Futures Point To A Slightly Weaker Open
METALS
GOLD:
We have to think that the gold market is getting support from the SARS threat in
China
and with
reports of 61 unconfirmed SARS cases in
Japan
and 122
new cases in
Beijing
, we
would have to think the SARS issue is set to live on. With the US Dollar falling
to even lower levels this morning, we have to think that gold will be able to
forge more gains. We suspect that the net spec long in gold is now above 60,000
contracts, which is burdensome but not overly limiting.
SILVER:
The silver market is lagging behind gold a little, as it has yet to make a
breakout above the April highs. Next resistance in the July silver is $4.68 and
then again up at $4.72. We get the sense that silver is being held back by less
than stellar macro economic expectations, as that means that physical demand is
suspect.
PLATINUM:
The platinum market continues to be the only precious metal that is being
negatively impacted by a slight deterioration in economic conditions. Since the
world is concerned about the
US
economy
(that is the reason given by the trade for the Dollar slide), the BOE recently
cut rates and there are calls for the ECB to cut rates, its understandable that
platinum is falling out of favor. Even after the $100 2-month correction,
platinum prices remain almost twice the value they were trading at in 1999 and
that highlights an expensive price level. In other words, a slide down to $550
basis the July would not be that surprising if the world can’t lock on a
recovery view soon. Â
COPPER:
According to reports this morning, it would not seem like the SARS condition is
mitigating in Beijing. In fact,
Japan
is
investigating the potential for 61 cases and that shows that the disease is
still capable of spreading. Considering that the bonds, Dollar and international
stock prices are concerned about the
US
economy
and should probably be equally concerned about the Asian economies, we have to
pull back interest in the long side of copper.
CRUDE
COMPLEX
OVERNIGHT
CHG to  4:17 AM Â
:CRUDE +35Â ,HEAT+114
,UNGA+83 Â The bull camp was bailed out by the much smaller than expected
crude stocks build but we doubt that the market will be able to forge consistent
gains because gasoline stocks managed to post a large build. Certainly concerns
over the Nigerian labor situation is supporting prices and we also suspect that
the net position of the small specs and funds, is supportive considering that
the specs are probably short some 40,000 contracts in crude oil.
NATURAL
GAS
The
weekly inventory report is expected to show a 30 to 60 bcf injection and that
would certainly serve to limit recent recovery attempts. Some in the trade want
to take forecasts for an above normal 90-day temperature pattern and fuel prices
higher.
INTEREST
RATES
OVERNIGHT
CHANGE toÂ
4:17 AM
:BONDS +7 Considering the
views from the currency markets, stock market and the copper market there would
seem to be plenty of concern for the
US
economy. Considering that the
world wants to beat on the Dollar, in the face of what could be an economic
disaster in
Asia
, the bonds seem to have
plenty of justification for the move higher. In fact, considering the speed with
which the market forgot the improvement in consumer sentiment early in the week,
it is clear the Treasuries are discounting recovery news and grasping signs of
even the slightest concern toward the economy.
STOCK
INDICES
OVERNIGHT
CHANGE to
4:17 AM
:S&P-270
DOW -19 NIKKEI +31 FTSE -25Â It would seem that the final equity market
opinion of the Greenspan comments Wednesday favor the bear camp. In fact, we
have to think that currency market action is contributing to the slightly
negative attitude in the marketplace, as the Dollar is falling so aggressively,
it is hard to maintain an optimistic view toward the
US
economy.
While many might argue that the SARS issue isn’t a major issue impacting stock
prices, we beg to differ.
FOREIGN
EXCHANGE
DOLLAR:
The market is assuming the negatives toward the
US
economy. Furthermore, to a degree the currency markets seem to think that SARS
is more negative to the
US
than it
is to the Euro zone. In many minds, the SARS issue isn’t even respected as an
issue and we think that is wrong considering magnitude of pain off a worldwide
spread in the SARS disease. Right now it would seem that only a major global
disaster would alter the negative view toward the Dollar. In other words, the
currency markets aren’t interested in the
US
for the
economic or interest rate differential and in fact we are having a hard time
finding a reason why traders would begin to favor the Dollar. Maybe this
deflation in the Dollar is part of a historical lowering of value in the Dollar
that is coming from a permanent re-diversification. In other words, if the
US
is the
world’s cop and the extremists are vowing to attack US interests, it is probably
logical to lower the percentage of holdings in the
US
! In
that case one has to wonder how low is low in the Dollar. We see no end in the
slide unless of course the SARS issue spreads and that structure and leadership
of the
US
ends up
making the
US
the
safest place to be.Â
EURO:
While we think the Euro is getting way too much of the money leaving the US
Dollar, that is the trend and the trend looks to remain in place. In fact, it
could take a major headline development to alter the up trend and we are not
sure that is in the near term cards.
YEN:
If 61 cases of SARS were confirmed in
Japan
, we
would have to think that would pressure the Yen. However, the overnight action
in the Yen shows no weakness and that is surprising.Â
In the mean time we can’t justify the gains in the Yen considering the
threat from
China
and
that means fresh longs might have wide risk parameters and narrow gain
potentials?
SWISS:
So far the condition of the global economy isn’t dire enough to see the Swiss
garner more buying than the Euro. We suspect that the Swiss will remain in favor
but that it could take a clear spread of SARS to get the June Swiss above 74.29.Â
POUND:
The Pound is no worse for the rate cut, as the currency continues to forge new
highs for the move. In other words, those economies that recognize their slowing
potential and do something about it, see money flow toward their currency. Those
countries that continue to fight inflation instead of promoting growth, slide to
4-year lows. In short, the losses in the Dollar fuel gains in the Pound and
Euro. The March highs are the next upside target in the Pound.
CANADIAN:
A massive up side thrust overnight confirms that
Canada
is
getting past the SARS threat and also confirms that the
Canada
might
have the best near term rate of return within the G7. We have no idea where the
Canadian will stop but if one looks at long term monthly charts the upside could
be quite significant. Remain long, get rid of put protection.