Futures Point To A Strong Open
INTEREST RATES
02/17 OVERNIGHT CHANGE to 04:17 AM:BONDS+2
Recently the Treasury market has shown little direct correlation to the
scheduled numbers. In fact, in the face of soft numbers, the Treasuries don’t
seem to respond initially, but in the end the numbers are serving to keep macro
economic sentiment off balance and prices tilted upward. Therefore, the bias in
the market remains up, even though the economists expect the Industrial
production numbers this morning to show some improvement.
STOCK INDICES
02/17 OVRNIGHT CHG to 04:17 AM:S&P+580, DOW46,
NIKKEI +152, FTSE+51 The stock market looks to come bounding back from the
weakness posted last Friday, as the Disney/Comcast merger is overshadowed by the
Cingular/ATT wireless buyout and that provides the market with another fresh
bull story. With the Nikkei soaring overnight and the prospects for better US
economic numbers, we have to think that the market will open firmer and try to
build on the favorable opening. With a favorable GDP sweep from Japan, decent
Industrial production numbers from the Euro zone and potentially favorable macro
economic numbers from the US this morning, it should be clear that the world
economy is still growing, even if that growth pace is a little slower than what
many in the marketplace had hoped for.
DOW
Despite an overnight probe below the lows posted Friday, the Dow seems to be
positioned to rise to critical resistance of 10,688. As can be seen from the COT
report, the market remained net spec short as of last Tuesday and enters this
week only slightly above the level, where the COT report was measured.
Therefore, the technical picture could easily provide sustained short covering
buying. It is really amazing to see the Dow futures “net spec short”, with
prices so close to the highs!
S&P
The S&P spec positioning showed a minimal net long of less than 4,000 contracts
as of last Tuesday, which means that the market is in a position to see moderate
buying without vaulting into an overbought condition. We see a new contract high
in the S&P early this week, especially if the Industrial Production reading can
create a positive stir into the opening today. The March S&P must hold above
1148 to keep the bulls comfortable, while a rise near term rise above 1155 could
spark a wave of more intense buying.
FOREIGN EXCHANGE
US DOLLAR
Apparently Fed dialogue from last week regarding
pre-emptive inflation action is being quickly discounted by the market, as the
Dollar comes into the session today, close to the recent low. It will be
necessary for the US Industrial Production readings to come in at, or above
expectations today, or the Dollar will simply fall below the critical low at
84.85. In fact, the Industrial production readings today will be quite critical,
as some economists think that the readings could be moderately stronger. We are
not sure if the Dollar will respond to strong numbers but from the temporary
reaction to Fed comments Friday morning, it is clear that the Dollar needs at
least the chance of a rate hike to get any support at all. Therefore, assume
that the trend in the Dollar is still down, unless the Industrial production
reading posts a headline type gain.
EURO
With the Euro zone Industrial production reading
coming in up +0.2% and below expectations, it would seem like the US has a very
minor hurdle in its Industrial Production report. However, with the Euro
bordering on a new contract high into the opening, it would seem like the market
is focusing on other issues. We simply don’t like the risk and reward of long
Euro positions and would be interested in a topping play. For instance, buy the
June Euro at 128.30 and buy three June Euro 125.50 puts for 241 ticks.
YEN
Despite seeing a continuation of soft department
store sales, the Japanese market is upbeat on the Japanese GDP and that leaves
the economic outlook rather disjointed. The Nikkei was up sharply overnight but
that hasn’t lent much in the way of support to the yen. While the Yen was down
sharply at times overnight, we see the overnight lows as very solid and the bias
in the currency pointing up in the action today. In fact, if the US industrial
production numbers are disappointing, we suspect that the Yen will return to
levels above 85.00.
^next^
SWISS
A massive overnight range in the Swiss seems to be
pointing to the upside, but risk and reward seem rather unattractive. We would
not be long the Swiss but we also think that it is too early to get short the
currency.
BRITISH POUND
Because of Dollar weakness, selling interest in the
Yen and rather volatile action in the Euro, the Pound is the leading currency to
start the week. However, some wind might have come out of the Pound’s sails off
the sharp decline in the UK CPI, which was down 0.5%. In the short term, the
trade isn’t going to be deterred from the long side because inflation readings
are softer than expected. Near term upside targeting comes in at 191.40.
CANADIAN DOLLAR
With the US Dollar bordering on another downside
breakout, the Canadian is given minimal long interest. We are still not
convinced that the Canadian is prepared to forge consistently higher action, but
for the coming sessions, the path of least resistance is pointing upward.
METALS
OVERNIGHT
GLD+3.90, SLV+7.80, PLAT+6.50 London A.M.
Gold Fix $413.70 +$1.60 LME COPPER STOCKS 316,225 -2,800 tons COMEX Gold stocks
3.366 ml Unchanged Comex Silver stocks 123.9 ml Unchanged
GOLD
With the overnight rise, gold prices are bordering
on another upside breakout. With the Euro sharply higher and closing in on its
old high, it would seem that the bull camp in gold is going to pick up where it
left off last week. The weekly COT report showed the net spec long in gold to
have declined again and even with the price gains since the report was measured,
we have to think that gold comes into this week with a net spec long of less
than 135,000 contracts.
SILVER
If silver were to close at its opening level that
would be a new high close and that could potentially spark stop loss buying. The
net spec long in silver probably stands at 90,000 contracts coming into this
week, which probably leaves a little more speculative buying fuel on the
sidelines. With the favorable action in gold, we would expect silver to forge
more gains, especially from the funds.
PLATINUM
Angloplats indicates that their platinum production
will rise by 140,000 ounces in 2004, which could be a negative for prices, if
supply was a dominating consideration. As it stands, the market is probably
inclined to track off the Dollar and gold. Apparently, the market thinks that
demand is set to overcome supply, until the Russian output totals begin to rise!
Furthermore, as long as the COT report shows a net spec long position below
5,000 contracts, the market probably isn’t excessively overbought or vulnerable
to technical selling.
COPPER
Once again the copper market posts a new contract
high into the opening, as Chinese prices ended mostly limit up. Reports that
January Chinese copper production decline 1%, certainly feeds into the bull tilt
as most traders assume that Chinese demand for copper will continue to rise. In
fact, most base metals are supposedly deriving strength from the weaker Dollar,
which in a sense makes US copper even more attractive to arbitrage traders.
CRUDE COMPLEX
The energy complex finished last week on a very
firm note as weekly inventory readings supported prices in the face of lingering
cold in the US and widespread cold in Europe and Russia. The energy complex
could have faded off ideas that OPEC was losing its resolve for the April 1st
production cut, as several members indicated that conditions into the April 1st
date could cause OPEC to alter its course. However, the energy complex does not
appear to be showing much weakness, even though the anticipated rebuilding
period is directly ahead of the market.
NATURAL GAS
Because the regular energy complex is so strong, the
natural gas market is given a late season lift. We also have to think that the
lingering cold in the US and cold throughout the world, is giving the natural
gas a surprise lift. Therefore, we suspect that April natural gas will be able
to extend the current run, possibly to levels above $5.60.