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A number of international brokerage firms are touting copper as a 2010 bull market candidate. In the base metals trade, seeing recommendations from either British or Australian sources seems to give many traders even more confidence in the bull market predictions, perhaps because those two countries have had a history of heavy corporate involvement in base metals mining. Nonetheless, the copper market seems to be able to track economic activity in the developing world, and it has sometimes been able to discount periodic negative impacts from the developed or OECD countries.

Certainly global industrial activity will find it difficult to spring back to pre-sub prime levels, but seeing the Chinese buying more automobiles than the US in the month of January could be a sign that the developing world is capable of making up for an anemic recovery in the US and Europe. It should also be noted that infrastructure spending was a major component of many global stimulus projects, with the majority of the US spending not even getting into the market until later this year. Therefore, what demand might be lost from classic economic activity might be regained through big government projects.

From a shorter term perspective we suspect that some mining activity remains curtailed because miners have only recently seen prices return to the 2006-2008 consolidation high zones and the cost of mining has increased because of higher energy prices, the potential for wage re-negotiations and because local governments are demanding higher taxes or more stringent environmental practices. While $3.00 copper pricing might have been very lucrative prior to 2006, copper miners might eventually need prices above $4.00 to be confident in expanding their production. The general pattern of LME daily stock changes over the last two months has favored the “build” side of the equation, but recent daily declines seem to be breaking that pattern, and that in turn could be a hint that the copper market is set begin to tightening again (see chart).

In short we think that copper has signaled a value zone in the nearby contract above the $3.00 level and that copper prices for December delivery might have an upside capacity of $3.75 to $3.80 in the event that recovery prospects for the developed world improve.

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Despite all the obvious ineptitude in the U.S. it would appear that the Federal Reserve is under by very astute leadership. Congress had to rant against Chairman Bernanke in his reconfirmation process because even the politically-blinded mainstream media was having trouble keeping the blame from falling on entrenched members of Congress who provided Ginnie and Fannie the unrestricted right to mortgage the future of America to the hilt. So far, little blame has been levied against Americans who borrowed beyond their needs for homes, cars and flat screen TVs. On the other hand, the Fed has been given the task of securing a recovery from “a deep economic wound” and has also been given the added burden of containing inflation in the process.

It is our opinion the Fed is already masterfully controlling the situation with a mechanical discount rate hike that should only impact the banks. It also seems as if the Fed is singing the mantra of leaving rates low to insure the recovery, but at the same time they are heavily in the media with hawkish dialogue that is serving to temper inflationary expectations. What the Fed really wants is to keep rates low to those who need them and in turn give some pause to those who are betting on rising inflationary pressures.

Dovish
February 24, 2010 Fed Chairman Ben Bernanke told Congress that the central bank has “promoted economic recovery through sharp reductions in its target for the federal funds rate and through purchases of securities. The economy continues to require the support of accommodative monetary policies.”

February 26, 2010 Chicago Federal Reserve Bank President Charles Evans told CNBC: “I still think it’s going to be an extended period of time that interest rates are going to be low.”

Hawkish
February 26, 2010 Kansas City Fed President Thomas Hoenig (on C-SPAN): “One of the issues that I have dealt with is how do we bring interest rates back to a more long-term sustainable level from their extremely low and obviously unsustainable levels…I think we should be going back to a more normal level sooner rather than later.”

March 2, 2010 Kansas City Federal Reserve Bank President Thomas Hoenig told CNBC: “When you have zero rates that go on indefinitely, you are inviting future problems. We know that zero is non-sustainable…the market already knows that.”

It is also possible that recent equity market gains are the result of ideas that politics are leveling out and that the chance for extreme change is being reduced. The fact that the Dollar was seen as a flight to quality instrument in the recent Euro zone debt debacle suggests that the US is still seen as a safe environment. While we don’t have the benefit of knowing the results of the February monthly Non farm payroll report as of this writing, we get the sense that any slightly disappointing readings will be discounted and even that worse than expected readings could be discounted too because of the possibility that severe weather had an impact on the data.

