Futures Point To A Lower Open
2/22/2005
INTEREST RATES
While the scheduled US reports today might show
some weakness and that could be seen as a supportive development to bonds, we
are not sure that the bull camp is going to be able to hold Treasury prices up.
In fact, with weekly Business publications alternatively focusing on the ultra
hot inflation reading from last Friday, Greenspan’s conundrum comment and the
prospect of a US currency debacle, we are not sure that the Treasuries can avoid
a sharp extension of the recent slide in prices. While we seriously doubt that
inflation has gained a foothold in the economy, we can’t play down the
ramifications of a broad based rotation away from US investments.
STOCK INDICES
It would seem like the market is poised to slide
aggressively in the week ahead. Not only is the market slightly disappointed by
earnings this morning from the home improvement sector, but energy prices are
soaring and the US Dollar is under what appears to be a very heavy attack.
Combine that with the residual impact of a much hotter than expected US PPI
reading from last week and the bear camp would seem to have control over the
near term trend.
DOW
Near term downside targeting in the March Dow comes in this morning at 10,722
but we suspect that an even lower targeting of 10,673 is in the cards early this
week. In fact, with the Dow posting several record spec and fund long readings
early in 2005 and the recent spec long reading pegged at 16,000 contracts (in
the recent COT report) there is certainly a lot of selling fuel in place.
S&P
Near term downside targeting in the March S&P comes in at 1193.70 but a decline
to 1191.80 might also be in the cards. Fortunately the net spec long in the S&P
is limited at 23,000 contracts and that could mean that the early February
consolidation lows down at 1188.60 will eventually stem the slide in prices.
FOREIGN EXCHANGE
US DOLLAR
The Dollar Index has gapped significantly lower
overnight and it would seem like the odds of a US Dollar debacle has suddenly
returned to the headlines. While we doubt that the sharp rise in the PPI report
from last week is behind the decline in the Dollar that is certainly a portion
of the selling impetus. In looking at the German GDP readings overnight one
might have expected the Dollar to find support, but in a closer analysis it
seems that German exports continued to expand in the 4th quarter and that means
the Euro zone growth isn’t being undermined by current exchange rates, which in
turn might mean that the Dollar has to go even lower to garner an export
advantage. Combine the US PPI reading, with the German export figures, rising
energy prices and the fact that Bush is traveling in Europe and we come away
with an extremely bearish near term outlook for the Dollar. In fact, we wouldn’t
be surprised if anti Bush interests were seen selling Dollars aggressively this
morning just to undermine the US diplomatic effort.
EURO
A major upside extension in the Euro is partly the
result of bringing the Euro up through heavy consolidation resistance and in
turn sparking stop loss buying from recent shorts. We also think as mentioned
before, that a strong German export tally for the 4th quarter caught the market
by surprise. We think that many players viewed the Euro zone economy as
bordering on recession and apparently the relative level of the Euro isn’t as
big of a problem as the trade was thinking. Therefore, we expect the March Euro
to rise toward 133.03 in the coming sessions.
YEN
Apparently the lack of resolve by the Chinese to
float their currency and the overt weakness in the US Dollar overnight has
resulted in a massive upside breakout in the Yen. In fact, we suspect that the
Yen is poised for such a big run, that the BOJ might be forced to act after all
is said and done. In other words, we see the March Yen headed to 97.00 and
possibly even higher.
SWISS
It goes without saying that the Swiss is benefiting
from flight to quality buying and from simple technical stop loss buying, that
typically results from a move above an extended consolidation pattern. Near term
targeting is seen up at 86.27 but a move to 87.00 can’t be ruled out.
BRITISH POUND
The Pound is lifted by the tide of buying being
lodged against the Dollar. While we don’t see the full justification for the
rout that is taking place today, the Pound has the strongest fundamentals off
all the currencies and as a result we might see a rise to 192.50 in the coming
sessions.
CANADIAN DOLLAR
So far, the Canadian hasn’t managed an upside
breakout and that is a telling sign. In other words, the prevailing tendency in
the Canadian isn’t that strong. We also have to think that the Canadian will
manage a rise to 82.20 but that might be the extent of the rally.
METALS
OVERNIGHT
London Gold Fix $430.75 +$4.20 LME COPPER
STOCKS 55,125 metric tons -200 tons COMEX Gold stocks 5.914 ml -1,704 oz COMEX
SILVER stocks 101.8 ml +562,746 oz
GOLD
With the Dollar gapping lower and falling to the
lowest level since mid January, it is clear that something significant is
underway. While the gold market posted a net spec and fund long of 82,000
contracts in the latest COT report, that positioning was probably overstated
slightly. Therefore the gold market would appear to have plenty of fresh buying
capacity in reserve.
SILVER
The silver market is wasting no time in roaring back
toward the old highs and we suspect that the gold and Dollar action is inspiring
a large portion of the buying this morning. Apparently the silver market is
catching support off the Dollar debacle but with the last COT report showing a
net spec and fund long of just under 60,000 contracts, it might not take much to
put this market in a moderately overbought condition. However, we doubt that the
market will be easily turned away from the current bull tilt by short term
overbought technicals.
PLATINUM
With both gold and silver rising sharply in the
overnight action, we suspect that more gains are ahead today. Near term upside
targeting comes in up at $875. While we don’t expect platinum to abandon its
physical demand focus, it would seem like the precious metals flight to quality
focus will dominate the action in the near term.
COPPER
Surprisingly the copper market would seem to be
poised to rise in the wake of soaring precious metals prices and a falling
Dollar. While the falling Dollar impetus is understandable, the connection to
the precious metals is a little surprising. However, Chinese copper prices were
only slightly higher overnight, indicating that the arbitrage impetus isn’t that
dominating.
CRUDE COMPLEX
With the month of February coming to a close and
the North American winter barely managing to produce even sporadic cold weather,
we suspect that Distillate stocks will now begin to build and that in turn could
give US refiners the ability to switch over to summer gasoline mixes early.
However, unless refinery margins rise or crude oil prices decline sharply, we
suspect that refiners will be unwilling to take the risk of an early turnaround.
In other words, we suspect that the refinery operating rate will continue to
remain low and that could in effect keep US Distillate stocks in a minor deficit
condition for the remainder of the heating season.
NATURAL GAS
As we suggested last week, the natural gas market is
being held up by the strength in the regular energy complex. In fact, in the
event that crude oil corrects and in a sense takes away support from natural gas
we would expect to see a slide below $6.00 basis the May natural gas contract.
However, the relative price differential between natural gas and crude oil (on a
BTU comparison) suggests that natural gas is becoming quite an attractive
alternative fuel.