Futures Point To A Lower Open
3/8/2005
INTEREST RATES
The Treasury market continues to show a slightly
positive bias, but we are a little disappointed with the response to the
increase in Consumer Credit yesterday afternoon. US Consumer Credit rose by 11.5
billion, which is significantly above expectations and would seem to suggest
that growth in the US economy is still being driven by consumer debt instead of
consumer income. However, the market would seem to be aware that some of the
increased consumer debt might be the result of improved confidence and improved
spending capacity that sometimes come with a growing economy.
STOCK INDICES
The Press continues to call for a top in stocks
but so far the market seems to be ignoring those forecasts. In fact, without the
sharp rise in US consumer credit yesterday afternoon, it would seem like overall
market conditions have improved slightly from those confronting the market
yesterday morning. In fact, the energy complex looks to be in for another minor
decline and we suspect that the Fed will be out today with some moderately
supportive dialogue toward the economy.
DOW
We suspect that the Dow futures continue to hold a spec long position that is
close to a record long position and that leaves the market vulnerable to stop
loss selling. However, we do think that the credit rating issues at GM are
undermining the broad market. In the end, as long as energy prices are soft and
US Fed dialogue is mostly favorable toward the economy, we doubt that the market
is going to do anything more than drift lower. Unfortunately, near term chart
support in the March Dow is rather far down, at the old high of 10,872.
S&P
With the March S&P taking out a number of near term critical pivot points in the
overnight action, we suspect that the bear camp has a slight initial edge. In
fact, we suspect that the market is headed down to support at even numbers of
1220 but an even bigger break is possible to 1216.80, in the event that the Fed
focuses more on higher rates today than it does on the healthy condition of the
US economy.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is probably seeing some minor pressure
from the US consumer credit report, as that is simply another debt issue for the
Dollar to carry. While some might suggest that the rise in consumer credit is a
sign of an expanding economy, it will be interesting to see what the Fed take is
on a consumer credit reading that was twice the expected increase. We suspect
that the March Dollar is poised to drift down toward consolidation support
around 82.38 but we still don’t get the sense that the Dollar is set to breakout
down. In fact, given the underpin of the last US payroll report and the prospect
for supportive US Fed dialogue today, it might be difficult to put the Dollar
under moderate pressure. On the other hand, it continues to be clear that the US
economy is being held to a higher standard, especially with the Canadian Dollar
posting some discouraging housing stats yesterday and the currency markets
mostly ignoring that data. Therefore, the path of least resistance is down but
downside momentum isn’t that impressive.
EURO
The Euro remains just under significant
consolidation resistance on the charts but it also lacks the fundamental
information to forge an upside breakout. Therefore, we are inclined to project a
trading range defined as 133.32 to 132.25. Forced into the market we would
consider selling the Euro on a minor rally, but we would look to limit the risk
on the short side play to 133.54. In fact, for the Euro to rise sharply, the US
will have to be confronted with a moderately negative economic development that
is not present in the early action today.
YEN
The Nikkei posted the first down day after the
longest winning streak in 5 years and that would seem to imply only minor
weakness for the currency. However, like the Euro, the Yen looks to be hemmed
into a tight range with 95.56 as resistance and support pegged at 94.92.
SWISS
The pattern of lower highs continues and since the
Swiss isn’t showing much in the way of flight to quality buying off the sharper
than expected rise in US consumer credit, it would not seem like the bulls are
that dominate in the Swiss. Therefore, aggressive traders should still be
looking to sell the Swiss on a bounce to 85.60.
BRITISH POUND
The Pound would seem to have the most bullish setup
of all the major currencies. In fact, if the March Pound manages to climb above
chart resistance at 192.50, it might be on its way to the December highs above
194.00! About the only information confronting the Pound this morning, is the
fact that the IMF and UK are debating spending rules.
CANADIAN DOLLAR
The Canadian has managed an upside breakout on the
charts and has done so in the wake of disappointing numbers from Monday morning.
While we are still skeptical of the bullish prospects in the Canadian, we see
little in the way of resistance until the consolidation high is tested up at
81.72.
METALS
OVERNIGHT
London Gold Fix $434.85 +$1.25 LME COPPER
STOCKS 51,270 metric tons +125 tons COMEX Gold stocks 5.913 ml oz +2,497 oz
COMEX SILVER stocks 101.4 ml unchanged.
GOLD
The gold market managed to recover off the early
lows on Monday, as the Dollar pared losses and the funds appeared to move in
with buy orders in a number of markets. While the flight to quality impetus is
reduced with the recent string of US information and the Dollar is given some
support as a result of the US non farm payrolls, but it would still seem like
the overall trend in gold remains slightly positive. On the other hand, seeing
flight to quality concerns decline should mean that overall economic growth
expectations have improved, which in turn should boost the expectation for
physical gold demand and potentially allow for more inflation expectations.
SILVER
While silver is showing a positive tilt this
morning, we suspect that the market will encounter heavy resistance up at $7.50.
On the other hand, the US consumer credit report yesterday afternoon was
supportive, as that increases the odds of inflation and in some respects could
actually raise the flight to quality interest and put additional pressure on the
Dollar. However, we are not sure that the gold market is set to provide that
much leadership, but it was comforting that the funds appeared to move into the
metals markets yesterday afternoon in a coordinated fashion.
PLATINUM
While some might suggest that the trend in platinum
remains up, we continue to see extremely heavy resistance and a pattern of lower
highs and that is usually indicative of a broadening top pattern. We also think
that the relative differential between platinum and palladium is prompting some
switch over use and that could take some of the physical demand away from
platinum. Unfortunately, speculative interests can probably support platinum at
current prices for an extended period of time, especially if the rest of the
metals remain in favor.
COPPER
The copper market appears to be slightly overbought
on a short term basis and might also be undermined by the reduction in overall
deficit forecasts for 2005. With a private entity suggesting that the 2005
deficit would be only 190,000 tons, it would seem like the tightness is
mitigating (the 2004 deficit was initially expected to be 240,000 to 270,000
tons). However, we must note that the market also expected the tightness to
alleviate early in 2004 but that really didn’t happen.
CRUDE COMPLEX
While the energy complex managed a new high close
on Monday, most markets failed to get close to the old highs. While comments
from Saudi Arabia seemed to deflate prices and spark initial profit-taking, in
the end we think the Saudi comments were seen as bullish. In fact, we suspect
that the Saudi comments are an indication that OPEC is looking to get away from
price measures, as a governor of production decisions.
NATURAL GAS
Since oil prices have continued to hold high in the
recent range, we suspect that the relative cheapness of natural gas is providing
the natural gas market with support. In fact, without the run to $54.00 in crude
oil, we suspect that May natural gas would be closer to $6.20 than to $6.90. In
short, the relatively cheap BTU pricing and increased seasonal use of natural
gas has apparently altered the bearish composition of the market for the time
being.