In short, the equity markets and many physical commodity markets have mostly shaken off a series of global tightening moves, a rising Dollar and what continues to be a disappointing recovery pace. We have to wonder how high prices would be if the recovery was thought to be entrenched, the initial rate hikes were thought to be past and Washington wasn’t trying to modify the entire American economic system every two hours. In short, the bull market mentality in commodities lives on even in the face of significant headwinds.

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DOLLAR: The Dollar appears to be holding just above the prior lows as if it is waiting for the final judgment on the Greek 10 Year debt offering. At least from the early indications, the debt offering went off fairly well and when one combines that sentiment, with the potential for decent US economic news, that could leave the bear camp with the near term edge in the Dollar. However, the Dollar might not fall aggressively because of the presence of the ultra critical US Non Farm payroll report on Friday morning. It is also possible that the Dollar is set to get some minor support from the latest Chinese tightening effort, but that support will probably be totally washed away because of another push in the US for the Volcker rule. In our opinion, pushing for the Volcker Rule should mean that some money will decide to flee the US Dollar. In conclusion, the bearish items seem to easily out number the bullish items, with favorable US data likely to continue lifting oversold Non Dollar currencies. Critical support in the March Dollar index is seen at 79.97 but a decline down to 79.75 would not be surprising today.

EURO: The Euro was recently oversold technically and perhaps under excess fundamental pressure. While the final results might offer up a surprise, the initial results from the Greek debt offering seem to have been good enough to keep anxiety levels low and that could provide the Euro with a further short covering lift. Unfortunately, Euro zone GDP readings overnight showed a gain of only +0.1% and the trade saw fresh Chinese tightening moves overnight and that seems to be limiting the Euro in the early going today. However, the Euro needs help to rally and we doubt that the rate decision from the ECB will offer any surprises, but we do think that favorable US numbers could prompt some additional buying of the March Euro. Initial support in the March Euro is seen at 1.3654 and there is a chance of a fresh new high for the week if the US numbers are positive.

YEN: The March Yen managed another range up move in the overnight action but it would appear that the Yen is managing the gains off information that might have been seen as bearish earlier in the week. Perhaps news of an earthquake in Taiwan overnight provided the Yen with a lift and perhaps the currency trade is expecting a disappointing US Non farm payroll reading on Friday morning. In any regard, we have been suggesting all week that the Yen was capable of rallying sharply this week and it wouldn’t be surprising to see a spike high and failure above the 114 level.

SWISS: The Swiss seems to be poised to rally but we get the sense that the rally would be mostly technical short covering. However, a temporary calm in the Greece situation and improved economic views toward the US recovery would probably prompt the March Swiss to rally back above the 94.20 level. For the time being, being long the Swiss is like being long the world economic outlook.

POUND: The Pound continues to benefit from a leveling of the Greece debt crisis and perhaps because of a slight improvement in the US economic outlook. In retrospect, one might also suggest that sentiment toward the Pound and the UK economy was really negative early in the week and therefore some short covering is deserved in the Pound. However, a UK Halifax house price reading for February fell overnight and therefore the bull camp in the Pound probably needs some help from world equity markets and also from the US economic report front. The March Pound would seem to have little resistance until the 1.5150 level, but being long the Pound, might mean really good numbers lift the currency slightly, while slack numbers resume aggressive selling interest.

CANADIAN DOLLAR: The Canadian Dollar remains in a bullish fundamental and technical posture. However, the Canadian is somewhat short term overbought and seemingly in need of a patently supportive US economic report flow to manage more gains straight away. The Canadian is sensing forward progress on the global economy, but we are a little uncomfortable suggesting fresh long plays in the upper quarter of the last 5 1/2 month trading range. Long term, we are bullish but buying at this level on the charts feels risky.

TODAY’S MARKET IDEAS: The bias in the Dollar would look to remain down especially if US numbers are decent and the Greek debt auction is deemed to be mostly successful.

