Daily Futures Commentary: 31 March 2009
Most futures markets are being driven higher by the weaker Dollar this morning. The first break in the Dollar overnight was triggered by traders who just felt that yesterday's rally was an overblown reaction to potential bankruptcies at General Motors and Chrysler.
After having time to digest the situation, the general feeling early this morning is that bankruptcy is probably the best alternative. Some traders still believe that this situation is extremely detrimental to the economy and could have a negative ripple effect on almost every sector of the economy.
Support for the weaker Dollar this morning is also coming from news that the World Bank is going to create a trade fund. The newly proposed $50 billion program is designed to counter the decline in global trade.
This new plan is being seen as a positive this morning as trader appetite for risk is increasing. Confidence in holding risky, higher-yielding assets is increasing which should mean potential gains in foreign currencies, equities and most commodities while pressuring current safe-haven markets such as treasuries and the U.S. Dollar.
Equity markets are called higher as trader appetite for risk is increasing. This may only be a retracement of the break so traders should be careful getting too aggressive on the long-side.
Speculators are giving back some of the gains in the financial markets overnight. This should lead to a lower opening in Treasury Bonds and Treasury Notes. Traders are a little less fearful today of a breakdown in U.S. equities.
Foreign currency markets are expected to post gains this morning based on the weaker Dollar overnight. All higher-yielding currencies are posting strong gains as traders are looking for more return. Look for gains to be limited in the Euro on speculation of a 50 basis point rate cut on April 2 by the European Central Bank. The Japanese Yen is expected to open lower following the announcement of a new stimulus plan.
The energy markets are called higher. Crude oil is following the strength in the Euro. Some traders say this rally is just short-covering caused by yesterday's overblown break. Demand is still the key to this complex. So far inventory numbers don't show an increase in demand so any rally is likely to be short-lived. A renewed rally in equity markets could support this market most of the day.
Precious metals are rebounding after several days of decline. Much of this rally is being attributed to short-covering and the new World Bank trade fund. This complex has basically run out of new shorts and will have to rally to attract new sellers. The rest of the rally is being driven by the weaker Dollar and stronger commodities.
The Grain complex is expected to trade higher this morning as all commodities are benefitting from the weaker Dollar. Expectations of an increase in demand initially supported the corn and soybeans overnight. Gains could be limited in soybeans because of the increase in planted acres.
Wheat is being supported by prospects of new demand and deteriorating crop conditions in Kansas. Some traders still fear potential damage from flood waters in North Dakota.
Dollar-based commodities such as cocoa, sugar, coffee and cotton are all called higher this morning. Cocoa and Coffee are expected to see an increase in sales because of the weaker Dollar. Production issues are also providing support.
Sugar is moving higher in sympathy with cocoa and coffee, but traders are disappointed for the most part by the failure of India to enter this market as a huge buyer. Higher crude oil could renew talk of more demand for sugar used as bio fuel.
Cotton is finding support because of the news that fewer acres will be planted. This could be very important should weather conditions develop during the growing season.
Overall the theme today is a weaker Dollar. As long as the Dollar remains under pressure then look for trader demand for more return to help support equities, most foreign currencies and commodities.