Futures Point To A Lower Open
4/22/2005
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INTEREST RATES
The Treasury market slid back toward the
consolidation lows yesterday in the wake of a surprisingly strong Philly Fed
Business Index report. Seeing both initial claims and ongoing claims decline
sharply and then seeing the US equity market run up aggressively certainly
served to improve the macro economic outlook. In fact the early action in the
stock market probably resulted in a discounting of the soft leading indicator
reading.
STOCK INDICES
The stock market continues to get favorable news
flow this morning, with Nokia earnings apparently surprising European traders
with better than expected earnings. With the sharp gains yesterday, the bears
are somewhat discouraged and the slack economic outlook is at least temporarily
downplayed. Therefore, we wouldn’t be surprised to see the bulls attempt to
extend the recent bounce, especially since the US economic report slate is
empty.
DOW
The Google effect in Europe is serving to carry the optimism from Thursday into
the Friday morning US action. Even more surprising, is the fact that the stock
market saw decent US economic numbers yesterday after an extremely long pattern
of slack to soft numbers. Also surprising, is the fact that the stock market has
managed to discount the threat of even more aggressive US interest rate action
ahead. In looking at the charts, the June Dow could see a normal retracement
rally to 10,382 (off the March high to April low move) without altering the
existing down trend pattern. We might also note a gap in the June Dow up at
10,240 to 10,253 and that would certainly be a point that some players could
consider a fresh short play. Unfortunately the economic report slate is empty
today and therefore those looking to get short might not see cause to stop the
existing upward bias in prices.
S&P
The short covering action yesterday surprised Wall Street and with the scheduled
US economic numbers Thursday, the best readings in weeks, it is not surprising
that the market went on an impressive run. Like the Dow, the June S&P could see
a retracement rally to 1174.65, without even altering the overall downside
pattern. In other words, the market was significantly oversold and apparently
due for a considerable bounce! The question becomes, will the outlook for the
economy continue to brighten and in the process foster even more equity market
gains? In order to shift the short term trend in the June S&P up, the market
will have to mount a rise above 1161 into the close today. The bulls control but
fresh buys might have to risk positions to at least 1146.60.
FOREIGN EXCHANGE
US DOLLAR
So far, the revived view toward the US economy has
done little to bolster bullish sentiment toward the Dollar. Furthermore, in
looking back on the week, the Dollar bulls have to be extremely disappointed
with the misfire on the inflation theme. However, it is possible that talk of
change in the Chinese currency peg, or the talk of higher Chinese interest
rates, is in fact serving to push the Dollar down. We might also note that the
EU this morning is looking into Chinese textile import practices and that could
be a sign that the EU is getting a little fed up with the artificial Chinese
exchange rate. If the Dollar can’t rally in the face of blatant inflationary
readings and improvement in its economic outlook, then the path of least
resistance appears to be pointing downward. The 50 day moving average in the
Dollar comes in today at 83.39 and we see a critical pivot point at 83.38. We
continue to expect an 83.00 trade and possibly a decline to 82.50 in the coming
weeks. With the Chairman of the US Federal Reserve suggesting on the front page
of the Wall Street Journal this morning that China will have to move sooner,
rather than later on its currency peg, we wouldn’t be surprised to see the
Dollar consistently fall back toward the March lows around 81.43.
EURO
So far, the Euro is getting only indirect support
from the weakness in the Dollar. However, the bias is up in the Euro and step
wise gains are expected until the June Euro returns to the March highs. The Euro
would climb above the 50 day moving average today, with a trade above 131.13 and
that could increase technical buying interest in the currency. However, the Euro
continues to win by default, instead of economic or interest rate differential
prowess and that should keep gains to a minimum. However, it could be upsetting
to the bull camp to see a slide back below 130.38 today. The top of the uptrend
channel in the June Euro comes in at 131.63.
