Futures Point To A Strong Gap Higher
INTEREST RATES
04/02 OVERNIGHT CHANGE to 04:02 AM:BONDS+2 The
Treasury market comes into the critical monthly payroll report holding just
above the critical consolidation lows forged early this week. Expectations
continue to center on a Non-farm jobs gain of 120,000 but one should not forget
the potential importance of the unemployment rate and the prior months Non-farm
payroll revision. The fact that Treasury prices have declined nearly 3 points
off the March high, makes the numbers today a very incendiary number, as a minor
disappointment from the numbers could easily result in a sharp short covering
rally.
STOCK INDICES
04/02 OVRNIGHT CHG to 04:02 AM:S&P-70, DOW-2,
NIKKEI +132, FTSE+15 It’s all about jobs! Unfortunately the stock market has
been leaning toward a good payroll number since March 24th! However, a Union
Pacific executive suggested overnight that he is seeing business boom and that
he also expects hiring to continue well into the future. The Union Pacific
official also suggested that other companies had to be seeing the same strong
conditions and that is a pretty telling commentary into the reports this
morning. What is really surprising is how the Press suppressed the wave of
favorable economic headlines for the month of March and then began carting them
out as if the economy suddenly improved around March 24th! We do think that the
Payroll number today will show improvement, but the question might be, just how
strong and clear-cut the improvement is.
DOW
The Dow comes into the session this morning 366 points above the March low and
basically in no-mans land on the charts. In other words, the June Dow is stuck
between the late March consolidation low pattern of 10,327 to 10,000 and the
January through early March consolidation of 10,400 to 10,674. We think the
market is capable of returning to the higher range, but we think the market has
set a pretty high bar for the report this morning. Pushed into the market, we
are long for the number, but risk and reward are less than perfect. In fact, to
buy the Dow this morning, prior to payrolls, we would consider taking on an
at-the-money April Dow 10,300 put. If the numbers are strong we will gladly eat
the wasted put premium.
S&P
Unlike the Dow, the S&P has already returned to the January through early March
consolidation zone and that could give the S&P closer-in support in the case
that the payroll numbers disappoint the trade. Another critical upside pivot
point in the June S&P comes in at 1133.50. The trend is up, but there is a
concern that prices have factored at least part of a good number into the
equation. Buy futures and buy a cheap near to expiry puts, or simply buy a just
out of the money April call option.
FOREIGN EXCHANGE
US DOLLAR
We have to think that the rally this morning in the
Dollar is simple short covering or position balancing ahead of the report. We
are still not sure if the Dollar is going to rally in the event that US numbers
are good, as the trade is discounting anything American. We do think that a
disappointing or bad payroll reading will result in an assault on the Dollar and
quick slide toward the 86.00 level in the June contract. Therefore, the US has
to come up with a major number to make investors feel like the risk of Dollar
positions, is worth the potential reward. Some might think it folly to expect a
major sentiment shift off a single number, but in the absence of a real headline
dinger, the Dollar probably won’t shed the bear tilt. In short, the payrolls
might have to be above +130,000 to turn the Dollar away from the downside. If
the numbers aren’t good, the down trend in the Dollar might resume with a
bloodbath. Want a leveraged bet, consider buying April at the money Dollar
options, they have 6 days left!
EURO
The Euro stands waiting for outside direction! The
pattern of lower highs would suggest that the near term trend in the Euro is
still down but there is no mistaking the importance of the numbers today. We
still don’t see how weak US prospects make the Euro really attractive!
Therefore, we are willing to buy Euro puts this morning ahead of the US reports.
Euro zone inflation readings this morning were up slightly and not something
that would make one think that growth is ready to pick up pace!
YEN
Since the high early in the week, the yen has
corrected, possibly putting itself in a position to respond to the numbers
today. The Nikkei was sharply higher overnight and that might suggest more near
term declines in the Yen in the coming sessions. We have suggested that traders
buy a put in the Yen, attempt to hold that option through the numbers this
morning.
^next^
SWISS
Even if the US numbers disappoint, we are having
trouble thinking that the Swiss is the place to be! In fact, the pattern of
lower highs seems to be entrenched and pushed into the market we would be short.
BRITISH POUND
The Pound is a different story than the Euro or the
Swiss, as the Pound might be the place to be if the US economy sputters again.
However, the Pound could come under pressure and fall temporarily to 181 if the
US numbers are ultra strong. Traders might consider being long the Pound and
short the Swiss.
CANADIAN DOLLAR
Technical action in the Canadian would seem to
suggest that more upside action is ahead. However, the Canadian is quite a
distance above the March lows and seems to be correlating with the US Dollar. If
you remain long the Canadian into the report, it would be wise to purchase a put
for temporary protection.
METALS
OVERNIGHT
GLD-0.80, SLV+23.20, PLAT-20.30 London
A.M. Gold Fix $426.10 +$.80 LME COPPER STOCKS 184,925 -2,475 tons COMEX Gold
stocks 3.72 ml +44,982 oz Comex Silver stocks 122.8 ml -188,142 oz
GOLD
The metals continue to confirm favor among investors
by persistent upside action on the charts. While gold is lagging behind silver
in the last 24 hours, it is clear that gold is poised for a test of the January
highs. While we think the gold market is de-linking itself from a tight
correlation with the Dollar, that influence will be felt today if the payroll
report produces a surprising outcome.
SILVER
Another massive overnight rally in silver makes it
seem like the leadership market. Apparently investors are willing to chase
silver prices even higher, as prices managed a $1.00 rally in the second half of
March. Certainly the COT report is going to bring about evidence of a record
spec and fund long but that doesn’t mean the market is without additional buying
fuel.
PLATINUM
The platinum is just not in tight sync with the gold
and silver. Therefore, it is also clear that platinum is not pent up for the
monthly payroll report this morning. We continue to suspect heavy spread action
with gold but we also think that a negative reading from the payrolls would put
platinum under pressure.
COPPER
Copper prices come into the session apparently
poised for an upside breakout on the charts. Shanghai copper stocks declined by
4,472 tons and LME stocks also finish another week of persistent declines, so
the fundamental theme of tight supply remains entrenched. Therefore, all that
would seem to be necessary for prices to breakout up, would be a sign that
demand is going to improve as a result of an improving US jobs report.
CRUDE COMPLEX
The bull camp threw in the towel Thursday after
it became clear that the bull spirit was broken by the pattern of crude stock
builds in the US. OPEC had hoped that their production cut would serve to
mitigate price weakness but with the OPEC infighting the market sensed that OPEC
couldn’t support prices and threaten to tighten supply with any degree of
credibility. With the speculative bubble in unleaded popped, the crude oil
market was pulled down and with the significant overbought technical condition
in both crude oil and unleaded, the major slide Thursday was not surprising.
NATURAL GAS
The natural gas market showed a draw of only 18 bcf,
which was below consensus expectations. We continue to be very impressed with
the performance of Natural gas, as the crude oil market fell apart and yet
natural gas managed to hold together. The natural gas market is holding a rather
high premium considering the relatively adequate storage levels.