Futures Point To A Stronger Open
INTEREST RATES
02/06 OVERNIGHT CHANGE to 04:06 AM:BONDS-2
Instead of becoming less confident in their lofty projections for the non farm
payroll, even more economists are weighing in with lofty forecasts for the
upcoming payroll reading. A Bloomberg survey pegged the payroll gain to be about
15,000 jobs above the survey released by Dow Jones early this week. In fact,
many forecasted readings suggested that the numbers could be the best in 3
years.
STOCK INDICES
02/06 OVRNIGHT CHG to 04:06 AM:S&P+220, DOW18,
NIKKEI -3.6, FTSE+16 After watching the news and headlines closely over the past
three months, we feel like the world went to bed Wednesday pessimistic toward
the US economy and woke up Thursday afternoon “extremely†optimistic. In other
words, the talking heads went from discounting and explaining away favorable
developments, to fully embracing the positives. For instance, no mention of the
very disappointing December payroll report is being made this morning, with most
economists looking forward and calling for the best January payroll gain in 3
years.
DOW
The Dow never quite got down to the 10,406 support level and might not test that
level if economists are close to being right on their predictions for the
payrolls. We are not fearful of a big washout in prices unless the numbers are
really bad. In fact, the Dow might be able to shake off a disappointing report
and close higher. However, a really bad report is labeled as a job gain of less
than 100,000. Fresh buyers might try to get long at 10,485 and possibly hoping
for a return to the January highs.
S&P
We will throw out the requirement for a major spike down low reversal signal, if
the payrolls come in above +140,000. Want to be long for the report, buy a
February S&P 1135 call for 930, it could effectively be a futures by the close,
if the report is strong. The December payroll reading makes us buy a ‘close-in’
call, rather than futures this morning.
FOREIGN EXCHANGE
US DOLLAR
After months of trade in which the currency markets
completely discounted massive US GDP readings, strong industrial production and
at times strong US payroll readings, it would seem that the trade has now
completely shifted its track. In other words, the market is now willing to
embrace the potential for an improvement in the US economy. However, in order to
seal that view the Dollar will need to hit a rather high mark with its figures
today. With expectations calling for a non farm payroll gain of 160,000 to
175,000, the market would seem to have a tall order. Because so many economists
are calling for big increases, we have to accept the forecasts. Additionally it
should be noted that early G7 meeting dialogue is suggesting that the Dollar
slide is hurting recovery in areas outside of the US and that gives the Dollar
an added short covering lift. The trend has been down but today is certainly a
point where the market could hit an inflection point. In other words, the trend
could change today but it only changes if the US reading is a major positive
headline. Current conditions suggest a call play in the Dollar, as risk control
is usually a good idea when trading against an established trend. We think the
Dollar rises to the January high but might not soar through that level
initially.
EURO
Considering the potential to break down in the Euro,
the best play would seem to be a long put play. Traders might also consider
buying a March Euro and buying 3 March Euro 123.50 puts for 95 each, but the
position will require a 300 point move in 28 days to post a profit. It all comes
down to the numbers and for the Euro to slide aggressively, the US has to prove
today that it is economically superior.
YEN
The BOJ seems to have won another round of battle.
Not only did they manage to shake off the recent breakout, but they also stood
up against comments from the ECB. If the Dollar is going to rise without
constant intervention efforts there could be a break down to 93.00 in the Yen.
SWISS
We have really been concerned for the Swiss all week
long and with the economic stories outside of the Swiss economy looking much
more attractive, that could cause a moderate decline in the Swiss. Near term
downside targeting comes in at 79.02 and maybe 78.67.
BRITISH POUND
Since the Pound has the benefit of the most
favorable interest rate different and seems to have a very strong economy
(relatively speaking) it should be able to deflect Dollar strength the best.
However, the Pound might still mount a slide to 180.00 and might be considered a
buy at that level.
CANADIAN DOLLAR
It goes from bad to worse for the Canadian, as a
true recovery in the US Dollar might be just enough pressure to push the
Canadian down to the November low of 74.05. We assume the trend is down, unless
the Canadian manages to regain 75.00 today.
^next^
METALS
OVERNIGHT
GLD-2.00, SLV-1.30, PLAT+4.10 London A.M.
Gold Fix $396.40 -$2.90 LME COPPER STOCKS 345,175 -3,300 tons COMEX Gold stocks
3.368 ml Unchanged Comex Silver stocks 124.2 ml +4,932 oz
GOLD
We are not sure if the expectations are correct but
the gold market is anticipating a positive job reports, with one survey calling
for 160,000 new jobs and another calling for 175,000 jobs. If the payroll report
is strong, then the Dollar will be strong and more longs will liquidate gold
positions. Chinese gold was lower overnight but Dow Jones reported physical or
jewelry interest in the metal at lower levels.
SILVER
The coiling pattern continues with the market
posting even narrower ranges as the week has progressed. The news that Chinese
Jewelry buyers were showing interest in gold, should provide a minor amount of
support to silver but we are not sure that the market is prepared to trade off
physical supply and demand factors. In the mean time, the silver market will see
moderate influence from the Dollar, gold and general investing attitudes.
PLATINUM
Like gold and silver the platinum market is flirting
with a downside breakout on the charts. The Press is suggesting that auto
industry demand for platinum might be switched with palladium, which actually
has a surplus supply condition. The trade has to be concerned about slumping
auto demand following the poor auto sales readings posted early this week.
COPPER
The market has certainly backed off from the high
posted Thursday and that could be from pure technical considerations and it
could be from longs unwilling to hold through the US payroll report this
morning. Shanghai copper stocks declined another 11,516 tons and that joins the
steady decline in LME stocks all week long, to reconfirm the ongoing pull of
solid physical demand. Reports of Chinese “selling†were merely pegged as profit
taking and not some change in stance by the Chinese.
CRUDE COMPLEX
The market did break through support on the
charts but then managed to recover Thursday and therefore we note the impetus
toward lower prices. OPEC dialogue is coming in rather peculiar as it would seem
that they are talking down prices. On Thursday, the Iranian Oil Minister (who is
hardly ever a friend of the western user of oil) suggested that OPEC wouldn’t
cut production because of high oil prices.
NATURAL GAS
the natural gas market was disappointed by the 236
bcf draw, possibly because the annual surplus reading has been mostly
undisturbed by the recent string of much colder than normal weather. In other
words, the bull camp just doesn’t seem to have a case to fuel prices sharply
higher. Given the breakdown in sentiment, traders now have to play the natural
gas market from a different perspective.