YEN
The Yen has apparently benefited from the improved
economic outlook for the US and also might be benefiting from the increased
political dialogue against the Chinese currency condition. In fact, we continue
to think that a defacto appreciation in the Chinese currency, also serves to
pull up the Yen. The Yen is making the overnight upside breakout despite the
fact that February Japanese Industrial output declined by a whopping 1.1%. In
other words, outside factors seem to be driving the Yen up and given the
overnight extension, we suspect that the June Yen is headed up to the bottom of
the February and March consolidation up around the 95.00 level.
SWISS
While economic uncertainty would seem to have
declined, the Swiss is still generally managing to rise. In other words, the
Swiss continues to rise off the weakness in the Dollar and not because of solid
long term fundamental reasons. However, we can’t argue against more near term
gains but we expect the gains to be hard fought and slowly won. Seeing the June
Swiss fall back below 84.61 could undermine the slightly positive track in place
into the opening today.
BRITISH POUND
Like the Yen, the Pound isn’t being held back by
slack domestic economic readings. In fact, overnight the UK posted a slightly
weaker than expected 1st quarter GDP reading of +0.6% but right now the Pound
really isn’t turning off the near term economic report flow. We continue to
think that the Pound will retest the March highs in the near term but to forge a
long term upside breakout, the June Pound would have to see a rise above 191.73
today.
CANADIAN DOLLAR
While the Canadian is close to an upside inflection
point on the charts and did manage to post an impressive retail sales reading
yesterday, we are not sure that the market is poised to turn the trend up.
However, a critical down trend channel is violated with a rise back above 81.74
but a closer in pivot point is seen around this week’s highs of 80.97.
METALS
OVERNIGHT
London Gold Fix $433.40 Unch LME COPPER
STOCKS 60,675 metric tons +5,950 tons COMEX Gold stocks 5.987 ml oz -59,687 oz
COMEX SILVER stocks 103.5 ml Unchanged
GOLD
The gold market surprisingly failed to get a lift
from the sudden improvement in macro economic sentiment and the sharp rise in
the US equity market. Therefore, it is clear that the main driving force in gold
is the direction of the Dollar. While the extremely hot US inflation figures
this week should have driven the Dollar higher that certainly wasn’t the case.
SILVER
The silver market at times yesterday appeared as if
it was prepared to breakout to the upside, but eventually slipped back to
critical pivot point support of $7.25. Silver continues to get more fund
interest than gold and also seemed to get more of a lift off the sharp rise in
the US equity market. While silver will mostly track the direction of the gold
market and therefore the Dollar, it might also track the direction of the US
equity market.
PLATINUM
The platinum market continues to consolidate most of
the recent gains and surprising wasn’t overly impacted by the rising chorus of
calls to float the Chinese currency. The platinum market also discounted talk
that China might have to raise interest rates to rein in growth. We suspect that
the sharp rise in the US equity market diverted attention away from the
potential negative Asian dialogue.
COPPER
A massive rise in LME copper stocks should limit the
copper markets ability to directly return to this week’s highs. It should also
be noted that Shanghai copper stocks increased by a minimal 587 tons to stand at
21,591 tons and therefore the supply news this morning is mostly bearish to
copper prices. Chinese copper price action was softer overnight, which isn’t
surprising in the wake of calls to float the currency and to raise Chinese
interest rates.
CRUDE COMPLEX
The energy complex attempted to track lower
Thursday but eventually managed to recover in the late afternoon action.
Initially projections from a private tanker movement service pressured prices on
Thursday, as that service indicated that OPEC export flow might increase by
320,000 barrels per day into the May 7th time frame. We also think that oil
prices were dampen early Thursday, by concerns that China might be poised to
hike interest rates, but with a generally better than expected flow US economic
readings and the sharp rise in the US equity market, the recent concern of
slackening energy demand has been mitigated.
NATURAL GAS
The weekly gas storage report yesterday showed an
injection of 50 bcf compared to estimates between +70 bcf to +30 bcf. Gas
storage now stands at 1,343 bcf with stocks 270 bcf above year ago and 275 bcf
above the 11 year average. Gas stocks have increased by 53 bcf over the last
four weeks.