Futures Point To A Stronger Open
INTEREST RATES
Because the stock market relinquished the
fantastic gains posted early in the session Wednesday and the energy price fear
continues to simmer, we have to think that the bulls have a chance against the
prevailing trend. However, considering the fleeting bounce seen in Treasuries
over the prior three sessions, it is clear that the bull camp isn’t capable of
driving Treasuries consistently higher. In the near term, the Treasury market
will take its cue from the general direction of equity prices and from the
economic numbers.
STOCK INDICES
While the bull camp certainly welcomed the
slightly improved outlook toward China, it was clear from the outright failure
Wednesday that the market is being confronted with more bearish issues than
bullish issues. The dominating theme continues to be soaring energy prices, with
the interest rate hike threat and Iraq assuming a background role. In the mean
time, we have to think that prices are vulnerable to more downside action, as
the anxiety meter continues to carry a full load of issues.
DOW
The Dow chart looks pretty negative and unless something surprising surfaces
before the opening, we have to think that prices are headed back to the recent
lows. We don’t see extremely negative anxiety and the market is still closer to
an oversold status, than a balanced status, but little looks to avert further
losses. Because the technicals are close to oversold level we think that the
June Dow will find some support off the 9,865 level but returning to the lows
will foster fresh negative sentiment and the chance for stop loss selling. To
avert the bearish tilt, the June Dow needs to regain 9,955 quickly.
S&P
it is not looking good for the S&P and with the market edging back toward the
classical bottoming point, we suspect that money managers are getting ready to
invoke stop loss sales orders. However, all is not lost and the ability to hold
above 1081.50 could provide just enough confidence to avert another big slide.
The whole game seems to be oil and therefore traders need to look over their
shoulder to the energy price action. We have to think that risk is so high to
fresh buyers, that longs should swap futures positions for long call plays. The
general bearish tilt only goes away with an early trade back above 1090.90.
FOREIGN EXCHANGE
US DOLLAR
We are not really sure why the Dollar has bounced
off the recent lows, unless the trade expects the more active daily report
schedule today to provide the Dollar with a lift. If the Dollar is to manage
even more gains, the US recovery will have to show itself in the initial claims
and leading indicator reports. It certainly seems like a strong Chinese economic
outlook, is part of a strong US Dollar outlook and while we think the market was
overly negative toward the future growth in China, we are not sure if that issue
is capable of carrying the Dollar back to the recent highs. In short, in order
for the Dollar to rise back to the May highs, it will need to come out of the
numbers this morning, with the idea that the US is still very much on the cusp
of higher interest rates and solid growth. Against the backdrop of soaring
energy prices, it almost seems like the Dollar needs something extra from the
numbers! We have been generally bullish toward the Dollar, but we think the onus
is on the Dollar to prove it is the preferred currency. Take a trade back below
90.92 this morning as a sign that the bear camp controls.
EURO
The Euro simply can’t hold rallies and the economic
numbers out of the Euro zone are part of the reason. It almost seems like
neither the Euro or the Dollar is willing to take full control of sentiment. In
order to turn sentiment back up in the Euro, it needs to regain 119.35 this
morning. We also think that the Euro will take all its guidance from the US
numbers today and if there is one report of the four that shows a strong reading
that could be enough to push the Euro down to 118.71.
YEN
It seems as if the momentum has come out of the
upside in the Yen. In fact, if the US can get any number today that highlights
growth that could be enough to send the yen down below 88.00 again. Overnight a
ratings agency (Fitch) suggested that it is too early to say that the Japanese
recovery is sustainable and that gives the bears an upper hand. To suggest that
the trend is up, we think the June Yen has to climb above 89.00 in the next
three hours.
^next^
SWISS
The chart setup is bearish and the Swiss lacks near
term support under prices. Therefore, minimally positive news from the US report
slate probably presses the Swiss toward 77.17.
BRITISH POUND
Like the Yen, the Pound rally stalled rather
quickly. UK April retail sales gains of +0.3% discourage selling but are not
strong enough to prompt buying, as the April numbers softened from the March
readings. Near term downside targeting in the Pound is 175.69, unless the Pound
is above 177.00 right after the US numbers this morning.
CANADIAN DOLLAR
While the Canadian rally stalled and a series of
resistance points are seen around 72.69, we have to think that Canadian is
favoring the upside. In fact, the Canadian has managed to hold most of the
recent gains and did see CPI prices rise by 1.8% over year ago levels. However,
in order for the Canadian to breakout up, the Dollar has to stumble off the
numbers this morning.
METALS
OVERNIGHT
London A.M. Gold Fix $380.45 +$.25 LME
COPPER STOCKS 142,175 mt tons -2,050 tns COMEX Gold stocks 4.328 ml Unchanged
Comex Silver stocks 120.4 ml Unchanged
GOLD
The gold market continues to be hostage to the
Dollar but with the gold showing periodic fits of strength, it is clear that
some fresh long interest is available to gold. In fact, we have to think that
part of the buying yesterday was an inflationary offshoot. Certainly seeing
sentiment with respect to the Chinese economic outlook, prompted the broad based
rise in all the metals, as Chinese demand is crucial in topping off world demand
for metals and many other commodities.
SILVER
The silver market eventually managed to breakout
above the recent consolidation highs but did give back a portion of the gains in
the overnight action. If the Chinese manage to hold off on further economic
restraints that could allow silver to continue craving out gains and return to
the top of the early May consolidation up around $6.17. However, we are not sure
that silver will be able add to the gains in the near term, as a positive global
macro economic outlook hasn’t entrenched itself yet.
PLATINUM
One has to give the bull camp credit in platinum as
the market has managed a $62 rally off the May low and has managed to hold most
of those gains. However, like silver the platinum market is clearly an
industrial demand driven market that is dependant on solid Chinese demand and
favorable global economic growth. However, with May vehicle sales off to a slow
start and the energy situation weighing on sentiment, we would be surprised to
see Platinum continue to rise off of the April lows without much better daily
equity market action.
COPPER
The favorable news on the Chinese economy yesterday
took the dominating negative view toward copper and tempered it. However, with
energy prices still threatening and the Chinese outlook still uncertain, we see
copper presented with ongoing pressure. Overnight the International Copper Study
Group indicated that Mine Output would rise by close to 6% in 2004.
CRUDE COMPLEX
The energy complex showed almost no weakness off
the slightly bearish weekly inventory report, as many traders saw the mild stock
build in gasoline as insufficient to avert a potential problem this summer. In
fact the year over year deficit in gasoline stocks was 12.7 million barrels
(below year ago levels) and 14.3 million barrels below the 12 year average. In
short, the gasoline situation remains serious and speculation is exaggerating
the tightness.
NATURAL GAS
After a massive correction, natural gas caught a
ride from the crude oil rally. While many might think that the whole BTU
argument behind the natural gas rise is getting out of hand, until crude stops
raising the price bar we wouldn’t expect natural gas prices to soften. Some
traders suggested that slightly warmer temps in the weather forecast, justify
the follow through on Wednesday, we think that 90% of the recent gains are
almost exclusively the result of higher crude oil.