Futures Point To A Slightly Higher Open
INTEREST RATES
We suspect that some short covering might be seen
today, as the PPI report scheduled for release later today has once again been
delayed due to statistical problems. Apparently the new inputs into the number
are causing problems in the collection and or calculation of the reading. It is
possible that most young economists don’t even know what inflation looks like in
reality and doubt the hot figures that continually to pop up in the PPI.
STOCK INDICES
We had hoped that the stock market would simply
down play the rising rate hike talk but as can be seen from the weak action
yesterday, the market can’t ignore the rate issue. However, it would seem like
the bear camp has only limited control and that conditions are not fraught with
anxiety. Therefore, we suspect that a gradual slide in stock prices is ahead.
DOW
While the June Dow has managed to hold inside the prior day’s lows and within
relative proximity to the recent highs, it doesn’t appear as if the bull camp is
going to give up easily. In fact we think the Dow will probably continue to
outperform the S&P. Critical chart support today comes in at 10,360, with a
short term downward bias, but the current overall trend is still generally
pointing upward.
S&P
The S&P took out the prior day’s lows overnight and could have the capacity to
slide to 1122.40, but in order to get a downside thrust going, we need to see
the rate hike issue hyped. A logical correction point in the June S&P comes in
at 1120.10 but the bear case is thrown off with a move back above 1135.60 today.
FOREIGN EXCHANGE
US DOLLAR
From the action over the last two weeks, it is clear
that one thing drives the Dollar up and that is direct expectations of higher
interest rates. In fact, good economic numbers don’t necessarily promote Dollar
buying, as it appears to take dialogue of higher rates to get the markets full
attention. With the PPI report delayed today the bull camp in the Dollar is
disappointed as that means the anticipated inflation warning is not presented to
the marketplace. Therefore, we suspect that the Dollar might weaken unless other
early US numbers both manage to show a strong ongoing US expansion. In the near
term, the Dollar looks to slide to near term support of 89.88 but will probably
maintain an overall positive bias. What Fed speeches there are today, come after
the markets close and therefore long profit taking might be the big focus of the
coming session.
EURO
Maybe the Euro found solid chart support around 120
but it is clear that the main driving force for the Euro is provided by failures
in the US, not by strength in the European economy. In comments overnight the
French Finance Minister was suggesting that there is no reason to think that the
Euro zone recovery is failing and that confirms the suspect standing of the
macro economic differential. In other words, the Euro can’t rally on its own
merits, it has to capture money flowing out of the Dollar. In conclusion, the
world is looking for the prospect of higher rates and isn’t really concerned
about economic pace. The Euro has declined below critical moving average levels
and that could indicate that a down trend is in place.
YEN
Another big gain in the Nikkei overnight leaves the
yen in prime condition to consolidate recent gains in the currency and perhaps
work even higher next week. Favorable Machinery orders show that the Japanese
recovery has a backbone. Buy the September Yen on a correction today to 91.33.
^next^
SWISS
Damage on the charts leaves the Swiss in a downward
motion that might end up with the currency re-testing the 79.00 level. Rising
rates in the UK and potentially rising rates in the US should continue to foster
profit taking selling in the Swiss.
BRITISH POUND
The BOE raised rates 25 basis points and suggested
that excess capacity is contracting, household spending was rising sharply and
that the global economy was recovering. However, the Pound has decided to sell
the fact and has failed at critical support. We have to wonder if potential
political issues aren’t adding to the negative outlook for the Pound. Near term
downside targeting is seen at 179.82.
CANADIAN DOLLAR
Because of the resurgence in the Dollar, the
Canadian sees its overbought technical condition apply some pressure to its
currency. Near term downside corrective targeting is seen at 72.95. We think the
trend is up but that a back and fill correction is in order.
METALS
OVERNIGHT
London A.M. Gold Fix $384.25 -$4.05 LME
COPPER STOCKS 122,225 mt tons -1,275 tns COMEX Gold stocks 4.391 ml Unchanged
Comex Silver stocks 118.1 ml Unchanged
GOLD
While gold managed to recoil away from the overnight
lows, it did manage to make a lower low for the move and that leaves the
liquidation tilt in place. Furthermore, another higher high in the Dollar
overnight should keep gold bulls nervous. Chinese spot gold was lower, while
Japanese action showed early losses that were followed up by light bargain
hunting buying.
SILVER
The silver market barely managed a new low for the
move but then rejected the downside pulse. The trend in July silver remains down
until the market regains $5.835. A lack of definitive positive leadership from
gold means that silver should languish with a slightly negative bias.
PLATINUM
A failure to hold at the moving average combined
with weakness in gold and ongoing concerns about a tightening of global interest
rates, leaves platinum in a liquidation mode. In fact, considering the magnitude
of the broad based decline in metals yesterday (particularly in copper) it would
seem like there was a negative Chinese element operating. Therefore, we suspect
that platinum is headed down to the early May consolidation support zone down
around $780.
COPPER
The market is attempting to consolidate after the
bruising losses posted yesterday. However, the Chinese copper market was sharply
lower overnight and that leaves a negative bias in place. With the market
possibly seeing a BOE rate hike and the entire global outlook still somewhat
disjointed, one can hardly expect the macro economic condition to countervail
the slightly bearish internal fundamentals in copper.
CRUDE COMPLEX
The energy complex attempted to capitulate again
but into the close Wednesday the market had second thoughts about keeping prices
down. We are not surprised that the market started out weak, as the G8 suggested
early in the session that getting crude prices down was going to be the first
objective of the G8 meeting. After the early pressure Wednesday, the energy
complex saw weekly inventory stats that were probably the most negative set of
readings in weeks and that certainly justified the mid day weakness.
NATURAL GAS
The natural gas market has corrected from $6.82 to
$6.025 in 10 days and that should have deflated the small spec long position
which was vulnerable to liquidation. Since we suspect that the downside pressure
in the regular energy complex is about to abate we also think that the downside
pressure in natural gas will also abate. However, near term critical support in
the August contract might not come in until prices re-test $5.97.