Futures Point To A Slightly Weaker Open
INTEREST RATES
OVERNIGHT
CHANGE to 4:15 AM: BONDS -5 — The trade was
already looking ahead to the Greenspan testimony in the action Tuesday, as it
would seem that the Treasury market is fully factoring a rate cut in the June
FOMC meeting. Certainly, the economic report slate is supporting the bull camp
and it would also appear that the slide in the Dollar is not something that will
put the bulls off from their stance. With prices into historical ground, many
traders suggest that the market will need a steady diet of supportive
information to maintain current levels and certainly to boost prices to even
higher levels.
STOCK INDICES
OVERNIGHT
CHANGE to 4:15 AM: S&P -190,
DOW -24, NIKKEI
-40.9, FTSE -55 — While the stock
market has shown the ability to shake off recurrent terrorism threats in the
past, it would seem that the current setup will not allow traders to completely
ignore the increased threat. With the market showing technical damage on the
charts and the macro economic outlook being downgraded consistently, there are a
number of negative issues working against stock prices. Another major undermine
that is being played up in the news this morning, is the potential exodus of
foreign investment capital from the US equity market and that comes because of
the unrelenting slide in the US Dollar.
FOREIGN EXCHANGE
EURO: Relatively speaking the Euro zone
Industrial production readings were damaging but maybe not as damaging as they
could be considering that many regions are having trouble maintaining any
positive growth. However, with a 1.2% decline in March Industrial production the
bull camp might be a little concerned about chasing the Euro higher. We doubt
that the trend will be altered but we now see the basis for a rate cut and a
rate cut would simply be another issue that slows the rise in the Euro. In
conclusion, the worst case for the Euro still seems to be a slowing of the up
trend. We would not buy fresh positions in the euro until after the ECB cuts
rates and the market mounts a 1-day correction.
YEN: The weakness in the Euro zone
Industrial production reading impacts the Yen because it lessens the pressure on
the Dollar. If the Dollar slows its decline then the Yen sees less upside
pressure. We do think that the increased terror threat is supportive to the Yen,
as the Pacific Rim has seen an influx of capital during times in which the US
and UK are threatened.
SWISS: New highs for the move were posted
overnight and that hints at a windfall for the Swiss. With the Euro zone poised
to cut rates, the US under a terror watch and Japan threatening intervention
against higher Yen action, the Swiss might be the most likely to rise in the
near term.
POUND: A new high for the move overnight
suggests that the Pound and the Swiss are the favored currencies. It would seem
that the UK economy isn’t under the same scrutiny as the US and euro zone
economies and that might make the rise in the Pound more uniform.
CANADIAN: We doubt that mad cow concerns are
a sustainable undermine of the Canadian currency but when a story like that
comes on top of an extensively overbought technical condition, its
understandable that some profit taking unfolds. A correction to 73.10 would be
very attractive for fresh long players but current fundamentals may not allow
that big of a break.
METALS
GOLD: With gold rising in the overnight
action it would appear that the market has found another bullish impact to react
to. With the Asian trade suggesting that buying interest was coming off
terrorism fears that long interest should join into the existing currency driven
buying, to sustain the bull trend. We also think that gold is showing periodic
long interest off the fear over the slow recovery pace.
SILVER: The silver market is technically
vulnerable, especially if the July contract slides below $4.75. In fact, July
silver might not have solid support until prices re-test the $4.70 level. Given
the sharp rise in open interest on the May rally in silver, it would even appear
that silver is more vulnerable than gold from a technical perspective.
PLATINUM: The platinum market might even out
perform the gold market, as it easily has the tightest supply and demand
function and therefore might be the most dramatically impacted by the steady
rise in precious metals investment demand. We see no reason why July platinum
shouldn’t attempt to take out the March high up around $694 especially if prices
are being driven by investors.
COPPER: The higher price action in Shanghai
copper certainly helps the US copper market discount the weakness Tuesday. With
copper prices in the vicinity of 2 month highs, it is possible that US prices
attempt an upside breakout. The fundamentals would seem to argue against paying
up for copper but that probably won’t stop the trade from pushing prices higher
today.
CRUDE COMPLEX
OVERNIGHT
CHG to 4:15 AM: CRUDE +19,
HEAT +17, UNGA
+10 — The July crude oil market continued to coil in a trading range bound by
$28.00 and $29.00, but the trade does seem to have a slight bias to the bottom
of that range. We suspect that the market has already factored another decline
in weekly crude oil inventory figures and therefore, it could take a bigger than
expected decline to get the crude oil out of the consolidation to the upside.
NATURAL GAS
The
market is already hyping the threat of tropical storms in the Gulf this summer,
as the prediction of more storms than normal is being taken as fact. We might
add that NOAA has had a very poor track record in making long-term weather
predictions.