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World stock markets showed some weakness overnight and that weakness might have come from any number of minor bearish themes. First of all, it is possible that the markets were simply banking some profits and were in need of technical balancing. It is also possible that news of a quake in the Asian region, sparked some weakness, or it is possible that fresh restrictions on borrowing in China provided a slight financial tremor. In looking at the developments from Greece overnight, it would seem as if that situation was mostly under control and therefore not the source of the sideways to lower overnight price action. One could also suggest that a very minimal rise in Euro zone GDP and or a decline in UK Halifax house price report were discouraging and possibly a source of minor selling in stocks. Our gut suggests that the initial weakness today, is the result of the Chinese tightening and the need to technically balance stock prices. In looking forward, we are slightly positive as the scheduled numbers today look to be indicative of ongoing growth and since the US Fed Beige Book yesterday afternoon also conceded to growth across most US Federal Reserve districts, the overall macro economic view should remain positive. However, it would seem like the US Administration is once again poised to push for the Volcker rule and that should be considered a limiting development.

S&P 500: Unfortunately for the bull camp, up trend channel support is seen all the way down at 1100.30, with a closer-in support level seen at 1112.80. We see a critical pivot point this morning into the scheduled US data, as the market has already managed a slight technical correction and the failure to bounce off decent US numbers and the initial results from the Greek auction would suggest that the bull camp is losing its desire.

DOW: The March Mini Dow showed some patently bearish technical action overnight as it managed to take out the prior two session’s lows. However, up trend channel support in the March Mini Dow is seen at 10,308 and that up trend channel support line rises to 10,335 on Friday. The market seems to be partially undermined, as a result of the renewed push for the Volcker exclusion and that might mean the US scheduled data will have to be distinctly positive this morning in order to rekindle speculative buying interest in the market, especially ahead of the ultra critical monthly payroll report on Friday morning.

NASDAQ: The March Nasdaq comes into the action this morning waffling around both sides of the 1850 level. Critical support is seen down at 1842.75 today and a failure of that level could promote noted stop loss selling pressure. Apparently some players are fearful of the monthly US payroll report on Friday morning and that should make today’s rather active flow of scheduled data rather important. In fact, unless the Greek debt sours from an initial favorable standing we suspect that liquidation pressure might be limited and easily reversed by US scheduled data flows.

TODAY’S MARKET IDEAS: Some technical corrective action underway and since anxiety off the Greece situation looks to be tempered, the market should be able to bounce off US data flows.

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Apparently Treasury prices were lifted late Wednesday in the face of some initial weakness in global equity prices, but it is possible that prices might have been lifted by early reports of yet another earthquake ( centered in Taiwan). Clearly Treasuries were lifted in the wake of the Fed Beige book yesterday perhaps because the Fed merely acknowledged the impact of severe February weather on the numbers and that theme has been offered up as an impact on the Friday numbers. However, the Fed Beige Book also noted growth across most Fed sections even though they made note of the weather impact. With the additional commentary that “layoffs slowed” and that hiring plans were anemic, that probably signaled to the market that the US jobs sector remains weak and with the key monthly reading just ahead, that prompted the Treasury market to recover and perhaps to see some fresh outright buying for a speculative play on the Friday payroll reports. We also think that renewed talk about the “Volcker Rule” rekindles some concern that Treasuries might once again be one of the few investments available to Banks. It also seems as if the Greece situation is mostly under control overnight, as that country launched a debt offering today and the results early on seemed to be mostly OK and that could serve to drain some flight to quality buying interest from the Treasury market.

In looking ahead to the scheduled data flow today, the markets will see a very active flow of data, with the weekly claims data, Pending Home sales and Factory orders. There is also a US Productivity reading to be released today and we suspect that will be supportive to Treasuries, as the job market remains soft enough, that employers are continuing to squeeze out production from an aggressively trimmed work force. However, until there is a higher degree of uncertainty on the hike/no hike question, the Productivity reading shouldn’t be seen as an overly important reading. In the other reports, the trade seems to be expecting a modest gain in Factory Orders and also in Pending Home sales and that could be limiting for Treasury prices, but only if the claims data, released ahead of the second set of data, manages to show some declines.

In conclusion, we think that the claims data will be the most important data of the day, with the Pending Home sales report, the report that might be capable of providing the biggest surprise. Therefore, we think that the upside will remain limited by the data today, with the June bonds potentially finding it difficult to rise above 117-17 and Notes above the 117-18 level. In fact, if the claims data shows the type of declines predicted by some economists, the Treasury market could see a mostly bearish track throughout the morning trading session. We suspect that ranges might be narrowed later today due to the US Non Farm payroll report on Friday morning, unless of course the stock market takes out the Tuesday lows off some fresh disconcerting development.

