Futures Point To A Lower Open
4/7/2005
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INTEREST RATES
While the stock market is acting like the economy
is progressing, the Treasury market doesn’t appear to carry that same opinion.
In fact, some major wire houses are suggesting that bonds are attractive due to
the ongoing pattern of higher interest rates, the threat of high oil prices and
most importantly that inflation fears are overblown. In fact, one Brokerage firm
is suggesting that most of the commodity price gains are late cycle gains and
that oil prices are set to soften.
STOCK INDICES
The stock market continues to grind higher, but
we are not exactly sure that the basis for the ongoing buying interest is that
solid. Certainly the market expects some favorable same store sales figures this
morning and recent declines in oil prices seemed to give the market a false
sense of security. We also think that many players expect to see favorable news
from the earnings front and in the absence of patently disappointing economic
numbers, a distinct inflation threat or significantly higher oil prices it would
seem as if the bull camp will maintain control.
DOW
The Headline in the Wall Street Journal indicates that Blue Chip stocks rose on
Wednesday off the third straight day of declines in oil prices and that is a
true statement. However, while equity prices should continue to inversely track
the direction of oil prices, it would not seem like persistent short covering
gains in stocks are to be expected in perpetuity, especially given that oil
prices remain within striking distance of contract highs and little seems to
have changed in the extremely bullish energy market setup. Certainly Greenspan
seemed to give his blessing on the prospect of lower oil demand but we must also
point out that Greenspan a year ago, suggested that high oil prices were
transitory. Well Greenspan was right last year, high oil prices are transitory
but that apparently means that high oil prices eventually become even higher oil
prices. While we can’t argue against a near term continuation of the bull tilt,
we doubt that the June Dow will be able to rise to the late March high level of
10,558, without much better than expected US economic readings, or a June crude
oil price decline below $57.00.
S&P
A rise in GM seemed to give the S&P an addition lift yesterday morning. Like the
Dow, the S&P saw the ongoing sloppy to sideways action in the energy complex as
a positive and given the oversold nature of the stock market since the March
highs, we can totally understand the return to the mid March pivot point around
1190.00. However, just as Greenspan sees high oil prices as transitory, we see
the current bull tilt in stocks as transitory. In order to change our opinion
toward the market, we will need to see much stronger and impressive daily
economic information and at least a June crude oil price under $57.00. Make no
mistake, the near term direction of stocks continues to be dictated by the
energy complex. Critical support is pegged at 1188.00 and a logical resistance
point comes in at 1193.30.
FOREIGN EXCHANGE
US DOLLAR
The Dollar has recently made a series of lower lows
and with the inflation threat being downplayed, we have to think that the near
term path of least resistance is pointing downward. In fact, the market sees the
last 3 days or weakness in energy prices and embraces that as a sign that
inflation fears are overblown. Even with crude oil prices back up by 50 cents
this morning, it would not seem like the market is inclined to rekindle the
inflation threat. A number of brokerage firms are so willing to play down the
inflation threat that they are making fresh recommendations in the Treasury
market. While we doubt that the US economic report slate is going to get that
much play today, it would seem like the numbers will somewhat countervail
selling in the Dollar but in the end we think that the Dollar will remain
somewhat under the gun. In fact, under the current flow of news we would not be
surprised to see the June Dollar Index slide back to and below the 84.00 level
in the coming week!
EURO
The euro has managed another higher high for the
move overnight and would seem to be set to claw out more gains in the coming
sessions. With the economic information from the Euro zone thin, the US
inflation threat mitigated and the technical condition of the Euro recently
oversold, we would not be surprised to see a near term rise to 129.83 in the
June Euro and eventually to 130.16 sometime next week. In conclusion, US
inflation prospects are the main driving force in the market and there is little
news expected from that front in the near term. In short, a very weak upward
bias is in place, with decent support coming in at 129.02 today.
YEN
The BOJ was out this morning suggesting that
economic conditions in that country are still bordering on deflation instead of
inflation and the BOJ also suggesting that recent wild fluctuations in the
exchange range are hindering the recovery process we doubt that the Yen is
poised for significant gains. In fact, the BOJ seemed to make it clear that
implementing an inflation target under current conditions, would not result in
any change to the interest rate structure. In other words, Japan is too slow to
even consider hiking interest rates. However, we have to think that recent
weakness (mostly sloppy action) in energy prices and the gains in global equity
prices have simply taken the pressure off the Yen temporarily and that a bounce
back to 93.06 in the June Yen should be considering a selling opportunity.
