 contracts
and that means that more selling is possible before the market is technically
speculatively short. In other words, prices could easily fall a long way before
one would be able to suggest that prices were overdone on the downside. We
suspect that the Street will try to talk up the upcoming earning cycle as a
positive. In fact, if stock prices are moderately down from current levels, into
the height of the earnings flow information, it is likely that the reports will
provide some support to the market. However, in the near term everything might
be about oil instead of earnings.
FOREIGN EXCHANGE
US DOLLAR
Surprising the Dollar is higher and is poised to
retest the recent highs. Apparently talk of stagflation is supporting the
Dollar, which is a little surprising considering the bent of the currency
markets toward the Dollar over the last 6 months. However, we suspect that a
downward revision in growth projections by the ECU is providing the Dollar with
an indirect lift. We also think that the Dollar is getting some benefit from the
decline in the recent US unemployment rate, as that reading stands out against
the crowd. In the near term, the path of least resistance might be up in the
Dollar but we have to think that the Dollar will be confronted with resistance
at 84.75 and again up at 84.99. Maybe the US Dollar will get support from
upcoming US corporate earnings flow, as that might be another delineating
element between the US and the Euro zone. Critical support in the June Dollar
comes in today at 84.27.
EURO
Fresh off another economic downgrade, the Euro is
poised for a downside breakout on the charts. Apparently the ever rising cost of
fuel and the rather disappointing condition of employment in the Euro zone has
caused economists to lower growth targets again and that in turn certainly
lowers the expected yield on investments held in the Euro. Like the Dollar, we
also suspect that the Euro will have trouble getting beyond some near term
technical levels on the charts, with the June Euro finding some initial support
around 128.93 and 128.80, but we can’t rule out an eventual decline down to
levels down below 128.00.
YEN
The combination of concern for the US export market,
rising oil prices and the fact that Japan was unable to entrench in a solid
growth pattern, leaves the Yen vulnerable to more selling. While the BOJ might
be against aggressive volatile downside action, we hardly think that they will
say anything about the slide in the Yen. In fact, until the Yen slides down to
92.50 we doubt that many players will be inclined to step up and pick a bottom
in the Yen.
SWISS
While a certain amount of flight to quality still
exists in the market place, the idea of stagflation apparently isn’t supportive
to the Swiss. Therefore, the bias is down in the Swiss with initial support seen
around 83.13 and then again down around 82.82. Right now, the Swiss lack a theme
and the Dollar is winning by default and by reasons that might be unsustainable
over the long haul.
BRITISH POUND
A recent decline in UK housing prices is a crack in
the foundation of an economy, that was in favor as of mid March. Now however, we
get the sense that the bull camp in the Pound has been disappointed and that
could result in a slide all the way down to the 185.00 level and possibly to the
184.31 level. Initial support in the June Pound comes in at 186.27.
CANADIAN DOLLAR
A series of consolidation support points, seems to
be clustered around 82.08, and with the initial Dollar strength today, it would
seem like the path of least resistance in the Canadian is preparing to turn
down. However, until the Canadian closes below 82.06 the bulls would technically
seenm to have control.
METALS
OVERNIGHT
London Gold Fix $425.95 -1.50 LME COPPER
STOCKS 45,250 metric tons -25 tons COMEX Gold stocks 5.960 ml oz +96 oz COMEX
SILVER stocks 102.0 ml -1.54 ml oz
GOLD
The gold market remains under threat especially with
the Dollar holding near the upside breakout point on the charts but with Germany
standing up to support the IMF gold sale, the pendulum shifts a little further
into the bear camp. Certainly the gold market is seeing the small and fund long
position decline, but we suspect that the combined long is still in excess of
150,000 contracts. Furthermore, it would not seem like spiraling oil prices are
supporting gold but instead, soaring oil prices might be fostering deflation
concerns, instead of inflationary concerns.
SILVER
The silver market isn’t immune to the slow economy
threat that is also undermining gold. In fact, given the recent correlation to
platinum and copper, the silver market might actually be more influenced by the
macro economic outlook than the gold market. In the most recent COT report, the
net spec and fund long position was still moderately long at 58,000 contracts
but that tally was actually reduced by 6,800 contracts in the reporting period.
PLATINUM
Just to highlight the mostly physical demand driven
nature of platinum, we note that the platinum market has recently tracked the
day to day movement in the US equity market very closely. Therefore, the near
term path of least resistance is pointing down with critical pivot point support
targeted down at $854. The recent net spec and fund long position in platinum
was in excess of 5,000 contracts and that certainly leaves the market vulnerable
to even more selling ahead.
COPPER
The copper market wanted to hold up last Friday in
the wake of another decline in Chinese stocks but the overall macro economic
outlook is simply limiting coppers potentially bullish response to the inventory
situation in China. Overnight Chinese copper prices were down despite favorable
action in the cash markets. In the near term, we suspect that May copper could
easily fall down to the vicinity of the consolidation lows around 145.60.
CRUDE COMPLEX
The energy complex appears to be running on sheer
speculative fervor and considering the most recent COT report readings, the
market probably isn’t without additional buying capacity. From the action last
Friday, it would seem that most of the speculative fervor is focused on the
unleaded market and would seem to be justified by ideas that the US refinery
capacity won’t be able to meet US summer demand. We suspect that the "on-hold"
status of OPEC production facilitated the sharp upward extension last week, as
did the Texas refinery blast of several weeks ago.
NATURAL GAS
The natural gas market seems to be trading on its
own volition but it can’t help but be lifted by the fact that crude oil prices
are also very strong. In fact, the BTU correlation is part of the bull story but
we also suspect that ongoing concern over the US refinery industry is prompting
more switchover than many realize. It is also entirely possible that seasonal
agricultural buying is keeping cash prices firm, as the US grain belt is
preparing for another large crop year.