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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has seen a choppy two sided trade overnight but the market seems to have a positive bias since oil has so far held up fairly well despite the bearish API reading. API reported a jump in oil stocks that were twice as high as expectations but the trade seems to be instead focusing on a much sharper than expected decline in distillate stocks. A weaker Dollar and firmer Euro have also provided some price support to crude oil in the early going on rising investor risk appetite. Also, news that Greece has adopted more austerity measures seems to be providing a bit of macro economic optimism to the oil markets. But so far the buying conviction in crude oil up at these high price levels hasn’t been that strong leaving the market still looking a bit fragile. While macro economic sentiment seems to have improved, the demand outlook for oil remains sketchy typified by news that Japanese crude oil stocks fell to a three month low on week refinery demand and inventory adjustments ahead of Japan’s fiscal year end in March. Oil markets have been closely following the ebb and flow in the equity market and overnight gains in oil have likely been limited by a lack of clear direction in equities which have only managed to edge higher at times despite the positive news on Greece. But crude oil may be in a holding pattern ahead of a variety of market impacting reports on inventories, US service sector growth and private employment. Most traders are expecting the EIA report to show a 1.3 million barrel gain in oil stocks and a rise in gasoline stocks, but a nearly 1 million barrel drop in distillate supplies. But in the end, the economic news and outside market influences may have more of an impact on oil market direction, especially if the inventory report comes in close to expectations. While April crude oil has consistently failed up at these price levels, the market has also held around the 40 day moving average on price breaks which comes in at $78.04 today. Yesterday’s probe above the February high would also seem to give April crude oil more of an upward tilt. We get the sense that crude oil will make another upside run attempt this session and seeing a close over yesterday’s high will put April crude oil on course to test the January high. But if another failed rally attempt is seen, we suspect the $78.00 in April crude oil is likely to hold.

GASOLINE: Gasoline has also seen a choppy two sided trade overnight and to the bull camp’s favor it is impressive the market has held up so far despite the API reporting a higher than expected rise in fuel stocks. Gasoline has led rally attempts in the complex on optimism that improving economic conditions will raise fuel demand this spring which could tighten supplies if refiners keep operating rates below average. There is a strong tendency for gasoline prices to rise through April and this view has attracted buyers on price breaks in gasoline. But the upside so far in gasoline has been capped by high fuel supplies and demand readings that remain weak despite signs that economic conditions are starting to improve. In fact, the latest retail pump survey showed a 1.1% rise in gasoline demand last week compared to a year ago, but the four week average demand reading was still slightly weaker than a year ago. Traders are expecting to see more than a 500,000 barrel rise in gasoline stocks in today’s EIA report. But like crude oil, the gasoline market seems to have more of an upward tilt and if today’s news flow is generally positive, we suspect it could be enough to support a rally in April gasoline to test the February high. But if the market falls back on bearish news, we suspect a break in April gasoline will be limited to support at $2.1358, the market’s 40 day moving average.

HEATING OIL: Heating oil has seen a higher trade in the early overnight action with price support coming from yesterday’s bullish API report which showed a much larger than expected decline in distillate stocks, which fell despite a rise in the refinery operating rate and higher production. Reports that Chile may need to import diesel fuel, some US refinery snags and cold weather this week may be other factors providing some price support heating oil. But despite the inventory drop distillate supplies remain at record high levels for this time of year and that may still be a stumbling block for the bull camp to overcome. So far the upside in April heating oil has been capped at the $2.10 price level as the market has lacked a strong enough demand outlook to support higher prices. Therefore, we suspect the heating oil market will need a combination of bullish inventory and economic news along with supportive outside market influences, particularly from equities in order to make a clean break above the February high. Otherwise, look for April heating oil to fall back towards support near $2.0064, the market’s 200 day moving average.

TODAY’S ENERGY MARKET GUIDANCE: Oil markets seem to have an upward price bias giving the bull camp an early edge. But oil markets also look fragile at these higher levels and will likely need a bullish news flow today to inspire an upside breakout of ranges.