SWISS
The short covering impetus continues with the June
Swiss probably capable of rising up toward chart resistance of 83.95. However,
in order to totally shake off the down trend pattern, that has been in place
since early March, it might be necessary to expect a notable setback in markets
US recovery outlook. In short, let the Swiss bounce for a few more sessions
before looking into a fresh short sale.
BRITISH POUND
Declines in UK manufacturing continue to undermine
the economic outlook and really hinder the Pounds attempt to short cover off the
recent low. With the coming election flap, slack economic readings and no
statement from the BOE in the wake of a “no change” in rates decision, we can’t
get that bullish over the Pound above the 187.50 level in the June contract.
Near term support on the charts comes in at 186.94 and we can’t rule out a
temporary blip up to 188.10.
CANADIAN DOLLAR
A pattern of lower highs and lower lows seems to
leave the Canadian in a near term down trend pattern. In fact, we wouldn’t be
surprised to see the June Canadian touch the 81.00 level in the coming week’s
action. In order to turn the near term downward tilt around the June Canadian
would have to manage a rise back above the trend line at 82.68 today and at
82.61 on Friday.
METALS
OVERNIGHT
London Gold Fix $426.40 -0.20 LME COPPER
STOCKS 46,625 metric tons +450 tons COMEX Gold stocks 6.109 ml oz Unchanged
COMEX SILVER stocks 102.6 ml -533,706 oz
GOLD
After a slightly positive trade on Wednesday, the
gold market would seem to maintain a slightly positive track today, especially
with the Dollar showing early weakness and world equity prices attempting to
carve out more gains on the charts. However, in order to maintain a positive
track and climb above near term critical resistance just above $431, the gold
market will probably need to see favorable economic reports from the US. In
short, the gold market has seen the impact of the Dollar wane slightly, with the
gold market paying more attention to the prospect of growth, than it is to the
prospect of a lower Dollar.
SILVER
While the silver market is certainly tracking macro
economic developments and is mostly following physical demand type fundamentals,
we would not expect silver to leap above the late March high without a major
slide in oil prices. Some Press sources are suggesting that silver supplies are
tight, but until exchange stocks fall below 100 million ounces we seriously
doubt that a tight supply theme is going to pull in a broad sector of fresh
buyers. For both a short term and long term look at the silver stocks situation,
call 312-786-4450 and request an email of the silver exchange stocks charts.
PLATINUM
The platinum market has forged a moderate two day
rally and would seem to be catching the same bullish fundamental tilt as the
silver market but in order to extend the platinum rally to the $870 level, we
suspect that the positive view on the economy will have to be confirmed by even
more gains in equity prices. In the near term, we see extremely heavy resistance
on the charts at $868.4 and little in the way of support until the $855 level.
COPPER
The copper market forged an impressive rally
yesterday and managed to hold right up under the recent contract highs. Chinese
copper futures were sharply higher overnight but those gains seemed to have come
in response to the big US gains on Wednesday. However, with Chinese copper
prices hitting a record overnight and the world equity markets catching a
temporary lift, we are not surprised with the return to the recent highs.
CRUDE COMPLEX
The Energy complex really posted some strange
price action on Wednesday, as crude oil stocks rose enough to expect pressure on
crude oil prices, but crude prices eventually managed to recover in the wake of
the bearish inventory reports. Furthermore, the product markets hardly showed
any change in stocks, but yet product prices traded sharply lower and held
significantly lower. In the end, oil prices generally remained under pressure
partly because the weekly inventory information beyond the headline figures
served to discourage bottom picking.
NATURAL GAS
With the natural gas market expecting a minimal draw
today and the regular energy complex back on its heels somewhat early in the
week, the natural gas market is vulnerable to more selling. In fact, with the
latest 6 to 10 day forecast (April 10th to 14th) for the Northeast and Midwest
calling for above normal temperatures, we can expect some minor ongoing small
spec selling. This week’s storage data officially starts the injection season,
with stocks standing at a comfortable 1.239 bcf, or 157 bcf above the 11 year
average and 222 bcf above last year.