Futures Point To A Slightly Stronger Open
INTEREST RATES
We suspect that the overbought condition was
mostly responsible for the sharp short covering rally Tuesday, but evidently the
muted core rate of inflation combined with soothing comments from Greenspan to
give the Treasury market the appearance of a whole new perspective. However, we
don’t get the sense that the market is primed to explode into an uptrend, but we
wouldn’t rule out the potential to see a rise to the May highs of 105-27. The
bulls might suggest that the biggest short position ever, will require more than
a single day of short covering, but it is also true that economic numbers
generally continue to point to positive growth.
STOCK INDICES
With the decks cleared on the interest rate hike
issue, we suspect that stocks are going to remain positively poised. If the
terrorist threat wasn’t hanging over the market, yesterday could have easily
been a big rout for the bulls and if economic readings today come in strong
today and the energy complex remains under control, the stock market could ramp
up for a series of big gains. In other words, if the market gets on a track of
thinking that the economy is going to be allowed to grow, without the Fed
stepping in, and at the same time energy prices continue to deflate, one might
see prices run very hard.
DOW
An early trade above 10,408 today could give the bulls an early edge and if
energy prices were to slide following key inventory readings, it might be
possible for stocks to mount a big upward pulse. Several years ago we would have
been very convinced that the market would run under the current setup, but since
9/11 the market has balked at a number of rally windows. In short, we are in a
rally window and the market seems to have the impetus rally.
S&P
Getting above 1137.80 early in the session today could project a rise to 1142.20
in a quick fashion, especially with the Triple Witching element lurking. In
conclusion, unless something derails the favorable macro economic outlook, the
September S&P should manage a rise to the early April highs just under 1150 over
the coming weeks. Even the technical condition of the market seems to advocate a
further extension up.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is acting rather surprising because the
markets had been giving off the idea that a single focus was driving the Dollar
up and that focus was the prospect for rising US interest rates. After the muted
core CPI reading and the comments from Greenspan it would seem that the talk of
sharply higher rates is going to be absent for a period of time. However, the
Dollar has managed to show positive price action and that might suggest that the
focus has shifted back to a theme of moving money to those currencies with the
most favorable growth outlook. In other words, the Euro zone is still too weak,
the UK might have an inflation problem and the Yen is still rather suspect
because of China and is expected to maintain an ultra low rate environment until
the recovery is entrenched. Therefore, the Dollar has a light upward bias and
might be capable of running up to the recent June high of 90.77. However, we are
not comfortable with chasing the Dollar with buy orders, something doesn’t feel
right.
EURO
Euro zone CPI came in under control at +0.3% and
that leaves the market focus on what happens in the US. If US economic numbers
this morning come in showing growth that should be enough to leave the pressure
on the Euro. Near term downside targeting in the Euro comes in at 120.05 and
then again down at 119.36. We are not sure that the Euro should come under
aggressive selling pressure unless the US equity market roars and creates the
image that money needs to flow to the US.
YEN
So far the Yen hasn’t come under pressure as a
result of the renewed Dollar interest but we suspect that will come in due
course. We suspect that the Yen will settle into a range bound by 92.39 and
91.15 but with the Nikkei showing very solid upside action it might not be smart
to press the short side of the Yen in the coming sessions.
^next^
SWISS
Bad technical action seems to suggest that more
declines are ahead. Near term downside support and an initial target comes in at
79.20.
BRITISH POUND
We have to think that the Pound’s recent low is set
to hold and that a rally back to the consolidation of 181.20 to 182.19 is ahead.
However, one might want to wait to buy the Sept Pound on a dip to 180.40.
Favorable jobs readings from the UK should help it firm up support and possibly
rise later this week.
CANADIAN DOLLAR
We are still not convinced that the Canadian has
shut off the selling trend. Those that are long the Canadian, long a put and
short a call should take profits on the call and hold the rest of the position
until there is a sign of a low in the Canadian.
METALS
OVERNIGHT
London A.M. Gold Fix $387.75 +$5.45 LME
COPPER STOCKS 117,425 mt tons -1,050 tns COMEX Gold stocks 4.403 ml +16,203 oz
Comex Silver stocks 117.4 ml +34,464 oz
GOLD
The gold market lacked follow through buying
overnight after Tuesday’s higher price action off of easing rate fears.
Apparently the low core CPI number is a double edged sword for gold. While lower
inflation expectations reduce the chances for aggressive US rate hikes, which
would support gold on a currency basis, it is also a negative for gold as lower
inflation also dampens a traditional demand reason to own the metal.
SILVER
The silver market surprisingly continues to hold
above close-in support of $5.63. With gold pointing down, the bias in silver is
also pointing down. The silver market also posted a large net spec long position
of nearly 52,000 contracts in the latest COT report, which is a moderate spec
long and could make holding above $5.63 difficult in the face of a gold slide.
PLATINUM
While copper showed a favorable response to the
exhale on the rising rate issue, the platinum market has seen no such reaction.
In fact, it is becoming a little difficult to lay the decline in platinum on the
back of the Chinese threat with copper showing strong gains yesterday. However,
copper has come into the action weak today and that could mean that a negative
Asian bias remains in place for platinum.
COPPER
After a stellar run yesterday the copper market is
backing off a little today. However, we suspect that the market will get a
little outside support form the equity market or from the US economic numbers.
We suspect that Chinese concerns will continue to dog the market with near term
downside support looking solid at 116.30 and then again at 113.40.
CRUDE COMPLEX
While the energy complex eventually responded to
the news that Iraqi exports out of Basra were halted it really didn’t seem like
the market was receptive to bullish developments. Apparently one of the two
blasts is going to keep production down for almost two weeks and with the June
30th date looming we expect the attacks to escalate instead of dissipate. Iraqi
oil exports were certainly running under 2 million barrels per day but given
recent negative sentiment and the $5 break in crude prices the market is
certainly counting on near term world supply rebuilding.
NATURAL GAS
Surprisingly natural gas continues to outperform
crude and gasoline. Maybe the outlook for a hot and dry July in the US is
providing the market with support but until the pattern can show an entrenchment
we are not willing to get long natural gas at current levels. With the regular
energy complex seeing some complications with Iraqi supply that probably is just
enough of a supply threat to enhance the hot July forecast.