Futures Point To A Lower Open
4/15/2005
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INTEREST RATES
Considering all the negative sentiment operating
in the stock market, the sudden realization that high oil prices are hindering a
number of industries and the fact that the Fed is fixated on hiking interest
rates, it is no wonder that stock prices fell the lowest levels of the year and
that Treasuries are garnering more pronounced favor. The news apparently isn’t
getting any better this morning with the early round of US corporate earnings
reports somewhat lacking. About the only thing less supportive of Treasuries
this morning, as opposed to Thursday morning, is that energy prices have
softened again.
STOCK INDICES
The carnage looks to continue with the early
earnings news this morning failing to turn the head of the beast. The White
House seems to have been stirred from its slumber on the need to address the
energy situation but it would seem like the horse is already out of the barn on
the economy. While the markets realization of the negative influence of ultra
high oil prices seems to have come on rather quickly, the economic numbers have
been tailing off for a least a couple months.
DOW
The early overnight action in the Dow Futures is disturbing, as we have a gap
down thrust in the wake of a series of key earnings reports. At this point, we
are not even sure that a favorable Industrial Production reading would serve to
alter sentiment, as the market recently has looked at favorable numbers and
concluded that good growth now, simply won’t hold into the future! In other
words, the glass is half empty and risk would seem to outweigh reward. Without
all the other baggage the G.E. news would have been seen as a bullish catalyst,
but it would seem that even more declines are needed, before bargain hunters are
enticed into the market. In fact, we would not be surprised to see the June Dow
slide down to 10,145 in the action today. In fact, unless the Industrial
production report comes in at +.3% or +.4% or crude oil falls by $2.00, we
aren’t sure the bulls have much of a chance today.
S&P
From the macro economic front, the conclusion is pretty bearish and from the
technical front, it would seem like a moderate washout is still ahead. In fact,
we would not even begin to look for a bottom until there is a clear cut
classical exhaustion type formation on the charts. In other words, we won’t look
for a bottom until we have seen a big range down washout that punishes prices
severely. Near term downside targeting comes in at the old gap of 1146.10 to
1143.40 basis the June contract. Initial support might be seen down at 1153.30.
FOREIGN EXCHANGE
US DOLLAR
The rally in the Dollar seems to be out of place
considering the negative US stock market action, the inability to move
aggressively on an alternative energy plan and perhaps most importantly it has
managed gains despite the fact that China isn’t even attending the upcoming G7
meeting. We don’t blame China for staying away, as they have 9% growth, they are
consuming a large portion of the worlds resources and currently hold a lock on
global manufacturing. Like big oil companies, why should China want to change
the way they transact international trade. Therefore, we suspect that the recent
gains in the Dollar, off the hope of some change are misguided. We also think
that the hope for even higher US interest rates is fading and we also think that
the hope for above normal equity returns in the US is misguided. Maybe the
Dollar is being driven in the short term by a desire to buy US Treasuries, but
that element can’t be expected to last long. Therefore, those that are long the
Dollar would be advised to pick a near term objective and take profits. If you
want to stay long for a breaking of the logjam on the Chinese floatation issue,
buy a cheap out of the money call or hold long futures and purchase an expensive
put against the position.
EURO
The euro should be getting a windfall by the
travails being seen in the US equity market but so far that isn’t the case. In
fact, instead of seeing the Euro get a flight to quality flow, the currency has
remained near a downside breakout point on the charts. However, in the coming
sessions we see an extremely critical pivot point at 128.28 on the downside and
128.73 on the upside. In order to see the Euro rise sharply today, we might need
to see a flat or contractionary US Industrial production report. The Euro
apparently isn’t the primary market in the current scheme, and that could mean
sloppy sideways action ahead.
YEN
The Yen shows almost no recovery action and with
Japan and China entering into a series of political flaps, it would seem like
even more trade issues are set to surface. The Yen is probably also suffering
from the same negative macro economic outlook as the US and that could
facilitate a return to the April lows in the coming sessions. However, the Yen
did manage to reject a steep overnight slide and might have found temporary
support above 92.56. We suspect that the overall trend in the Yen is down, but
we are not sure the market will get the information today to force a downside
breakout.
