Futures Point To A Weaker Open
INTEREST RATES
The Treasury market finally gave some ground but
did so in the face of conditions that could have easily supported prices. Not
only did the Chinese tightening threat sink stock prices, but it also hammered a
number of commodity markets that were fearful of a demand contraction. In other
words, the world is justifiably concerned that one of the main engines of the
current global recovery might be set to slow.
STOCK INDICES
The stock market is apparently disappointed by
the Chinese tightening threat and has possibly been given an added push down
overnight by some poor earnings out of Europe. However, it would seem like the
US has possibly managed a political deal in the Fallujah siege and that could be
seen as a positive. Unfortunately for the bull camp, the stock market is looking
for the negatives and might even manage to react negatively to a stellar GDP
report this morning.
DOW
Our pick for a low in the Dow now comes in at 10,270 and that could come in the
next 24 hours, but only if the numbers are so strong that recovery is assured,
at the same time that a rate hike is accepted. In other words, wait for more
downside before playing for a solid low.
S&P
Those that got long at 1120.70 yesterday (on our suggestion) should look to take
a minor quick loss and stand aside for the GDP report this morning. Maybe the
market has bottomed but the risk and reward of a market that rejects positives,
is too high to assume. Our new bottoming projection is 1114.30, or until the
market manages a classical bottoming. A classical bottom is a big range down
reversal, that manages to post a close back above the mid point of the session.
If a settlement in Fallujah and an ultra strong GDP isn’t enough to drive prices
higher, the bull camp isn’t in a mood to control prices.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continued to gain in overnight trade on
expectations today’s 1st qtr GDP data will show strong enough growth that the
Fed may be forced to raise rates sooner than expected. The market has priced in
a GDP as high a 5.5%, but given the outcome of other recent economic data that
number could be low. With the Fed signaling rates have bottomed, mounting
evidence of a stronger growth pace in the US, and more critical rising inflation
pressures, gives the Dollar an increasing rate advantage over other currencies.
Comments from Chinese officials yesterday that steps are being taken to cool the
economy’s searing growth has supported the Dollar against what are considered
more commodity-based currencies like the Australian and Canadian Dollar. China
has been a major buyer of commodities, and lower imports from them could hurt
commodity based economies. Market direction will key off the GDP data this
morning and a hot number could easily push the June Dollar over the 92 level and
into a new higher trading range.
EURO
Look for more of a substantial downside break
against the Dollar since the reports out of the Euro-zone, other than the recent
Ifo survey, still show anemic growth. While the ECB may not be cutting rates,
they are not likely to raise rates either so the 1% rate differential between
the Euro-zone & US should be narrowing this year, giving the investment
advantage to the US. On a strong US GDP, the Jun Euro should take out support at
117.45 with next support at 116.95.
YEN
The news from China that steps are being taken to
tighten credit to cool the economy continued to pressure the Yen overnight. The
Japanese economy is still struggling to recover and needs export outlets in
order to sustain growth. A rising US rate outlook puts further pressure on the
market. If the US GDP is strong, June Yen should soon test the March lows.
^next^
SWISS
The Swiss is being supported on 2 fronts which are
indications that the Swiss Nat. Bank is ready to raise rates this year and the
heightened terrorist alert in the Middle East. With the Swiss possibly
tightening rates soon that the Euro-zone, the currency could continue to gain in
the Euro and have limited weakness against the US Dollar. SFM support 76.50 and
76.00.
BRITISH POUND
Despite expectations for a rate hike next week,
traders look to be preferring the Dollar. The break under the 175.48 support
level is bearish with next support at 174.74.
CANADIAN DOLLAR
June Canadian is headed for 72.00 and may get there
today if the US GDP is hot. The China news is a big negative. The trend is down.
METALS
OVERNIGHT
London A.M. Gold Fix $382.75 -$14.00 LME
COPPER STOCKS 153,275 -175 tons COMEX Gold stocks 3.985 ml -60,033 oz Comex
Silver stocks 122.1 ml +1,000 oz
GOLD
Certainly the metals showed their reliance to
investment fund interest in the break Wednesday. It was also clear from the
action Wednesday that the metals markets were pretty reliant on Chinese demand
or at least Chinese demand expectations. While we hesitate to quickly pick a
bottom, it might not take a long period of time to bring this market into a
leveled technical condition, especially when one considers the pace of
liquidation seen this week.
SILVER
The silver market would appear to be poised for more
losses with the small spec and fund long still not fully balanced. Like gold,
the silver is in serious need of a fresh long theme and even if one were to
surface, we are not sure it would be strong enough to overcome the residual
liquidation pressure expected to be present each session. We still might have to
liquidate another 30,000 contracts in silver before we can even say that the
technical picture is close to being balanced.
PLATINUM
One has to go to a weekly chart to find any support
in July platinum. The market would appear to be headed to the $750 level. We
really didn’t that that the platinum market was so reliant on the Chinese
element, but that is apparently a main pillar of the bull case.
COPPER
While the overnight action suggests that copper
might have found some support, it would not surprise us to see a slide down to
the 115 consolidation zone in the July contract. A story overnight that expects
US demand to partially offset the potential slide in Chinese demand, might give
the market a chance of bottoming but that means the US GDP needs to be very
strong. Expectations for the GDP call for a rise of around 5% and that should at
least serve to discourage the nearly conclusive bearish attitude toward the
metals.
CRUDE COMPLEX
Although the stocks report was generally bullish
and the terrorist threat does not seem to have been reduced, the energy markets
may be gearing up for some late in the week profit taking. June unleaded pushed
to new contract highs on reports both gasoline and reformulated gas stocks fell
last week. However, the contract closed off its highs, which could be an
indication traders may begin to take some profits.
NATURAL GAS
June Natural gas failed to over come resistance at
$6 with prices falling back despite a move to new contract highs in gasoline. If
the market is failing to garner support from strength in the rest of the
complex, prices are vulnerable to rolling over given that nat. gas stock levels
are high and spring demand for natural gas is thought to be only slightly above
normal.