Futures Point To A Slightly Lower Open
INTEREST RATES
bonds able to overcome a slightly hotter PPI
number than expected, the market may be able to see some follow though gains
this session since the economic report slate is light and the market still
appears to be a little too short. However, bonds could dip early if the current
account is wider than expected, but the market seems to be shrugging off
negative economic news. The May PPI number showed a +.8% gain, but the core rate
rose only.3% with neither reading startling enough to change the market’s view
that the Fed is still going to take a slow approach to raising rates.
STOCK INDICES
While this week’s economic news and comments by
Greenspan have given a lift to bond trader sentiment, the stock market is still
being bogged down by concerns the Fed will have to aggressively raise rates to
reign in inflation. One could say that the stock market is taking a glass half
empty (pessimistic) approach to the inflation outlook with the higher than
expected PPI reading and high energy prices fanning fears the Fed will soon have
to raise rates more aggressively which is keeping investors sidelined. While
energy markets have seen a sharp break from last month’s record high price
levels, escalating violence in the Middle East with militants targeting oil
facilities has the stock market not only fearful that world oil supplies could
be severely interrupted, but also fearful of more terrorist attacks (abroad and
in the US) leading up to the June 30th US hand over of rule to Iraq.
DOW
While the Sept Dow pushed through consolidation support at 10,334 on Thursday it
did hold a test of the 10,325 level which leaves the trend bullish in our
opinion. A lack of fresh economic news this session will make the market
vulnerable to outside influences, particularly movements in the energy markets.
In order to spark ideas of an upside breakout, the September Dow needs to regain
the 10,420 level
S&P
While the September S&P was pressured below support at 1130.10, the market did
manage to hold above the critical 1125.40 level. Without fresh economic news,
the market could again probe lower with a test of the 1125 to 1122 area.
Conservative traders should still wait for a correction to 1123 to get long,
while aggressive traders might have a buy point between 1127 and 1130.
FOREIGN EXCHANGE
US DOLLAR
The fact that rates are headed higher in the US
should provide a floor under the Dollar. However, with the market resigned to
expectations that the Fed will only raise rates by 1/4% at the end of the month
and at this juncture the Fed will not take an aggressive approach to tightening
rates, Dollar bulls may have more of an upward fight despite economic reports
showing solid US growth. the Dollar may be running out of buying interest as the
market gave back the majority of Wednesday’s gains during Thursday’s trade
despite a higher than expected rise in May PPI and sharp gains in the energy
sector. While a rising interest outlook for the US will likely keep the
September Dollar supported between 89.40 and 89.00, the market may need the Fed
to hint at a more aggressive rate increase to get prices back over 91. With UK,
Swiss and Asian rates on the rise, it is somewhat murky as to which currency has
the rate advantage. Also a rising rate outlook is being offset by escalating
violence in the Middle East and fears of more terrorist attacks leading up to
the June 30th handover of leadership to the new Iraq government. Today’s first
quarter current account data, estimated at a deficit of $141 billion, could
pressure the Dollar if it comes out wider than expected. With a thin economic
report schedule through the end of the month, and the potential for the
geopolitical situation to flare up, we are concerned that the Dollar could probe
lower within its recent range.
EURO
The Euro looks to be in a sideways to down pattern
between 121.50 and first support at 119.35, with the market having the potential
to be supported near-term by more acts of terrorism in the Middle East, but the
upside limited by expectations the ECB will not raise rates aggressively. The
longer-term outlook favors the downside since the Euro economy is in a much
weaker position compared to the US and it does not appear the ECB is ready to
raise rates. The surprise rate hike by the Swiss is also a negative for the
Euro. Look for choppy range trade this session. We would still be interested in
selling the Sept Euro on a rally to 120.70.
YEN
The 92 level in the Sept Yen is proving to be
staunch resistance, but improving economic numbers, rising bond yields and
speculation that the BOJ will rates soon underpins the market, especially
against the Euro. A close over 92 would likely trigger fresh long interest in
the Sep yen and move the currency into a new higher trading range with 92.80 as
next upside target.
^next^
SWISS
Although the Swiss was pressured by profit taking
overnight, the surprise 1/4% rate hike by the Swiss National Bank should provide
a solid floor under the market with the currency getting a rate leg-up on other
competing countries while also garnering safe-haven support from escalating
violence in the Middle East ahead of the switch over of power in Iraq. However,
the market needs to show upside momentum with a close over 80.40 to keep the
technical outlook positive.
BRITISH POUND
With the market up sharply this week, the pound may
see some profit taking this session. However, strong economic numbers continue
to support ideas of more rate hikes which should provide solid support around
180.80 in the Sep contract. The near-term objective for the Pound is the top of
the recent consolidation around 183.19.
CANADIAN DOLLAR
The Canadian Dollar could see more of a sideways
trade unless it can get some solid direction indicator off the US Dollar.
Mideast political violence and a wider than expected current account deficit
have the potential to pressure the US currency which could provide support to
the Canadian. To improve the market’s technical position the Sept Canadian needs
a close back over 73.10.
METALS
OVERNIGHT
London A.M. Gold Fix $388.70 +$2.60 LME
COPPER STOCKS 114,275mt tons -1,800 tns COMEX Gold stocks 4.403 ml Unch oz Comex
Silver stocks 117.7 ml -50,962oz
GOLD
The move over 390 for August overnight helps improve
the technical outlook and decreases the odds that speculative long liquidation
is a factor over the near-term. In fact, the inflationary news helped support
the market yesterday and gave investors a bit more confidence to extend the long
position. Escalating violence in Iraq added to the positive tone.
SILVER
The close above the 40-day moving average changes
the technical picture and given the sharp drop in open interest off of the April
2nd top (down more than 32,000 contracts) the market seems to be in a position
to recover at least a portion of the recent gains. The inflation news is
supportive and the ability to hold above the May lows on the successful test
this week adds to the bullish technical action. The 590.00-592.50 level becomes
near-term support with 663.60 as initial upside objective on the upside
break-put yesterday.
PLATINUM
The platinum market rejected a test of the May lows
this week but traders are hesitant to expect too much on the upside with the
attempts to slow the economy in China. If October platinum can manage to close
higher on the week, this may be the first sign of a possible low. On a close
over 790.60 today, watch for a bounce to test key resistance points at 803 and
811.90.
COPPER
Copper is in a position to close higher on the week
and experienced the first close over the 40-day moving average since June 8th.
While the technical action has improved, the trade remains concerned with China
buying power with a cloud of uncertainty over the China economy. While LME
prices were firm overnight and LME stocks fell, Shanghai copper prices were
lower and Shanghai stocks increased by 6673 tonnes for the week to 71,851.
CRUDE COMPLEX
Most of the past week has been pretty
discouraging for the bull camp as a series of pipeline attacks in Iraq had
failed to spark sharp upside price gains. However, the bulls regained some
confidence Thursday as doubts were raised that Iraq’s oil pipeline could be
repaired within the 10 day timeframe given by officials considering the
escalating attacks on oil facilities in the region. Energy market continued to
gain overnight on reports of an oil workers’ strike in Norway.
NATURAL GAS
The natural gas market continues to post impressive
performance especially with a lack of clear guidance from the regular energy
complex. The weekly natural gas inventory report showed a 94 bcf build, but the
annual surplus narrowed to 322 bcf from 342 bcf. Technically the market is in a
strong position with both the COT and traditional indicators showing the market
is not yet overbought.