Futures Point To A Lower Open
3/10/2005
INTEREST RATES
While we certainly saw a number of reasons to
pummel Treasury prices yesterday (impending Junk supply, a falling Dollar and
economic optimism), we suspect that the market reached a moderately overdone
short term oversold condition on the overnight probe down to 110-06. However,
with the Dollar managing another new low for the move in the overnight action,
we suspect that the diversification threat will continue to undermine the
market. On the other hand, the Treasury market has recently shown a tendency to
become quickly oversold and that could mean that the 110-00 level ends up
offering at least a temporary support for prices.
STOCK INDICES
The stock market has finally succumbed to the
concern that ultra high oil prices will in fact pull back on growth.
Surprisingly the market was recently confronted by expectations of an upward
revision in US growth, but yet investors still "lost the faith", possibly
because of significant declines in the US Dollar. In other words, we suspect
that soaring oil prices are only part of the current selling impetus, with the
main undermine coming off growing fears of international diversification away
from the US.
DOW
The Dow was showing signs of divergence and therefore the steep slide in prices
isn’t that surprising. While the Dow appears to have found some support on the
charts around 10,800, we are not sure that the market has found a solid bottom.
In fact, up trend channel support doesn’t come in until 10,732 today and at
10,754 on Friday.
S&P
Given the magnitude of the slide yesterday we expect more declines ahead. In
fact, the market might have to forge a big range down reversal move, just to
effectively forge a solid bottom. In order to bottom without a significant
downside extension the market would have to see a major improvement in the
Friday Trade balance number, sharply lower energy prices or some other
surprising headline. In the near term, we suspect that the March S&P could fall
to trend line support down at 1195.75.
FOREIGN EXCHANGE
US DOLLAR
The Dollar isn’t showing any sign of altering its
downward trek and with the US bond and stock markets under pressure, the Chinese
trade surplus exploding overnight and the US Trade balance report due out Friday
morning we have to think that more downside is ahead. In fact, we see little
support in the March Dollar until the 81.00 level is touched. As in the US
equity market, the downside action looks to continue until there is a distinct
and significant headline change. We are not even sure if a slight improvement in
the US Trade balance reading will convince a market that is convinced of the
Dollar’s demise. Therefore, traders should be looking for minor bounces in the
Dollar to get short, looking to stay with the trend in the near term. If the US
economy shows any sign of slowing that could really begin to accelerate the
downside in the Dollar! Right now, the ultra strong outlook for the US economy
is the only thing keeping the market from a bloodbath.
EURO
The euro continues to win by default but the market
is somewhat concerned about ECB comments overnight, which expressed concern
about the rate of climb in the Euro. However, we doubt that the ECB is poised to
do anything quickly unless their numbers tail off or the Euro rises above the
December high of 136.87. In other words, little looks to change the near term up
trend. Certainly the Euro has come a long way quickly and that leaves the market
short term overbought and vulnerable to technical balancing.
YEN
The Japanese stock market came under pressure
overnight as machine orders declined by a more than expected 2.2%. In short, the
economic outlook is preventing the Yen from extending the recent rise. We also
suspect that concern for the US economy is limiting the Yen. Therefore, a back
and fill action in the Yen to 95.56 would not be surprising over the coming
sessions. However, through the US Trade balance report on Friday, the Yen might
get a big upward kick.
SWISS
While we don’t see a significant return of flight to
quality, the Swiss is getting some support from the steep decline in US
financial markets and the persistent strength in energy prices. Therefore, the
Swiss has the potential to return to levels above 87.00.
BRITISH POUND
The Pound would appear to be poised for more near
term gains, as it offers the best mix of fundamentals and technicals. We suspect
that the 192.00 level has become a launching point for even more gains ahead.
CANADIAN DOLLAR
The Canadian has obviously turned the corner and
appears to be headed toward the January highs. However, in order for the
Canadian to rise above that level it could take some consistent consolidation
above the 83.00 level.
METALS
OVERNIGHT
London Gold Fix $440.20 +$0.30 LME COPPER
STOCKS 51,725 metric tons -175 tons COMEX Gold stocks 5.915 ml oz +2.379 COMEX
SILVER stocks 101.4 ml unchanged.
GOLD
While the Dollar may see a mild recovery this
session ahead of Friday’s US trade data and prompt some profit taking in gold,
the trend in both commodities is not ready to turn. Comments from Japan’s Prime
Minister continued to whip up speculative fervor as he became another in a
string of international officials calling for the diversification of his
country’s reserves away from the Dollar. The persistent weakness in the Dollar
with crude oil prices above $50/barrel have spawned fears that inflation will be
revived this year which has attracted a steady flow of investment money back
into the metals market.
SILVER
Trading in the silver market tends to be more
volatile than gold given that it is a thinner market, so profit taking seen in
the over night trade could be extended this session with close in support for
May silver between 7.495 and 7.46. However, we would expect that the June Dollar
would need to see a recovery back above 82 in order to push May silver below
this support zone. Our near-term target for May silver is 7.73 to 7.80.
PLATINUM
It appears that a slight recovery in the Dollar is
causing profit taking in all precious metals markets today. April platinum
failed to make an upside breakout above 880 despite strength in the gold market
and a break back to 864 can not be ruled out. However, the market bias remains
positive and April platinum would have to close back below 860 to begin to turn
the chart pattern negative.
COPPER
While Shanghai copper prices firmed over night,
copper prices in London have retreated on profit taking as the Dollar saw a
minor recovery. With copper supplies remaining tight and the US economy strong,
another downward thrust in the Dollar could easily push May copper above 152.50.
Funds have been aggressively buying copper this year and their net long position
is likely near record long levels so the market will be susceptible to bouts of
profit taking, especially if the Dollar shows a steady to stronger trade.
CRUDE COMPLEX
The energy complex failed to hold gains into the
close and that is a deviation from the recent market action. However, the energy
complex still managed to rally Wednesday despite the fact that the crude oil
stock readings were patently bearish. We also saw the energy complex hold early
gains yesterday despite comments from the OPEC Economic Advisory Board which
suggested the current overproduction tally was close to 1 million barrels per
day.
NATURAL GAS
The natural gas market continues to live and die by
the ebb and flow of the regular energy complex and with the regular energy
complex short term overbought, we suspect that gas is also vulnerable.
Furthermore, with the trade mostly expecting what appears to be a rather
sizeable inventory draw (in fact expectations call for the largest draw in five
weeks), the market could easily be disappointed. It would be a little surprising
to see the recent cold impact the weekly figures so quickly as the depth of the
northeast cold wasn’t known that far in advance.