SWISS
Apparently economic and financial conditions haven’t
risen to the level that even resembles an anxiety event, as the Swiss isn’t
seeing much in the way of flight to quality buying interest. However, the Swiss
did manage to recoil away from an aggressive selling binge overnight and that
might leave the market with solid support down at the 82.49 level. Pushed into
this market, we would be long rather than short, as the Dollar might have little
to stand on, into the opening Monday morning.
BRITISH POUND
The Pound might be set to come back into favor. In
fact, with the market respecting channel support overnight, we suspect that the
Pound will attempt to reach the highest level since mid March. Those that get
long the Pound should use a stop at the up trend channel support line of 186.60
and look for an eventual return to the early March consolidation that was bound
by 190.00 and 192.27.
CANADIAN DOLLAR
The Canadian continues suffer under a bad technical
setup, concerning political developments and because of its proximity to the
struggling US economy. Therefore, all roads would seem to lead to even lower
Canadian prices. Near term downside targeting comes in at 80.12.
METALS
OVERNIGHT
London Gold Fix $423.50 -$3.70 LME COPPER
STOCKS 52,125 metric tons +800 tons COMEX Gold stocks 6.11 ml oz +2,540 oz COMEX
SILVER stocks 101.7 ml -308,361 oz
GOLD
Certainly the combination of a soaring Dollar and
sagging economic fears contrived to spark a liquidation wave yesterday. However,
considering where prices were around the lows on Thursday, we saw the bounce off
the low as a sign that some value was found around $425. On the other hand, the
market fell back below that level again in the overnight action and that would
seem to suggest that the market remains weak.
SILVER
So far, the deflationary selling pressure in silver
hasn’t been overwhelming and it wouldn’t take much improvement in the macro
economic outlook to see the May silver respect even number $7.00 support.
However, in the event that the US numbers this morning are disappointing, and
the US stock market resumes the selling on the opening today, it would not be
surprising to see prices fall down to $6.92. While some think that the declining
inflation threat is causing selling in silver, we happen to think that the
sagging economy is a more pronounced threat to silver in the coming sessions.
PLATINUM
The platinum market fell back to the bottom of the
consolidation and might be subject to an even further decline. While the
platinum market is largely immune to Dollar pressure, the combination of a
soaring Dollar, deteriorating economic views and semi vulnerable technicals
could result in July platinum sliding down to $853. While we haven’t seen
aggressive fund long participation in platinum, the widespread and broad based
fund liquidation wave present in the market this week, should continue to put
pressure on platinum prices.
COPPER
Shanghai copper stocks declined by 1,153 tons to
stand at 21,004 tons but that is only minimally supportive in the current
bearish environment. Certainly the broad based commodity fund liquidation wave
this week exaggerated the slide in copper this week, but the funds weren’t the
exclusive cause of the slide. We suspect that the deteriorating macro economic
condition, combined with a soaring Dollar and concerns for both GM and Ford
generated significant concern for future copper demand.
CRUDE COMPLEX
The energy complex seemed to finish off the
liquidation pulse (at least for the near term) on Thursday. However, it would
also seem like the market managed the bounce in the face of additional bearish
supply news and certainly a continued downgrade of global energy demand
expectations. With a private service now predicting a 340,000 barrel per day
increase in “April” OPEC oil shipments, one might have expected the downdraft to
rekindle itself.
NATURAL GAS
The natural gas market certainly showed it is
following crude oil as the bounce in crude oil facilitated a hook reversal type
day yesterday. While some might suggest that the weekly storage injection
yesterday was bearish, they might also suggest that the annual surplus tally was
bearish and that overall storage levels are bearish, but in the near term, the
BTU price comparison with crude oil, is the dominating market focus. For some
reason, we get the sense that natural gas consumption is slightly less elastic
to economic pressures and that is because natural gas isn’t as critical in the
personal transportation sector.