Futures Point To A Weaker Open
INTEREST RATES
It would seem that a number of markets are
assuming higher interest rates from the US, but that sentiment doesn’t extend to
the Treasury market. In fact, the Treasury market seems to have taken the
Greenspan news to mean, that a near term rate hike isn’t in the cards. We
suspect that the buying off the low yesterday was mostly short covering, as this
market continues to hold what we think is an excessive short spec position.
STOCK INDICES
The Press is suggesting that the stock market is
set to open lower because of persistent rate hike talk. However, we think that
the market might rally today, as the presence of rate hike talk yesterday,
didn’t have the usual intense negative impact on prices. In fact, with
consistently lower energy prices beginning to convince investors that the
recovery isn’t at risk of faltering, we have to think that the fundamental
outlook for stocks is even more bullish than at any time since the market forged
the May bottom.
DOW
As suggested before the June Dow comes into the session today right on the prior
days high and apparently poised for even more gains. In fact, unless something
upsets the current chain of thinking, it might be possible for the June Dow to
return to the April high up at 10,536.
S&P
Like the Dow, the June S&P seems to be poised for more gains and could be headed
to the late April high of 1146.20. The market is heading into a triple witching
expiration and that could whip up volume and send prices to the early April high
of 1150. In order to maintain the upward track, energy prices need to stay weak
and the market needs to continue to down play the threat of rising interest
rates.
FOREIGN EXCHANGE
US DOLLAR
What a difference a few words make, as the trade was
fully negative on the US Dollar but with Greenspan merely suggesting that the US
Fed hadn’t ruled out aggressive rate hikes in the face of rising inflation
pressures, the market apparently altered its view toward the Dollar. With energy
prices falling persistently and taking down the risk of failure in the world’s
largest economy, it’s understandable that the Dollar gets an additional lift off
the energy price slide. In short, the Dollar was lucky and might now see some
consistent technical short covering. In fact, we have to think that the Dollar
will attempt to rise until the PPI report Thursday afternoon. In other words,
the theme of rising US interest rates looks to dominate, until there is no
longer a reason to suspect rising rates. However, in order for recent gains to
hold and extend, the US will have to produce a hot PPI. A hot PPI is above
+0.5%! Near term corrective targeting is seen up at 89.64.
EURO
Near term downside corrective targeting in the
September Euro comes in at 121.50, which is just under the current market. Even
lower support comes in down at 121.10. A narrowing of the German trade surplus
for April, also adds a minor negative to the market but as we learned last week,
the Euro action is predominately dictated by US macro economic developments.
YEN
A massive upside breakout in the Yen, comes on the
heels of lower energy prices and ongoing strong growth readings from the
Japanese economy. It would seem that Japan is one of the few G7 countries not
sitting directly on the cusp of higher interest rates. In fact, the BOJ
overnight re-iterated that Japan will continue its Super-Easy money policy. In
short, the trade is given the green light for even higher Yen prices. Near term
targeting is seen above 93.20.
^next^
SWISS
Poor chart action and spillover pressure from the
Euro, look to put the Swiss down to trend line support around 79.71. Big volume
and open interest recently, might make the Swiss a prime candidate for a big
downside correction.
BRITISH POUND
The Pound looks set to fall to consolidation support
of 181.24 but there really isn’t much assurance that the Pound will hold that
support. In fact, with the Pound showing weakness in the face of a +0.7%
increase in April Industrial production, it is clear that strong numbers are not
supporting the currency. Therefore, some other issue is operating and that could
result in the Pound failing at chart support levels.
CANADIAN DOLLAR
Certainly the Canadian was overdone and certainly
the BOC decision disappointed some recent buyers of the Canadian, who were
looking for higher rates of return. Some might even suggest that the soft
housing numbers undermined the Canadian, but we think that the market was simply
overdone technically and in need of a temporary setback. Near term buying
support in the Canadian is seen at 73.93.
METALS
OVERNIGHT
London A.M. Gold Fix $389.30 -$5.65 LME
COPPER STOCKS 123,550 mt tons -1,125 tns COMEX Gold stocks 4.391 ml Unchanged
Comex Silver stocks 118.1 ml +50,227 oz
GOLD
Apparently the Chinese gold traders took Greenspan
comments to heart, as they dumped gold in the overnight action. The argument
that higher interest rates will alter the carry condition in gold and in turn
stimulate forward selling is partially behind the decline off this week’s highs.
However, we also suspect that a minor bounce in the US Dollar added into the
liquidation tilt.
SILVER
Without direct support from gold, the silver market
probably slides to consolidation support down around $5.65 but we also can’t
rule out an even bigger slide to $5.50. We still haven’t seen COMEX silver
stocks show any sign that the quickening global economy is managing to pull down
supply and that means that silver is mostly a poor performing precious metal. If
one downplays the inflation prospect (because of the Fed statements Tuesday)
that could serve to push another layer of spec longs out of the market.
PLATINUM
Despite stories of problems at an Amplats facility
yesterday, the platinum market has rolled over down and failed on the charts.
Heavy selling in Japan sparked the overnight slide and we therefore we suspect
that all the talk about higher interest rates is at least partially behind the
current washout. If the European economy is heating up and US employment is
rising, one has to think that Chinese activity is also being lifted and that
could result in a move to higher interest rates.
COPPER
After seeing the action in gold and platinum we just
assumed that platinum would be weaker today. Apparently the Greenspan comments
started the selling in the Asian session, but we have to think that the delivery
of $800 million worth of copper to China from Poland (in a way comes outside of
the typical exchange stock flow) is a fresh negative. Underpinning copper
against the coming correction, are ideas that the current world supply deficit
continues to expand.
CRUDE COMPLEX
Energy prices started out mixed yesterday and
then failed into the put session close on Tuesday leaving the bear camp in
charge of the near term trend. However, the market continues to see potentially
supportive demand news, with the EIA suggesting that gasoline demand in 2004
will rise by 1.4% over levels seen in 2003. The EIA also suggested that the
trend in gasoline prices had turned down and the market apparently bought into
that argument and pressed prices below critical support.
NATURAL GAS
Natural gas prices came under pressure Tuesday in
the wake of weakness in the regular energy complex and because the EIA suggested
that natural gas demand growth in 2004 would be negligible. The EIA predicted
that spot gas prices would average 6.20 in 2004 and that would seem to limit the
upside in prices considerably. With expectations that natural gas production
would rise by 0.9% in 2004, after a slightly lower +0.6% rise in 2003, it is
clear that the natural gas conditions will at least remain close to a supply and
demand balance.