Futures Point To A Higher Open

5/13/2005
 

INTEREST RATES

In retrospect the Treasury auctions this week provided some lift to the market but because of the mostly better than expected US economic report flow, the Treasury market was simply left within the recent trading range. It seems that the real economic view in the marketplace remains bearish, despite the better numbers and the steep slide in energy prices and that could be the result of deep seated concerns for problems in the US auto and Airline sectors. While the Fed remains supremely confident that the US economy is growing and that the soft spot will be "short lived" we have to wonder if part of the weakness in equities and the periodic strength in Treasuries, isn't coming off the idea that problems at Ford, GM, United Airlines or Delta will eventually kick off a fresh wave of US layoffs.

STOCK INDICES

The stock market is just not acting right. The market seems to have lost the ability to benefit from persistently lower oil prices and at times has simply ignored better than expected US economic readings. Even more surprising is that the vast majority of earnings reports released in this cycle were positive and that hasn't really given the market much of a lift.

DOW
All we can come up with, is that the market is ultimately concerned about the US preparing to export its auto industry, as the market was unmoved this week by a summary improvement in the macro economic case. By discounting favorable retail sales readings and sharply lower oil prices, the market is voicing its concern for serious structural problems that aren't mitigated by positive anecdotal developments. In other words, lower oil might eventually be passed on to the users, but in the mean time many companies are on the ropes. Therefore, suspect that the June Dow is headed back to the April consolidation lows of 10,064 and possibly down to 10,000. However, on a break down to those levels we will become an interested buyer. More aggressive traders might buy 10,176 and hope that area holds, but the markets just aren't acting like it is ready to bottom.

S&P
As we have suggested a number of times, the S&P rarely forges a major bottoming off a consolidation pattern. However, the June S&P would seem to have moderate support at 1157.50 and the market might be able to pause at that level. While we see the near term tilt in the market as bearish, we recognize that lower oil prices, improving US numbers and a better attitude toward the US Dollar should serve to mitigate anxiety selling, but we are simply not prepared to call for a bottom now. Therefore, traders should sell rallies to 1168.50 and wait to buy the June S&P in the event that it falls down to cheap levels below 1155.00.

FOREIGN EXCHANGE

US DOLLAR
With the Chinese working hard to kill speculation on a currency change next week, the Dollar in a sense is given an added lift. In other words, the Chinese abandoned the "it will take a long time to implement change" stance and is now simply suggesting that the change isn't going to take place next week. However, with the Dollar managing to rise above several critical chart levels, it would seem like there is a mix of short and long term buying taking place in the Dollar. With the US numbers given added impact by sharply declining oil prices, it is clear that more Dollar gains are ahead. However, given the sharp upward adjustment in the Dollar overnight, it is possible that the Dollar will have to have as expected or stronger than expected readings this morning to hold all the gains. In the past, the Dollar has backed off the sharp overnight gains, but then regained the strength into the close. Therefore, traders should buy a correction of 20 ticks off the overnight high.

EURO
Another major failure in the Euro signals even more declines ahead, especially since the Euro zone seems to have little to countervail the selling pressure. While German numbers yesterday were better, the market is apparently not prepared to relent from its recent track. Next downside targeting in the Euro comes in at 125.10 and until there is a sweeping change in sentiment, one should assume that a down trend pattern is in effect. In fact, unless US numbers turn off soft or there is a chain of US corporate bankruptcies, we have trouble dredging up a theme that could alter the downward track in the Euro.

YEN
The BOJ suggested that expecting a higher Yen off a "re-peg" in the Yuan is simplistic, but yet that is the track the market is taking. Overnight the yen continued to slide despite the presence of favorable machinery orders data from Japan. In fact, the market is seeing foreign liquidation of Japanese stocks and that could be the result of weakness in Chinese stocks and because the market truly fears an Asian economic slowing impact off a high Chinese currency peg. In other words, the robust conditions in Asian are being called into question, possibly because of the currency change issue and potentially because the outlook toward the US is still questionable. A decline to the 93.00 level is likely in the Yen.

SWISS
Given the Euro action and the significant failures posted on the Swiss charts this morning, a more significant capital washout might be ahead in the Swiss. One has to go to the weekly charts to find support in this market down at 81.00. In fact, the current break doesn't seem to be off macro economic or interest rate differentials, as it has become intensely technical in nature.

BRITISH POUND
Not even the Pound is immune from the selling pressure being fostered by sharp Dollar gains. Near term downside targeting in the June Pound is 184.28. As suggested in the Swiss, this market really isn't reacting to macro economic developments and therefore we see no reason for the Pound slide to halt quickly.

CANADIAN DOLLAR
While Canadian numbers this week would seem to have discouraged selling in the Canadian, it would seem like something bigger is dominating the action. In the near term, there would seem to be little to avert a slide down to 79.52 and perhaps even 79.27 if the US numbers continue to improve and oil prices continue to decline.

METALS

OVERNIGHT
London Gold Fix $421.45 -$4.80 LME COPPER STOCKS 55,925 metric tons
-425 tons COMEX Gold stocks 6.080 ml oz -2,797 oz COMEX SILVER stocks 105.6 +633,346 oz

GOLD
As long as the Dollar continues to show strength and the US numbers continue to be strong, we suspect that Gold will remain under pressure. In fact, with the Chinese officially trying to play down the Yuan rumors, it wouldn't even seem like speculative forces off the "re-peg" of the Chinese currency are set to discourage more Dollar gains ahead. With a series of chart support levels violated yesterday, we are seeing several predictions this morning of a near term trade below the $420 and $415 levels in June gold.

SILVER
The silver market is certainly being pulled down by gold, but we also see some outside pressure being tossed onto silver from both copper and platinum. In other words, the silver market seems to be getting a financial pressure from the Dollar and a physical demand pressure from sagging industrial metals psychology. In other words, the majority of the factors influencing silver are pointing to even lower action ahead.

PLATINUM
Trend line support is seen at $863 but we suspect that the market will derive some support from an upcoming private supply and demand report on platinum. In other words, we suspect that supply remains tight and that demand is steady but the question that will be left unanswered by the private report will be whether or not July platinum deserves to hold at $885 or if prices closer to $855 are more rational for current conditions. If one can guarantee ongoing strong growth in China and expanding growth patterns in the US, then maybe the contract highs are justified, but in our book, good forward growth is anything but guaranteed.

COPPER
As if all the technical damage in copper this week weren't enough, the market today will have to absorb the news of an 8,911 ton increase in Shanghai copper stocks. Given that copper prices failed to hold at a series of very important technical points on the charts, it is possible that long term stop loss selling continues to surface. In fact, we see little support in the July copper until the market slides down to 135.00.

CRUDE COMPLEX

The selling continues and we aren't even sure if there is cause to see prices check up without a slide down to $47.50 basis June crude oil. In addition to the ongoing concern of slumping demand, the market continues to get almost daily evidence of rising supply. On Thursday another private entity suggested that OPEC output was expected to rise by 230,000 barrels per day over the coming 4 weeks and that simply created cover for the sellers.

NATURAL GAS
We are actually impressed with the natural gas markets ability to hold above the recent lows despite the sharp slide in crude oil prices. We suspect that the BTU comparison relationship is waning and that the prospect for increased summer consumption is serving to pull in hedge buying and forward contracting. However, in the event that crude oil falls to $47.50 support, we doubt that natural gas will be able to avoid a new low for the move.