Futures Point To A Lower Open
4/26/2005
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INTEREST RATES
With the outlook for global equity markets a
little weaker today, the bias in Treasury prices remains up. In fact, despite a
Wall Street Journal credit section article this morning, that points out a
pattern of declining foreign central bank interest in US Treasuries, this market
remains entrenched in a weak upward track. The WSJ article suggested that
private accounts had picked up the slack of waning foreign central bank buying
of US Treasuries and that simply leaves the bulls with a minimal amount of
control.
STOCK INDICES
While the stock market managed to remain near the
consolidation highs in the action Monday, it would seem that the market is
attempting to maintain a minor bullish tilt off merger activity and not because
the outlook for the future is improving. However, it was positive that Boeing
received a large plane order from Air Canada yesterday and that other heavy
industry type stocks were able to rise on Monday. Since most of the gains
yesterday were forged in the waning hours of the session and volume has declined
on the bounce off the April lows, we are still not inclined to hop on the
bullish bandwagon.
DOW
We think that the double top at 10,256 over night is going to be a significant
near term topping point. While the macro economic outlook isn’t expected to
deteriorate significantly, we suspect that the Conference Board readings this
morning will foster light selling. In fact without some surprisingly strong
reading from the US economic report slate today, we suspect that the June Dow is
poised to fall back toward 10,172 and the Dow could see even more significant
declines in the event that oil prices strengthen, or the currency flap with
China intensifies. In fact, with the New York Times suggesting that advertising
rates are falling off sharply, we have to think that stock prices are primed to
give back a large portion of the gains made off the April lows. In fact, we
would not be surprised to see the June Dow track toward the 10,083 level later
this week!
S&P
While the June S&P has managed a convincing pattern of higher lows, off the
April low, volume did tail off on the April rally. We must note that the pattern
of higher lows would be violated today with a dip back below 1155.50 but a rally
back above 1161.50 in the first hour of trade today would certainly serve to
temper our bearishness. Yesterday, it seemed like the US market was aided by the
residual support from last week’s earnings, but the initial earnings report
reaction this morning seems to be negative. Therefore, the path of least
resistance is pointing down but the market lacks anxiety and that should keep
downside momentum to a minimum. Traders that bought puts yesterday on our
suggestion should at least hold until the 1150 level is retested.
FOREIGN EXCHANGE
US DOLLAR
The Dollar has once again returned to the top of the
recent consolidation zone and might be seeing a slight bit of support off the
news this morning that German economic forecasts for 2005 were cut in half. We
also think that the Dollar is seeing some support off the idea that China is
going to take its time in implementing currency changes. While the direct impact
on the Dollar and the Euro from the Chinese currency situation is difficult to
ascertain at times, the impact of the Chinese currency situation has certainly
served to lift the Yen recently, which in turn is probably dampening the
strength in the Dollar. However, overnight renewed deflationary developments in
Japan have given the Dollar a fresh lift. Given the ongoing concern for the US
recovery, the US numbers this morning might serve to thicken overhead resistance
for the Dollar. However, the Dollar is almost in the middle of a rather wide
trading range of 85.09 to 83.31, and that means that sellers should wait for
more gains to get short and buyers need to wait for a retest of yesterdays lows
before getting long. We favor the downside for a position play but think that
traders have to sell this market at higher levels.
EURO
A series of dismal German economic forecasts this
morning undermines the Euro. In fact, a series of German forecasters cut 2005
growth rates by half and with unemployment in Germany sitting right on post war
highs, it is clear that the economic outlook is an undermine for the Euro.
Apparently the economists suggested that high oil prices were responsible for
the reduced growth projections and that would seem to put the Euro in the same
mess as the US Dollar. However, like the Dollar, the Euro sits close to the
middle of the anticipated near term trading range but would not seem to have the
technical setup to alter the existing longer term down trend pattern that has
been in effect since the late December highs. Pushed into the market on a short
term basis, we would have to be short on minor rallies, looking for a slide back
down to 129.41 to 128.93.
YEN
The Yen continues to get support from the Chinese
currency situation, even though the US Dollar and Euro are confused on the
issue. We also suspect that deflationary concerns are playing a part in the
Yen’s weakness this morning, as consumer prices declined by a startling 0.5%
overnight. In other words, the macro economic condition is undermining the yen
and possibly fostering some profit taking mentality, following the steep run up
off the April lows. With fixed income players in Japan seeing the consumer price
reading contraction, as a sign that they will see the low domestic rate issue
continue well into the future, it is possible that some money moves out of the
Yen. Therefore, we see the Yen sliding back toward critical support of 94.67 and
possibly down to 94.25 in the coming sessions.
