Futures Point To A Weaker Open
INTEREST RATES
The bond market comes into the week down around
last Friday’s lows and seemingly in a much weaker posture. Maybe the looming
monthly payroll report is responsible for the sloppy posture of the market but
in looking back to the recent numbers the bull camp would seem to have reason to
stay long. With energy prices soaring off the weekend terrorist attack in Saudi
Arabia and grain prices making some noise, it is not out of the question to at
least ponder the topic of inflation.
STOCK INDICES
We are a little surprised that the Nikkei was up
overnight, as soaring energy prices and the weekend terrorist attack in Saudi
Arabia seem to increase uncertainty for near term economic growth. The fact that
energy prices have soared would seem to be the main negative catalyst, as last
weeks gains seemed to come almost exclusively off a series of energy price
declines. In other words, the dominating issue in the equity market is the price
of gasoline and in the coming sessions that impact looks to prompt some profit
taking and perhaps some fresh selling.
DOW
Given the opening indications it would seem like the Dow is headed lower. With
the outside influence of soaring energy prices and the recently overbought
(short term) technical situation, it should be easy for the June Dow to slide to
first support of 10,120 but critical moving averages are violated down at 10,070
today. The weekly COT report showed the funds to be net short last Tuesday and
the small spec traders barely long, so one would not expect the market to see a
massive downside liquidation thrust unless the geopolitical developments are
really negative.
S&P
The bias is down with the first downside objective seen coming in at 1114.50 and
another critical support level targeted at 1112.40. Fortunately, the COT report
showed the funds to be net short 34,000 contracts as of last Tuesday and that
leaves the market mostly vulnerable in the small spec category. We don’t get the
sense that the market is primed for a big failure but the path of least
resistance will be down until OPEC convinces the world that oil prices are not
going to rise further.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is into lower ground for the move
overnight and it would seem like the regularly scheduled economic information is
of little importance to the market. With the Euro zone GDP readings minimal at
+0.6% the market could have upgraded the Dollar, but apparently the trade thinks
that the US economy is vulnerable to energy price gains. With the US apparently
unable to take crude and make enough gasoline to stave off widespread
speculation, one has to concede that the US economy is in fact more vulnerable
to energy prices than the Euro zone economy. In fact, unless the pace of the US
numbers improves, many traders are willing to bet that the US growth track is
collapsing and that the Dollar is headed down to the 88.00 level in the near
term. In short, either the US starts to produce significantly stronger numbers,
or we could easily see the June Dollar Index touch 87.70 before the Friday
payroll report steps in to temporarily check the downside thrust.
EURO
Given the overnight downside probe the Euro should
be technically balanced and capable of forging more near term gains. While the
Euro zone GDP reading was anemic on its face, the fact that so many economists
think that even more EU growth is ahead, and that is all the market needs to
boost prices. In fact, it would seem like consumer interest helped the GDP move
into positive ground and that leads many to conclude that the Euro zone growth
is sustainable.
YEN
With the Nikkei up overnight, it is clear that the
Japanese economy isn’t going to labor under the weight of the energy issues that
are plaguing the US economy. Therefore, the Yen looks set to climb to even
higher levels. The next near term target in the June Yen comes in at 92.17 and
then again up at 92.45.
^next^
SWISS
Like the Euro, the Swiss corrected overnight and now
might be capable of a sharper rise against the Dollar. However, the Swiss seems
to have significant overhead resistance and the risk of being long is pretty
extensive. Therefore, we would suggest that fresh longs consider selling a call
and buying a put against new positions.
BRITISH POUND
Surprisingly the Pound hasn’t benefited from the
overnight slide in the Dollar and that could be because the Pound is extensively
overbought and is now seeing significant resistance off the bottom of the
February consolidation. May retail sales readings in the UK were the highest
since April 2002 and that should leave the fundamental bias pointing up in the
Pound. Solid support is seen at 182.50 and resistance is seen at 184.00.
CANADIAN DOLLAR
While we assume that the bias is up, the rate of
gain in the Canadian leaves a lot to be desired. However, a near term failure
takes place with a slide back below 72.95. Longs should move to protect
positions.
METALS
OVERNIGHT
London A.M. Gold Fix $395.85 +$2.00 LME
COPPER STOCKS 132,250 mt tons -1,525 tns COMEX Gold stocks 4.391 ml -105 oz
Comex Silver stocks 118.4 ml -594,287 oz
GOLD
We suspect that the gold is poised to resume the up
ward track seen last week, as the Dollar is pointing down and there was another
terrorist attack on a Saudi Oil Company office over the weekend. The Chinese
gold market noted physical buying overnight and that should set the
international gold market off on a positive footing to start the week. According
to Gold Fields de-hedging increased in the 1st quarter, which in effect raises
the demand function in the supply and demand equation.
SILVER
The path of least resistance is up in silver but the
rate of gain doesn’t look to be that significant. The weekly COT report showed
silver to have a net spec long of 58,000 contracts and that is a minimal decline
from the prior week. Therefore, silver isn’t excessively overbought and that
could leave the market poised to rise to $6.32.
PLATINUM
The combined spec long position in platinum was
nearly flat as of last week and that should leave the platinum market capable of
forging an upside breakout. As we found out over the last three weeks, the
platinum market is really dependant on Chinese demand and therefore consistent
long interest from Asia is critical to the bull trend. First upside targeting in
July is $857.4.
COPPER
The copper market continued to rise despite the
ongoing concern for the macro economic outlook. The Chinese copper market was
inconclusive with some profit taking documented from prior price gains. Mexico
reported a 55% increase in March copper production and fortunately for the bull
camp, the copper market isn’t paying that much attention to the physical supply
and demand factors.
CRUDE COMPLEX
The energy complex left last week concentrating
on hope that OPEC supply was set to rise, which in turn would serve to lower the
risk of US gasoline shortages this summer. Over the weekend a terrorist
attack/hostage situation in Saudi Arabia resulted in 22 deaths including 1
American. Because the attack took place at another Saudi Oil Company facility,
the energy complex logically assumes an increased threat to the worlds most
vital supply flow.
NATURAL GAS
Like the crude oil market, the natural gas market
managed a moderate correction last week and that probably reserves to reduce the
net spec and fund long from that burdensome 52,000 contract long level. Trend
line support in July natural gas comes in at $6.40, with closer-in support seen
coming in up at $6.46. Unfortunately for natural gas players the market will
continue to take its direction from crude oil and we suspect that natural gas
will come under aggressive attack in the event that July crude falls back below
$39.00.