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OUTSIDE MARKET DEVELOPMENTS: With the outlook for the Greece situation seemingly improved by the latest austerity program and equity market action generally upbeat over the last 24 hours, that seems to have left physical commodities like the metals markets in favor. Apparently many markets have taken hawkish US Fed dialogue, as a sign that the US economy continues to progress toward recovery, even if scheduled data has failed to register much in the way of recovery progress. Therefore it is possible that many markets might simply discount a series of private jobs reports today. The markets will also see a US ISM Non Manufacturing release later this morning and a Fed Beige Book early this afternoon. However, with the US monthly non farm payroll reading due out on Friday morning and one of the private jobs reports this morning showing an improvement it is possible that the bull camp will lessen their concern toward the Friday numbers. As in the prior trading session, the action in the US equity markets look to be a major influence for gold and silver prices.

GOLD MARKET FUNDAMENTALS: In looking at the magnitude of the gains in gold in the prior trading session, one almost got the impression that “investment interest” was returning. Clearly a weaker Dollar and rising equities gave some credence to the prospect of recovery ahead, but in some cases it almost appeared as if hawkish US Fed dialogue was being interpreted as a development that signals a recovery in the US economy. In the end, seeing a rally in gold prices in the face of hawkish Fed dialogue and also seeing strength in the face of mostly slack US scheduled data has to embolden the bull camp and discourage the bear camp. It does appear as if favorable Indian demand patterns have provided some support to gold prices, but many traders think that gold strength is generally coming from outside or bigger picture elements. At least in the early action today, it would appear that calm in the Greek situation will give the bull’s some added confidence, while the bear camp will attempt to play up the prospect of weak jobs news from the US economy. For most of the last two months, the gold market has acted like a physical commodity market and therefore the tight correlation with equities is likely to continue to impact gold prices.

SILVER MARKET FUNDAMENTALS: The Silver market has managed another new high for the move today and in the process it has managed to rise within close proximity to the 100 day moving average of $17.33. Clearly silver appears to be up beat toward the prospect of global growth, in the wake of an improvement in the Greek situation. It almost seems as if silver and other physical commodity markets have taken overtly hawkish dialogue from the US Fed, as a sign that the US economy “must” be improving. In other words, if the Fed is feeling the need to tighten, they must be seeing signs of progression in the US economy. In the short term, weakness in the Dollar and a lack of concern toward the economy looks to favor the silver bulls, while the bear camp will look to potential weakness in upcoming US jobs figures and further debt problems to stem the current rise in silver prices. The bear camp might also be hopeful that US monthly payroll readings on Friday morning will serve their case better than the economic psychology seen in the first three days of this week. In the end, classic supply and demand news in silver is minimal and seemingly unable to unseat the focus on outside market forces.

PLATINUM: Another new high for the move leaves the bull camp with clear control over platinum prices. A weaker Dollar and a pattern of positive spin on the economic outlook looks to add to the upward momentum in platinum. With the added support from a possible platinum strike in Australia, the platinum market is getting both internal and external fundamental support. Next upside targeting in April platinum is seen at $1,584 and again up at $1,594. While we have a gut concern that economic views are overly optimistic, it probably won’t pay to stand in the way of this market in the coming trading session.

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May copper is positively positioned in the early going today. With a weaker Dollar and generally up bear macro economic views, the bull camp has more ammunition than the bear camp. Limiting the upside in copper are beliefs that Chilean production won’t be seriously derailed because of the quake. While we can’t deny some upside action today, we are uncomfortable chasing copper prices higher off the current macro economic view. However, May copper will probably see some noted support off the even number $3.40 level, but we wouldn’t be surprised if the private jobs readings serves to temper the bullish attitude a bit in physical commodity markets later this week. On the other hand, some traders are taking notice of a small number of daily LME copper stock declines and suggesting that is the beginning of a pattern and that is another example of the market spinning marginal developments into a positive event.

