Futures Point To A Lower Open
3/2/2005
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INTEREST RATES
The bond market continues to track lower pressured by
fears the Fed will have to raise rates more aggressively. The market was able to
cut losses Tuesday as a surprisingly weak ISM Manufacturing Index and
indications of soft auto sales for February shook some weak shorts out of the
market. Sentiment however, remains decidedly bearish and the weak reports
Tuesday did little to dissuade traders that Friday’s payroll numbers could be
large.
STOCK INDICES
What a difference a day makes! As negative as
market seemed to be on Monday, it seemed to completely turn around on Tuesday
thanks to a break in energy prices, a rebounding Dollar and an upgade of the
semi conductor industry. Stocks even put a positive spin on the weaker than
expected ISM Manufacturing Index choosing to focus on the lower prices component
which apparently helped to ease some inflation concerns rather than the weakness
in new orders and employment as it reflects on economic growth. But despite a
volatile trade the last two sessions, the March S&P is still caught in a range
between 1214.70 and 1183.60, with closer in support at 1200.
DOW
The Dow saw a solid come back on Tuesday from Monday’s losses which keeps the
market structure positive and in a good position to test the January high at
10,875. We think the bulls still have control and despite holding a record net
long position in the last COT with options report, it appears that fund traders
are still in a buying mood. A strong employment number on Friday just might be
the catalyst needed to propel March futures to contract highs.
S&P
March S&P may need a fresh catalyst to break out of its trading range so prices
may trade sideways until the Jobs report is known on Friday. We still think the
odds are good for the March S&P to test 1216.80 and possibly 1221.20 this week.
FOREIGN EXCHANGE
US DOLLAR
Rising Treasury yields is helping to bolster the
Dollar and with bond prices in a position to fall further this week, the March
Dollar Index was able to penetrate resistance at 83.15 in over night trade and
could close the price gap at 83.37 left last month. Generally weak economic
number out of Europe and Australia with interest rate policy there likely on
hold with little to no chance for rates to move higher continues to provide the
Dollar with a widening rate advantage as the Fed steadily tightens. Bearish
sentiment toward the Dollar may be lifting as rising bond yields and strong
growth making the US an attractive place to invest which appears to be providing
support to the Dollar. There seems to be growing sentiment among bond traders
that the Fed is targeting a higher funds rate of 3.5% which would mean rates
would eventually be hiked by another 1%. The Dollar could get a further lift
today if Greenspan gives any clarity to rate hike intensions. The Dollar made
solid gains against all currencies in over night trade as daily technical
indicators for the Dollar had fallen to over sold extremes. Therefore, it
appears the market has become too short on the Dollar and with Greenspan
speaking today and the jobs data Friday, the Dollar could make a run back to the
84.00 level. If the employment data shows a jump in jobs and bond yield rise, it
may just be enough to loosen the bear’s grip even further.
EURO
Soft economic readings suggest rates will be on hold
for a while further shifting the rate advantage to the US. Euro-zone 4th Qtr GDP
came in as expected at +.2% for the quarter and +1.6% for the year. Jan
Euro-zone PPI also as expected at +.6% m/m and +3.9% y/y. The chart pattern for
the March Euro has turned negative as the market has failed at several attempts
to break above 1.3282 and now daily indicators have moved to over bought levels
making the market vulnerable to more of a sell off. The break under 1.3148 puts
the next area of support down at 1.3095. A.382 retracement of the February rally
is back at 1.3073, with a 50% retracement back at 1.3008.
YEN
While the economic situation seems to be improving
for the Yen, it is still questionable whether the currency will be able to rally
above resistance if the Dollar makes a solid comeback. Despite gains in Japan’s
stock market the Yen headed back toward support over night as the Dollar gained
across the board. March Yen will likely challenge support levels at 95.00 to
94.80 and will have to hold above 94.55 to prevent the down trend from resuming.
The key level to penetrate is still 96.44 in the March Yen.
SWISS
With the Swiss February PMI falling below the growth
threshold of 50, the currency looks set for a move back to 85 or even lower.
Overbought technical indicators could accelerate a deeper break since support
around the 85.23 area failed to hold. Retracement targets of the last leg up for
the March Swiss are at 84.64 and 84.08.
BRITISH POUND
While the Pound still has the rate advantage, the US
is closing in fast which means gains in the Pound may be hard fought beyond
here. The economic data has been mixed so we would think the BOE is still likely
to keep rates steady at the next meeting. Mar Pound failed at the 1.9250
resistance last month and with indicators at extremely over bought levels and a
broad short covering of Dollars taking place, a pull back to 1.9000 and possibly
1.8945 looks likely.
CANADIAN DOLLAR
With the Bank of Canada leaving rate policy
unchanged for the 3rd straight meeting and also implying that any future rate
hikes will be at a slower pace takes the wind right out of the Canadian Dollar’s
sails. This development clearly gives the rate advantage to the US and will
likely pressure the March Canadian below critical support at 80 with next
support not until 79.45.
METALS
OVERNIGHT
London Gold Fix $429.15 -$4.30 LME COPPER
STOCKS 50,775 metric tons -1775 tons COMEX Gold stocks 5.914 ml oz unchanged
COMEX SILVER stocks 101.5 ml -997 oz.
GOLD
The recovery in the US Dollar since yesterday has
caused a retreat in gold prices. June gold fell to its lowest level yesterday in
over a week as the Dollar gained against the Euro, Pound, Canadian and the Swiss
Franc, among others, and further declines are expected on the open today. The
Dollar gained yesterday on talk of higher US interest rate and concerns about
weak European economic data.
SILVER
Silver’s situation is a little more precarious than
gold’s as its industrial demand may be lacking and it is more dependent on the
safe haven scenario. Key support for May silver is at 7.16, and a break below
there could send the market down to 6.94.
PLATINUM
April platinum looks like it is about ready to break
out of its sideways pattern, one way or another. If gold continues its declines
today (which appears likely), it may pull platinum down with it. A two month
consolidation has left this market without any direction, and we are concerned
about a broadening top formation.
COPPER
May copper traded lower overnight after closing
sharply lower in New York yesterday, as a recovering dollar and disappointing
technical patterns brought in some long liquidation. The failure of the May
futures to hold above the key 150 level on Monday proved disappointing to recent
longs, so when the market gapped lower on the opening, traders appeared to give
up on the idea of making another go at the 150 level. Comments by a copper
analyst in China indicating that their imports in 2005 will be lower than 2004
coupled with reports out of Chile that their production is expanding fueled the
negative sentiment.
CRUDE COMPLEX
Another volatile day in the energy sector as
extremely over bought technical signals clash with a supportive fundamental
outlook for prices. Despite a sharp break in the product markets, April crude
oil was never in danger of breaking key support at $50. That price level may now
become the pivot point for the energy complex as OPEC officials have pledged
that production would not be cut with crude oil prices trading above $50/barrel.
NATURAL GAS
The rebound in heating oil and crude prices Tuesday
enabled April natural gas to trim losses. However, since gas storage is 31%
above year ago levels, a two week draw on stocks would not seem like it could
dent supplies enough to make traders concerned about the summer cooling season.
In fact, after this late winter season demand burst, the storage report should
start to see weekly injections beginning in late March/early April.