Futures Point To A Weaker Open
INTEREST RATES
The Treasury market has weakened off a series of
slightly improved economic readings this and has also weakened because the Fed
is openly suggesting that higher rates are ahead. While the Fed took great
effort to diffuse the aggressive rate hike talk, they are more or less
confirming that higher rates are to be expected. We also have to think that
higher equity prices and lower energy prices gave the bear camp some assistance
this week but we are not sure if either of those outside influences will manage
to keep the pressure on bonds over the coming two sessions.
STOCK INDICES
The stock market had a nice string of gains but
seemed to make the gains without much fanfare. While the equity market might see
an additional upward probe today in the wake of the official OPEC statement, we
have to think that the pattern of higher equity prices is about to end and that
the reality of sustained high energy prices is going to be encountered again.
While OPEC is promising more oil production, that is simply different than
providing enough near term physical oil flow to pop the speculative bubble in
energies.
DOW
The double top in the Dow hints at a top and a decline below 10,200 could
unsettle the trade and begin a slide toward 10,111. We don’t see an aggressive
anxiety driven break, but we are not sure longs want to hold positions through
the Friday morning reports and we are not sure that many longs expect more
profits.
S&P
In our opinion, the S&P has already made a critical top and if it’s lucky, it
might bounce temporarily off the OPEC statement this morning. In the end, we
think that the June S&P is headed back down to 1113.70 and possibly to 1100 if
energy prices return to the recent highs quickly. Seeing the June S&P fall back
below close-in support of 1118.20, could in fact be the ignition point for an
even bigger selling wave and a slide below 1100.
FOREIGN EXCHANGE
US DOLLAR
Surprisingly the Dollar managed to peak out above
recent consolidation resistance in the overnight action. However, the trend in
the Dollar is down and the market will have to see ultra strong US economic
readings today just to diffuse the generally negative tilt. In fact, to see the
Dollar turn up, energy prices will have to continue to slide and the market will
also have to think that the US is poised to hike interest rates. In short, the
odds aren’t very good that the Dollar is going to start an upside pulse. The US
economic information today just doesn’t appear to be capable of shifting
sentiment in the Dollar into the bull camp, but the numbers on Friday are a
different issue altogether. Seeing the June Dollar rise above 89.17 would begin
to temper our negative view, but unless the fundamentals stories really
highlight ongoing strength in the US economy, we can’t buy into the Dollar.
EURO
While the Euro has managed a partial failure in the
overnight action, it does seem like the currency has managed to climb back into
the uptrend zone. The thing we are concerned about in the Euro is that a large
portion of the gains in the Euro, over the last four weeks, have come because
the US numbers really disappointed. Furthermore in the coming sessions we doubt
that the numbers will be really disappointing from the US. Therefore, the Euro
is seeing risk rise to the longs and might be seeing its upside potential
reduced. In short, we are not overly bullish toward the Euro and would prefer to
make bets against the Dollar in other currencies.
YEN
The Yen has made a massive failure overnight and we
have to think that the Chinese tightening threat is at least partly to blame.
Concerns for the high tech sector in Japan undermines sentiment and might
actually clear the way for a slide in the Yen to 89.00 level and lower. Critical
moving average reversal signals come in today with a move below 89.29.
^next^
SWISS
Like the Euro, the Swiss probed the downside
overnight but then rejected those lower levels. Critical pivot point support
comes in today at 80.00. We think that the risk to longs in the Swiss, is rising
rather significantly.
BRITISH POUND
The Pound would seem to be the best bet against the
Dollar in the near term, as the Pound chart has solid support around 182.50 and
the UK economy is a little more insulated against energy prices and the Chinese
situation.
CANADIAN DOLLAR
The Canadian should be primed for an upside
breakout, with most of the other currencies back on their heels and the Canadian
bordering on a technical breakout. If the June closes above 73.59 expect an
upward extension Friday.
METALS
OVERNIGHT
London A.M. Gold Fix $391.40 -$4.45 LME
COPPER STOCKS 129,825 mt tons -1,425 tns COMEX Gold stocks 4.391 ml -390 oz
Comex Silver stocks 118.3 ml -62,277 oz
GOLD
Talk that China might still have to hike interest
rates is circulating this morning and that could have been part of the sharp
selloff yesterday. Therefore, it is possible that gold remains weak for the
coming two sessions, especially if US economic information due out over the
coming two sessions manages to provide the US Dollar with some support. The
Dollar seemed to get minimal support from the weaker oil price action and that
shows only a limited oil impact on markets that influence gold and silver.
SILVER
A very poor trade in silver undermines the bull camp
and most importantly puts off some potential buyers of the metal. While we saw a
couple days of tighter COMEX stocks we are still not seeing signs of a
consistent tightening, nor are we seeing signs that investment and physical
demand is rising. Therefore, all that can be said about silver is that prices
are certainly generally more attractive than they have been for most of the last
8 months, but that doesn’t prompt players to buy silver.
PLATINUM
The July platinum market certainly reacted to the
overnight stories about China raising rates. However, the platinum market sees
some buying support from a Johnson Matthey report that auto demand for platinum
is improving and that should help cushion July platinum against a massive
liquidation. Near term corrective support in July platinum comes in down at $820
but a China induced liquidation could see July platinum prices fall all the way
down to the $800 consolidation lows.
COPPER
We are still not sure that the talk of higher
Chinese interest rates was behind the massive fund liquidation in copper
yesterday, but we have to think that was at least a major component of the
break. Chinese copper prices were limit down, but those prices were supposedly
down off the prior day’s LME action and not down off some fresh negative.
However, we do think that July copper is capable of sliding down to the 120
level and possibly even lower if US economic information over the coming two
sessions isn’t found to be supportive to the macro economic outlook.
CRUDE COMPLEX
Oil prices are trying to firm this morning
because the trade suspects that talk of higher quotas doesn’t actually put
physical oil on the market. Also supporting prices are suggestions that Iran
wants a 2 stage quota increase of 1 million barrels now and more later. Lastly
there is the argument that even with higher crude flow that doesn’t mean that US
refiners will make more gasoline.
NATURAL GAS
As expected the natural gas market capitulated in
the wake of much weaker US crude prices. We have to think that more downside is
ahead and that the weekly inventory readings will add to the selling. Those that
bought puts in natural gas on our suggestion Wednesday morning, should look to
bank profits on a hard down day today.