SWISS
After a big range down probe yesterday, the Swiss
seems poised to slip gradually lower over the coming sessions. With the whole
Chinese currency situation calming down slightly, we suspect that some minor
flight to quality liquidation is taking place and we also think that minor chart
failures have prompted some additional selling. Hopefully traders took our
advice yesterday to sell a September Swiss and to buy 3 Sept Swiss 87.50 calls
as a return to the April consolidation lows could serve to finance a decent
portion of that long term call position.
BRITISH POUND
The Pound has made a bad technical trade overnight
with a slide below 190.00. With weak CBI Industrial output figures softening,
the Pound is subject to a corrective slide. The up trend channel forged by the
rise off the March lows gives a near term downside target of 188.77 today and at
188.99 on Wednesday. The soft numbers probably downgrade the chance of any near
term rate action from the BOE and that could justify a consolidation pattern
ahead after some initial weakness.
CANADIAN DOLLAR
The Canadian can’t seem to garner much in the way of
consensus. We do detect a slight downward bias but we don’t see the market
failing at critical support of 80.45, unless US economic numbers are
surprisingly strong. It is positive that the rally off the April low in the
Canadian was accompanied on rising volume and open interest action.
METALS
OVERNIGHT
London Gold Fix $434.70 +1.70 LME COPPER
STOCKS 60,075 metric tons +175 tons COMEX Gold stocks 5.987 ml oz -59,895 oz
COMEX SILVER stocks 103.5 ml Unchanged
GOLD
Despite the lack of definitive direction in the
Dollar yesterday, the gold market managed to maintain a slightly bullish
formation on the charts. While the gold market didn’t pay much attention to news
yesterday of reduced gold production at a major gold producer, we suspect the
production element is set to provide back ground support to prices and could
allow gold to rise easier in the future, especially if investment or physical
demand were to rise. Overnight another major gold producer, “Lihir” noted a
decline of 101,370 ounces in their first quarter production figures, but the
company suggested that the lower output was the result of coordinated
maintenance.
SILVER
Like gold, the silver market is coiling, but the
market has also managed to increase volume and opening interest on the rise off
the April lows. However, during the session yesterday, the silver market did
show some negative divergence with the gold market and with world equity prices
this morning a little weaker than yesterday, we have to judge the external
market impact as negative for silver today. In fact, the early scheduled US
economic report slate today looks to undermine silver, but it does seem like
silver has weakened the link between macro economic numbers and daily price
action.
PLATINUM
While the rest of the precious metals markets are
having trouble settling on near term direction, the platinum market is having no
trouble carving out more gains. Even with the platinum spec and fund long
thought to be reaching up to the highest level in 5 years and the platinum
market lacking fresh news on the supply front, it would seem like this market
has the resolve to rise toward the old highs. Apparently even a minimal increase
in physical demand is capable of pushing prices back to the highs and that would
seem to be confirmation of ongoing crimped Russian supply flow.
COPPER
The copper market flashed lower on Monday but then
managed to recoil away from those lows as if the 145.45 level was some type of
solid value zone. While some value hunters moved into play during the US session
Monday around the lows, the overnight action saw Chinese copper prices rise off
fresh supply tightness talk. In other words, the bulls are back in charge and
with many in the trade expecting Chinese players to buy consistently ahead of
the coming extended holiday next week.
CRUDE COMPLEX
The energy complex came under pressure in the
wake of the meeting between President Bush and Saudi officials yesterday
afternoon. While the President later indicated that there would be no quick
relief, as a result of the meetings on Monday, the market seemed to bank some
profits anyway. Prince Abdullah suggested that providing more crude oil to the
US would not solve the problem facing the US but even that didn’t seem to
provide any support to prices.
NATURAL GAS
While the residual bullish impact of cold US weather
is mitigating slightly, weakness in the crude oil market might facilitate even
more profit taking in Natural gas. Near term critical support in the June
natural gas market comes in at $7.11 and then again down at $7.07. Since the
natural gas forged a sharp spike up and then reversed aggressively Monday and in
the process fell through a series of critical support levels on the charts, we
suspect that more selling is ahead.