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With US economic numbers disappointing the trade, the Greece situation remaining unsettled and the Obama Administration setting the stage for yet another assault on Health care reform, there are clearly more bearish influences than bullish influences in the marketplace. With Washington aiming its blame gun at health insurers and Congress moving to repeal a Federal Antitrust exemption for health insurers, it would appear that another industry is about to be ransacked. Typically seeing the US Federal Reserve Chairman promise lingering low rates is seen as a positive and at times the stock market yesterday even seemed to rally off the idea that soft US numbers would insure lingering low rates. In other words, the market tried to shift back into a position where soft numbers serves to temper the fear of higher rate. However, the market doesn’t even seem to be able to consistently embrace the soft number/higher equities theme, perhaps because some don’t believe the Fed, while others are just afraid of further anti growth measures coming from Washington. Mix in what could be a deteriorating Greece situation and there appears to be more risk than reward in the current market.

S&P 500: Critical up trend channel support is seen at 1094.80 today, but we have to think that support levels could be violated, given the docket of political and economic events scheduled for today. In fact, to alter the down trend pattern in the S&P would probably require a rally back above 1105.20. If the durable goods report disappoints early today, we suspect that bearish sentiment will dominate.

DOW: With a pattern of lower highs in the March Mini Dow this week, it would seem like the bear camp has the technical edge. In fact, the market was unable to benefit from potentially supportive corporate headline news and clearly the scheduled macro economic news this week has been discouraging. Today the markets probably won’t have as much support off Fed testimony (because it is the second day of testimony) and that could make the mid day auction results a bit of a negative for equity market sentiment. Critical support in the March Mini Dow looks weak at 10,299, with the market potentially unable to avoid a slide down to and below 10,250.

NASDAQ: Like the Mini Dow, the Nasdaq has a pattern of lower highs on the charts and it is likely that the March Nasdaq will see a slide below the even number 1800 level today. With a lower early US trade this morning being seen despite a series of favorable corporate earnings news items from the European markets it is clear that the trade is still looking at the glass as half empty. Critical up trend channel support is seen today at 1797.65, but we can’t argue against a return to the February 23rd low of 1785.

TODAY’S MARKET IDEAS: Too little reward seen today in the face of rising political and economic uncertainty.

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The Treasury market had the benefit of Bernanke comments in the prior trading session, as slack auction results could have sunk prices, but apparently the promise of holding US rates down ruled the trade. With Bernanke pointing to a stubborn job market and low inflation as justification for the Fed’s on-hold strategy, the market was able to reach up to the highest level since February 10th. Treasury prices have remained just below the prior session’s highs through the overnight action, with residual Greece concerns and marginally lower global equity prices providing the bulls with the edge. With a Greek official lashing out against the German people and questioning the intelligence of EU leadership, one gets the impression that the negotiations between the two entities is on the rocks again. With protests continuing in Greece, a major ratings agency has suggested that a downgrade could be forth coming. Therefore, Treasuries are poised to get some residual flight to quality support, which comes on top of a very disappointing US new home sales report on Wednesday morning. In short, the outlook for the US recovery is suspect again and support from flight to quality angles is expected to continue to surface. However, the market will be presented with the last round of Treasury auctions later today, with $32 billion in 7 Year notes to be floated and that could take away some of the early gains in prices. Ultimately, we suspect that ongoing concern for the slow pace of the recovery is capable of offsetting what is expected to be slack demand for the longest maturity in the current auction cycle. With residual slowing fears seen from international economic readings, ongoing Chinese tightening fears and the recent flow of slack US numbers, it is possible that the fear of supply will simply be glossed over today. In fact, the Durable Goods report might be discounted this morning, especially if the report shows an as expected modest gain of only +1% to +1.5%. In other words, it will take a definitively stronger than expected US Durable Goods report or something favorable from the claims data just to alter the upward tilt in Treasury prices. We suspect that Bernanke testimony today will carry less weight because his views were presented in the prior trading session. However, one should not expect to see aggressive gains in US Treasuries unless that action is prompted by a severe breakdown in the Greece situation or by a very hard slide in US equities. In the end, one has to concede to a slow grinding rise in Treasury prices in the early action today, with the gains tempered into and through the mid day auction results. Given the economic setup today, June bonds might see little in the way of resistance until the 117-00 level, with similar resistance in June Notes not seen until 117-10. For the time being, close-in support looks to present itself at 116-20 in June bonds and at 116-27 in June Notes. In general, expect slow grinding gains on the charts ahead.