Futures Point To A Lower Open
3/9/2005
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INTEREST RATES
The technical breakdown in the Treasury market
continues with weak overnight action. It is also becoming clear that the pace of
growth in the US economy is better than what the trade is giving credit for and
that is another pressure on Treasury prices. In fact, the Press is full of
stories about rising business spending activity and that is in turn causing some
economists to revise growth forecasts for 2005 upward.
STOCK INDICES
Despite the continued divergence between the
upper and lower tier of the market, the bull camp would seem to have a measure
of control. With a number of economists prepared to raise overall US growth
projections, off rising business spending figures, we can understand the
periodic optimism, even in the face of soaring energy prices. In fact, with the
Dollar falling sharply and nearby crude oil prices touching $55.75 yesterday
afternoon, it is a major victory for the market not to have come apart
yesterday.
DOW
Overnight the March Dow has made an impressive upward adjustment and is probably
doing so off the upbeat economic projections being thrown around by the Press.
In order to maintain a positive tilt, the March Dow will have to hold above a
critical pivot point of 10,940. Near term resistance is seen up at 10,956 and
that resistance could be tested, if the weekly oil inventory readings managed to
temporarily diffuse the powerful ongoing rally in the energy complex.
S&P
In order to shift sentiment squarely into the bull camp, the March S&P will need
to manage a rise above 1223.30 this morning and even more importantly, the
market will have to hold above 1218.60 through the 9:30 cst weekly energy
inventory readings. Trend line support in the March S&P comes in at 1215.05.
FOREIGN EXCHANGE
US DOLLAR
Another downside washout this morning would seem to
leave the Dollar in the same posture as was present yesterday. In fact, the bear
camp has to be even more confident about their positions this morning, as the
Dollar is even lower, despite the fact that US growth projections are being
raised. In other words, even a strong economy isn’t changing the view toward the
Dollar. In conclusion, even if the US economy recovers, the trade balance
improves, the budget deficit improves and consumer credit levels decline, the
market might not be inclined to push money toward the Dollar. Therefore, it is
clear that international diversification is underway and that the prospect of
even higher yields in the US isn’t going to attract capital. Near term downside
targeting, comes in at 81.41 and possibly even 81.00. The Fed Beige Book this
afternoon might provide a minor support for the Dollar, but the trend appears to
be pointing directly down.
EURO
The Euro is the prime benefactor of the Dollar
weakness and with the market basically throwing out the economic differential
argument, it is clear that the weaker Euro zone economy isn’t going to get in
the way of additional upside action in the Euro. Near term upside targeting and
a pivot point for the March Euro comes in at 134.00 and then again up at 134.19.
In conclusion, this isn’t about Euro zone growth, interest rate differentials or
other fundamentals, it is about not being in the Dollar!
YEN
A massive upside extension in the Yen overnight
shows that improving growth in the US is a direct windfall to the Japanese
economy and to the Japanese currency. While the March Yen has some near term
resistance seen up at 96.44, we suspect that the Yen will be able to get above
that level after some minimal back and fill action. However, after a couple
closes above 96.50, we suspect that the BOJ will begin to toss around
intervention ideas.
SWISS
So far, the Swiss hasn’t participated in the Dollar
washout, as fully as many would have expected. In fact, we suspect that flight
to quality considerations have been replaced by interest in the bellwether
currencies like the Euro and the Pound. Therefore, the path of least resistance
is up, but the 86.47 level appears to be fairly significant resistance.
BRITISH POUND
A quasi double top in the Pound over the last 24
hours, might indicate a slight pause in the upward thrust and that probably
comes as a result of the economic optimism toward the US economy. However, once
the optimism wears off (possibly because of more energy price gains) we suspect
that the Pound will return to the upside breakout point on the charts.
CANADIAN DOLLAR
The upward extension in the Canadian this morning,
clearly suggests that the trend is up and with the US economy being upgraded,
both the Canadian export sector and the Canadian economy are given a lift.
Therefore, the next upside targeting in the March Canadian is seen at 83.52.
METALS
OVERNIGHT
London Gold Fix $439.90 +$5.05 LME COPPER
STOCKS 51,900 metric tons +625 tons COMEX Gold stocks 5.913 ml oz Unchanged
COMEX SILVER stocks 101.4 ml unchanged.
GOLD
Another new low for the move in the Dollar should
leave the gold market solidly supported after its impressive upside breakout
yesterday. While the net spec and fund long is expanding rapidly we still don’t
think it has reached a level that would limit near term gains. With the April
contract managing to rise above the $440 level it would seem like a new trading
range has been forged, with support now pegged at $440 and resistance seen at
$445 to $448.
SILVER
With positive leadership from gold expected to
continue and expectations of improved US economic growth, we suspect that May
silver has a chance to forge an upside breakout similar to gold’s action on
Tuesday. However, there is a bit of technical resistance on the charts around
$7.61 but a trade above that level could project a rise to the $7.63 to $7.73
consolidation level. While the market isn’t totally convinced that physical
demand is set to rise along with overall economic growth, the threat of
increased physical demand has to discourage sellers.
PLATINUM
Given the positive bias in gold and silver, it is
clear that platinum has an upward tilt but once again platinum appears to have
significant overhead consolidation resistance. Near term pivot point in the
April platinum comes in at $880 but it would seem that the historical pricing in
platinum, is limiting the markets ability to follow the rest of the metals to
even higher levels.
COPPER
Like the precious metals, the copper market is the
benefactor of a number of bullish conditions. In addition to a falling Dollar,
the funds continue to have a persistent interest in the long side and it would
also seem like the prospect for an expansion in physical demand is in the cards,
with a number of economists revising growth estimates upward. Certainly the
China element underpins copper but there is some concern that Chinese demand is
leveling off, with Chinese steel prices recently declining and some Chinese
treatment fees being reduced in an attempt to attract business.
CRUDE COMPLEX
The energy market forged another patented
recovery move after early weakness yesterday and managed the run off the usual
combination of strong demand expectations and potential tightening of future
stock projections. The EIA apparently raised the Chinese oil demand outlook and
Chinese demand is certainly seen as the lynchpin for the bull market of the last
two years. Some Press reports suggested that the rally was motivated by cold
weather but we suspect the demand forecasts from the EIA started the rally and
the weather simply accentuated the recovery.
NATURAL GAS
The bullish pull of crude oil continues to lift
natural gas prices but we also suspect that cool weather and seasonal industrial
buying are also at work in the marketplace. The Natural gas/Crude BTU price
comparison chart leaves natural gas at an extremely cheap relative level of
2.53, versus the recent maximum of 3.25 and that should underpin May natural gas
prices above $6.75. Historically the natural gas market seems to run into heavy
resistance on the weekly charts up around $7.54 but that leaves quite a
significant near term potential but we also suspect that natural gas will lag
behind crude on the upside and lead crude in the event of a surprise and
aggressive liquidation.