Futures Point To A Slightly Weaker Open
INTEREST RATES
01/06 OVERNIGHT CHANGE to 04:06 AM:BONDS+11 It
would seem that the Treasury market is sensing the chance for significant Asian
central bank buying overnight. With the Yen soaring into new high ground
yesterday, it is logical to expect aggressive central bank intervention, which
in turn can mean Treasury buying. It would also seem like some in the trade are
sensing some Chinese central bank interest in middle maturity notes and that
could be an offshoot of the pressure that is mounting to raise the peg of the
Yuan.
STOCK INDICES
01/06 OVRNIGHT CHG to 04:06 AM:S&P-320, DOW-34,
NIKKEI -11, FTSE-11 The trend is up but we have to think that the “idea†of
improving economics is growing a little stale and therefore the market will need
something fresh to re-ignite buyers. Furthermore, it would seem that the Dollar
is going to continue to fall significantly, while energy prices continue to make
some background noise. However, the negatives facing the market this morning are
not significant and could very easily be discounted.
DOW
The Dow futures did manage another new contract high in the overnight and early
Tuesday morning trade and that would seem to reconfirm the bull trend. However,
the S&P is showing corrective signs and the Dow is in need of a minimal back and
fill motion. Near term trend line support in the Dow comes in at 10,474 and then
again at 10,433 and finally at 10,397. However, a rise back above 10,520 early
today, could clearly shut off the corrective tilt.
S&P
While the S&P is showing signs of a pullback this morning, there is not a
dominating bear story to give the profit taking much momentum. It should also be
noted that the sharp run up off the November lows, has not put the small spec
long in the S&P to an extreme overbought level. In fact, we would have to see
the small spec long double, from current levels, to suggest that the market is
bought out. Trend line support comes in today at 1110.15 but more conservative
traders might wait for a slide to 1108.60 before getting long. While the trend
is up, fresh longs might have to risk positions to a close below 1103.50 basis
the March contract.
FOREIGN EXCHANGE
US DOLLAR
Not only is the Dollar weak again this morning but
it would seem that US dialogue is facilitating the downside thrust. In other
words, with US Fed officials aggressively confirming the potential for sustained
low interest rates, despite the improvement in the US economy, the trade sees an
unattractive yield setup in US investments. Furthermore, it would still seem
like the US is interested in forcing the Dollar down, in order to protect
manufacturing jobs from Asian influences. The Treasury market is convinced that
a number of central banks are buying Treasuries and that would seem to confirm
some ongoing intervention action against the Dollar slide, but so far those
efforts don’t seem to be having an impact. In fact, with US economic numbers
remaining strong and intervention supposedly running hot, it is very impressive
that the Dollar has been able to continue carving out new contract lows! In
conclusion, the down trend in the Dollar is very strong! Near term targeting in
the March Dollar Index comes in at 85.45.
EURO
So far, the ECB hasn’t blinked with complaints about
the rate of rise in the Euro. Furthermore, the market doesn’t even care that the
PMI readings overnight were less than impressive. In fact, the Euro zone PMI
showed no new hiring and that might stand in stark contrast to the information
seen from the US over the coming four sessions! However, the market is not
focused on fundamentals; the trend is up for other reasons than the macro
economic differential. More upside but fresh buyers might have to risk positions
to at least 126.00.
YEN
Maybe the BOJ is going to reload and throw money at
the Yen but it would not seem like the market is prepared to fall back down into
the old trading range underneath 94.00. With the Treasury market supposedly
documenting central bank trading, one would expect intervention to be capable of
pushing the Yen down but apparently the market is just too strong! Stay long
until complaints about the Dollar decline, fill the headlines.
SWISS
We suspect that the Swiss might see slightly less
volatility than the Euro on the coming move, as the speculative interest in the
Euro seems to be more intense. There is nothing to suggest that more gains will
be avoided in the Swiss, with the next upside targeting seen up at 82.02.
BRITISH POUND
A strong peg into new high ground leaves the Pound
in a well entrenched up trend. Like the other currencies, until officials decide
to alter the current track of thinking, even more gains are to be expected.
Indications that UK housing price gains might be slowing slightly, was almost
completely ignored, showing that the Pound rally is a historical adjustment and
is not something being driven off day to day developments. Next upside targeting
comes in at 182.60.
CANADIAN DOLLAR
The slight pause in the Canadian is a little
concerning, when one considers the significant gains being made by most other
currencies against the Dollar. However, the trend is up and nothing appears to
be set to change that trend. Expect an upside breakout today above the
resistance of 78.07.
METALS
OVERNIGHT
GLD+4.00, SLV+5.00, PLAT+8.50 London A.M.
Gold fix $428.00 +$10.25 LME COPPER STOCKS 428,575 tons -1,475 tons COMEX Gold
stocks 3.12 ml Unchanged Comex Silver stocks 124.8 ml oz +605,685 oz
GOLD
The gold market managed a 15 year high in prices
yesterday and despite showing some signs of profit taking in the early Asian
action, it has recovered into new high ground in the early US action. With the
Dollar thrusting into more new lows and the speculative fervor being whipped up
by the headlines of multi decade highs, we suspect follow through buying. The
weekly COT report showed the net spec long in gold to be only 187,000 contracts,
which is less than we would have expected.
SILVER
The silver market is making equal impressive gains,
with the market charging toward the 1998 spike high trading range of $6.50 to
$7.50. The weekly COT report showed the silver to have a net spec long of almost
84,000 contracts, which is certainly an overbought condition but not as
excessively overbought as we would have expected. Because of the definitive
Dollar/Gold leadership we suspect that silver will be able to mount even more
significant gains in the near term.
PLATINUM
As we suspected the platinum market has rejected
recent weakness and is well into new high ground this morning. While some
traders might begin to fear substitution of platinum by palladium, (as platinum
prices are effectively 4 times palladium prices) re-engineering is a long term
process and the amount of substitution less significant than many might expect.
In the near term, the perception of tightening supply (off soaring physical
demand) should be enough to continue fueling the upside action in platinum.
COPPER
A slight amount of profit taking is to be expected
after the massive opening rally yesterday. Asian copper prices were higher
overnight suggesting that the Chinese trade generally confirms and entrenches
the sharply higher price range seen in the US Monday. The macro economic outlook
remains favorable and with the Dollar falling sharply one would think that US
copper looks a little more attractive than other copper sources.
CRUDE COMPLEX
01/06 OVERNIGHT CHG to 04:06 AM:CRUDE+0, HEAT+43,
UNGAS+2 February crude oil nearly touched $34 per barrel as funds bought
aggressively on tight supply fears amid a weather forecast for frigid
temperatures this week. Crude oil stocks stand below the government’s comfort
level and 10 million barrels below year ago levels. Heating oil stocks are only
3 million barrels above year ago and the refinery operating rate is at a level
where further supply tightness in heating oil could develop if there is an
extended cold snap or a snag in refinery production.
NATURAL GAS
Feb natural gas made a sharp recovery Monday as the
forecast for much colder temperatures sent fund traders scrambling to cover
short positions. Some weather forecasts are calling for cold temperatures out
through January 20th for the primary US heating region. If so, withdraws from
stocks should be quite large and chip away at the 202 bcf stock surplus from
year ago levels.