Futures Point To A Slightly Weaker Open
INTEREST RATES
03/03 OVERNIGHT CHANGE to 04:57 AM:BONDS -5
Several factors are gelling to make the bond market less attractive. While we
are not prepared to call for a major top in bonds yet, the negatives are
beginning to stack up and traders should be well positioned to capture a
downside break holding on to the long 3 April 110 Bond put position. The upside
breakout in the Dollar is a good indication the market has made a major bottom,
which is likely to translate into less Asian Central Bank buying of Treasuries,
recently a major bullish force in the marketplace.
STOCK INDICES
03/03 OVRNIGHT CHG to 04:30 AM:S&P-170, DOW-12,
NIKKEI -9.59, FTSE-30 The uncertainty surrounding Friday’s employment report was
enough for investors to take profits in stocks Tuesday and more of the same type
of action is likely this session. The market may get some support from the ISM
non-Manufacturing Index if the employment component also shows gains, otherwise
stocks will likely look to currency & bond markets for direction. The stock
market seems to be in a precarious place with indicators suggesting a pick-up in
job growth on one hand being offset by concerns that interest rates have
bottomed out.
DOW
The Dow’s failure to sustain gains is disappointing action technically and the
bulls will be tested today as the market needs to hold above the 40-day moving
average coming in around 10,568. The March Dow has not had a close below this
average since November, 2003 and a close below there could trigger a more
extensive sell-off back toward the Feb lows.
S&P
While the March S&P gave back most of Monday’s gains it did not significantly
change the market’s posture. Close in support comes in at 1138.90 with
resistance at 1156.70. Unless stocks get spooked by weakness in bonds, more
consolidation looks likely.
FOREIGN EXCHANGE
US DOLLAR
The Dollar’s breakout move Tuesday and overnight
action are good indications that the market has bottomed. The March dollar was
able to push through key technical levels on indications the US economy is
beginning to show signs of growth in the jobs, that US rates have hit a bottom
and that European rates could possibly ease. Confirmation that job growth is
accelerating will need to be seen in Friday’s employment report, but as long as
payroll growth is within expectations, the Dollar’s up trend should be
sustained. We are more confident that the trend in the Dollar has reversed after
Greenspan’s comments seemed to pave the path for a rise in rates. Greenspan
seemed to think that the amount of Dollar depreciation already seen would help
contain the current account deficit, which to some extent removes a key negative
factor against the currency. Pent-up short covering could push the March Dollar
through 90 even before Friday’s employment data.
EURO
Traders have raced for the exit as it is becoming
increasingly apparent that the US economy is moving forward and rates have
bottom while the Euro-zone economy has stalled and rates could weaken. The
charts have turned decidedly bearish with a close under the Feb lows. The Mar
Euro’s break below the 50% retracement level of the Nov03 low/Feb04 high range
at 1.2131 in overnight trade puts the next objective at 1.1944, which is the
61.8% retracement level. If the break accelerates from here, profits in our long
Jun Euro futures/long 3 Jun Euro 125.50 put strategy really start to kick in.
YEN
BOJ intervention has assured the trend stays down in
the Yen with the March contract likely testing 90 this week. A strong US jobs
report should accelerate the market’s decline. A close under 89.44 officially
reverses the Yen’s up trend.
^next^
SWISS
Mar Swiss finding some temporary support at 76.73,
but a break below there puts 76 as the next downside target.
BRITISH POUND
While being pressured by broad based Dollar buying,
the Pound continues to gain sharply against the Euro. BOE meets Thursday and
although no rate hike is expected this month, they should keep a tightening
bias. Further Pound losses against the Dollar are possible with March support
coming in at 182.68 to 182.50.
CANADIAN DOLLAR
The BOC cut rate by the expected 25 basis points and
the Canadian Dollar made a downside break below support at 74 in over night
trade. With Canadian rates falling and US rates set to rise, the Canadian could
eventually fall to 72.50.
METALS
OVERNIGHT
GLD-2.40, SLV-70, PLAT+3.50 London A.M.
Gold Fix 390.35 -$5.40 LME COPPER STOCKS 275,225 -3,375 tons COMEX Gold stocks
3.47 ml -194 Comex Silver stocks 123.3 ml +1,068 oz
GOLD
The strong currency causes the dollar-denominated
gold market to look more expensive for holders of yen or euros and is also a
blow to the safe-haven theory. With commodity prices collapsing from near
20-year highs for the CRB Index, the metals in general experienced a sell-off
and the inflationary pressures were also relieved. Heavy speculative profit
taking drove metals sharply lower Tuesday.
SILVER
While there was not major technical damage, the
inside session after a contract high is a negative technical development. Funds
have aggressively pursued platinum, copper and silver after gold peaked in
January and the massive net long position in silver leaves the market vulnerable
to a significant pull-back. Resistance for May silver comes in at the
675.40-680.50 zone with support levels at 658.50 and then 649.20 which is a 50%
correction of the Jan-Feb rally.
PLATINUM
The bullish fundamental set-up for the platinum
market into the spring helped provide solid support in Asia overnight after the
collapse from a 24-year peak this week. This recovery came in spite of new lows
in the Yen. Key support levels for April platinum include 878.40, 869.70 and 861
with resistance today at 887.70.
COPPER
The market could not follow-through to the upside
with other metals collapsing and long liquidation selling set-in to pressure
futures. May copper prices broke on profit taking, but closed off its low and
did not even fill the gap from Monday. The overnight break managed to fill the
gap at 138.90 and the bounce off of this level could indicate some consolidation
ahead as the market awaits further economic developments.
CRUDE COMPLEX
The energy complex was hit by profit taking over
night and the trade could become quite volatile as the markets will be
vulnerable to a bearish surprise in this week’s API report. While pre-report
estimates are calling for another drop in crude oil & gasoline stocks, there may
have to be some sizable declines in stocks for the bulls to be able to push
prices higher from current levels. The complex continues to cling to fears of
tightening supplies this year and sentiment remains so staunchly bullish that
even negative news is being discounted by the market.
NATURAL GAS
Despite an improvement in the market’s technical
setup with a close back over the key 5.500 level, April natural gas will likely
need the leadership from the crude oil & gasoline market to sustain recent
gains. Traders are looking for another large draw in stocks this week between 95
and 160 bcf, but with the weather turning warmer it could be the last big draw
of the season. Cash prices were firmer Tuesday and forecasts for cooler
temperatures next week kept a firm undertone to the market.